The Theater of Tax Windfalls and Corporate Citizenship

I want to respond to the recent rash of companies announcing various employee windfalls, which they are publicly attributing to the recent tax reforms passed by the Trump administration.  In thinking critically about it all, I’m finding myself delving into some of the philosophical underpinnings of my views on wage and labor.  What I’ll attempt to do here is relay some of the thoughts I’ve generated from those explorations, and layer them in with more specific responses to current events. 

 First, a brief note on the phrase "trickle down."  I don't use it here due to the fact that the current phenomenon is something different.  Employers raising wages, improving benefits, or handing bonuses are not, as far as I can tell, part of the effects traditionally predicted by proponents of trickle down economics.  This sort of conservative fiscal policy is purported to stimulate the economy via job creation and capital expenditure, which is then supposed to increase wages in the long-term.  There is no mechanism by which financial gains for businesses can be presumed to lead immediately to higher income for employees, especially not at lower levels, excepting an implicit trust that businesses will respond to gains in ways that are fair-minded (a controversial term, I know, and I will discuss it more towards the end). This distinction will be an important part of my argument.

The context here of course is that Walmart, Starbucks, Apple, Lowe’s, Home Depot, Boeing, AT&T, and others have recently announced various packages of employee investments, mostly comprised of some combination of wage increases, bonuses, and benefits.  Presumably many of those who have not yet made such announcements will follow suit.  Many on the right are touting these stories as evidence for the soundness of conservative fiscal policies.   

It seems like a good and simple explanation at first:  businesses have more money when the tax rate is lower, thus they are able to invest more in employees.  While simple explanations often are best, I think this is a case where seemingly straightforward logic starts to break down with a little deep digging.  A good place to start digging is with a question so basic that it is easy to overlook:  why do it?  In other words, in any given circumstance in which a business is able to invest more in employees, what is the likelihood that they will also be willing to do so.  From the perspective of the businesses that find themselves with a financial windfall from a change in the tax code, why pass on some of that windfall to employees?  Are employers generally of the frame of mind that portions of economic boon should be distributed amongst employees at all tiers?

I am of the opinion that employers generally do not think that way, but first let’s explore the affirmative answer to the question.  If we say “yes,” that employers do generally have the mindset that employees should see some portion of the company’s gains, then we would then want to ask, “Why?”  And it seems to me that any reasonable answer we can give to this question turns out to be unfavorable to many of the arguments made by proponents of conservative economics. 

I think to ground my argument, I need to use a concrete example, and I’ll use Starbucks, which I often do since it’s what I’m most knowledgeable about.  At Starbucks, the lowest wage position is that of the barista.  Wages vary a bit by market, but I happen to know that where I live, the starting rate is $9/hour. Baristas are eligible for raises typically on an annual basis, and there is a cap for that position at $12.15/hour.  Thus for a barista who is tenured enough to be earning $12.15/hour, they are no longer eligible for raises.  So though Starbucks recently announced a second raise beyond the usual annual one, the baristas earning $12.15 will remain at their current rate.

Conservatives will typically see no problem with that scenario.  They will say, “It’s the company’s prerogative to make that cap.  It’s clearly their judgment that they don’t gain any added productivity for barista tenure after a certain amount of years, and thus they decide the max that the position can be worth.”  And that’s a reasonable argument, but it also implies that the company’s profitability, and any increase or decrease thereof, has no necessary bearing on employee wages.  Wages are regulated by the market and the valuation of the skills required to perform the work.  Profits can soar while wages remain essentially unchanged, and that’s perfectly okay.  So posing the question again from that viewpoint: why would an employer have the mindset that business gains should be, to some degree or another, passed down?

The only reasonable answer I can imagine is that it is the right thing to do.  But that’s an answer antithetical to conservative ideas.  If you say that it is the right thing to do for an employer to ensure that financial gains are passed down, you are saying that something beyond market valuation of skills should influence compensation.  You bring things like ethics and fairness into the conversation.  To clarify, I’m not arguing that conservatives by and large want to keep concerns of ethics and fairness entirely out of the conversation about wages.  But I’ve seen a tendency among many to oppose any idea of a distinction between what a particular job “is” worth and what it “should” be worth.  Labor is treated as a commodity - no different from any other commodity - and the only thing that determines its value is what someone is willing to pay for it. 

So now let’s examine the other answer, which I think is more plausible, that, “No, employers are not generally of the frame of mind that profit gains should be distributed to employees among all tiers.”  If this is the case, then we arrive back at our first question:  then why are businesses suddenly making these employee investments?  If they don’t necessarily think that it’s simply the right thing to do, then what is motivating them to do it in this particular context?  I think the answer lies in something that almost all of the announcements have in common:  the majority of the investments (or for some companies, all of the investments) are coming in the form of one-time bonuses. 

Why is that important?  Because it allows them to make a good move for public relations and for employee morale while the news of the tax change is fresh in the public mind, meanwhile not committing themselves to more meaningful investments long-term.  And if it seems I’m just being cynical, consider the timing of some of the announcements.  Walmart made their announcement the same day they announced the closings of 63 Sam’s Club stores.  Starbucks, even though they are not enacting the new investments until April, chose to make their announcement yesterday, ahead of their quarterly earnings call today, in which they had to report yet another quarter of stagnant customer traffic and decelerating same-store sales growth.  These companies will benefit from the new tax code for years to come, while the gains for low-wage employees will be primarily limited to this year.

For another example, look at the specifics of Walmart’s actions.  They were able to tout that they were paying bonuses of up to $1000, while of course the majority of employees would be getting a fraction of that (the bonuses are tiered based on tenure, with only the rare 20+ year employees getting the max bonus.)  As for wage increases, Walmart only increased its starting rate, while the wages for most tenured employees remained where they are.  I actually have a friend who works for Walmart, and his situation may be instructive as to what the typical Walmart associate is gaining:  as an employee of 3 years, he is getting a one-time bonus of $250 and no wage increase.  Altogether, Walmart’s announced investments are coming at the grand sum of  1/10^th of 1% of its total revenues, and roughly half of that are the one-time bonuses, thusly affecting their bottom line this year only.

I’m finding it helpful to keep digging from specific questions on top, down to the more philosophical questions underneath.  If companies are making and announcing these investments for the sake of good P.R. and employee morale, it’s reasonable to then ask why are such actions good for P.R. and employee morale?  In other words, why do people generally think that this a good (or proper or right) response to the tax reform? 

I don’t think it falls into the same category as charitable giving, which is seen as an act of generosity.  I think we tend to see it not as generous, but as fair, don’t we?  To stay on track, keep in mind that I’m not commenting right now on whether fairness should be part of the conversation in this context, only that it is widely part of our collective perceptions.  I don’t think that the general public, and especially not those of a more conservative persuasion, see these bonuses as something the employees are entitled to.  I think it’s more like we see the businesses as voluntarily doing something that is fair-minded, akin to a scenario in a supermarket when a person who is technically first in line but has a basket full of groceries allows the person behind them with one item to cut in front.  The rule of line-forming is simple:  “I was here before you, therefore I’m ahead of you in line.”  If someone voluntarily allows someone to go ahead of them for no particular reason, that would be generous.  If someone allows someone to go ahead of them because of the disparity in the quantity of their groceries, that’s more like what I mean by “fair-minded.”  It’s something that no one is obliged to do strictly by the normally agreed-upon rules, but perhaps implicitly expected to do based on values of fairness and good behavior. 

With all of that in mind, my conclusion is that companies like Walmart, Starbucks, and others are currently acting in a superficially fair-minded way while public eye is upon them, even though they do not typically act this way and such behavior is not part of their core business philosophy.  They are playing upon public perception in a way that is not sincere and not concordant with their normal practices.  Underlying all of this is an exposition of the naivety of the idea that lowering taxes on businesses boosts the economic station of wage-earners from top to bottom, especially in such a straightforward and immediate way as has played out in this recent theater of good corporate citizenship.