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Far from creating jobs or spurring innovation, some of our CHIPS Act dollars seem to be going directly into the already fat pockets of corporate execs.
It’s been two years since U.S. President Joe Biden signed the CHIPS and Science Act into law. The bipartisan industrial policy statute aims to bring semiconductor manufacturing back to the U.S., address supply chain shortages, compete with China, and create good jobs for American workers. Two years in, however, the law seems to be a better deal for the world’s most powerful companies than for working people.
By some metrics, the CHIPS Act is a roaring success. After awarding over $30 billion to 15 companies, the Commerce Department reports the incentives will create more than 115,000 jobs (78,000 construction jobs and 36,000 production jobs) and incentivize over $350 billion in private investment.
But a closer look suggests major challenges with the policy rollout.
The Commerce Department is still negotiating contracts with award recipients, so it’s not too late to place safeguards on these taxpayer billions to protect workers’ rights and guarantee environmental protections.
For a start, job creation has not been as advertised. Last week Intel Corporation, the U.S. chipmaker that was awarded the largest CHIPS Act subsidy, announced it was laying off 15% of its global workforce. That’s 15,000 jobs lost, far more than the 10,000 permanent jobs the company promised to create in exchange for $19.5 billion from taxpayers.
Intel is not alone in taking public cash and laying off workers. Two weeks after the government announced a $162 million award to Microchip Technology, the company announced furloughs for all employees for two weeks in March and another two weeks in June. This is standard practice in the semiconductor industry: Overwork technicians and machine operators to meet production deadlines, then shutter the factory for a few weeks, forcing employees to use vacation time or go into paid time off debt.
Even setting the furloughs aside, many jobs in the chip industry are hardly lucrative. Last month, workers at Analog Devices Inc. in Beaverton, Oregon began to speak publicly about their compensation. It’s a struggle to survive on their wages, they reported, which average about $21 an hour, and they go years without a raise, all while handling toxic chemicals that can cause cancer, miscarriage, and birth defects.
Unfortunately, the CHIPS Act seems to be subsidizing an industry that exacerbates economic inequality. At Micron Corporation, which expects to receive $6.1 billion federal dollars plus $6 billion from New York state, CEO Sanjay Mehrotra earned $25 million last year, 463 times the salary of the median Micron employee, half of whom earn less than $55,000 per year.
U.S. workers are increasingly interested in labor unions to raise wages and assert dignity, but the semiconductor industry remains staunchly anti-union. Several CHIPS Act recipients have signed agreements with construction unions, hiring union workers to build their new factories. But not one has agreed to remain neutral if permanent production workers decide to organize a union.
Instead of hiring workers or raising wages, some CHIPS Act recipients have other plans for their bundles of cash. A recent study by the Institute for Policy Studies and Americans for Financial Reform Education Fund found that the first 11 CHIPS Act award recipients spent over $41 billion on stock buybacks in the past five years. Stock buybacks artificially inflate the value of corporate shares, enriching executives and shareholders while taking money from payroll, innovation, and productive activity. Although the CHIPS Act explicitly prohibits applicants from using CHIPS funds for this purpose, four recipients plan to spend $14 billion on share repurchases in the coming years.
In short, far from creating jobs or spurring innovation, some of our CHIPS Act dollars seem to be going directly into the already fat pockets of corporate execs.
Communities with new CHIPS Act-funded factories have additional concerns about their new neighbors. Chip making requires vast quantities of water: TSMC in drought-stricken Phoenix, Arizona, expects to use over 17 million gallons a day. The anticipated energy demand of the four largest CHIPS Act recipients is also massive, more than twice the amount used annually in Seattle, though companies try to conceal this by purchasing bogus “renewable energy certificates” to inflate their green energy claims.
And chipmaking employs thousands of chemicals, many known to be poisonous, with no requirement that companies inform the public about the toxins emitted in their air and water. Santa Clara County, where the semiconductor industry was born in the last century, has more toxic Superfund sites than any other county nationwide, a distinction we should strive not to repeat as we restore chipmaking.
As the CHIPS Act reaches its terrible twos, then, it’s time to reconsider the path it’s toddling on. The Commerce Department is still negotiating contracts with award recipients, so it’s not too late to place safeguards on these taxpayer billions to protect workers’ rights and guarantee environmental protections. The coalition I work with, CHIPS Communities United, calls on the Biden-Harris administration to ensure the statute benefits workers and neighboring communities, not just CEOs and shareholders.
Extending the CHIPS program conditions on stock buybacks to all firms receiving federal contracts, subsidies, and grants should be a no-brainer.
The Biden administration is giving companies a leg up in the competition for new subsidies for U.S. semiconductor manufacturing if they agree to forgo all stock buybacks for five years.
The reasoning? These CHIPS program subsidies, explained Commerce Secretary Gina Raimondo, “should be used to expand in America, to out-innovate the rest of the world. Invest in R&D and your workforce, not in buybacks.”
Wielding the power of the public purse against buybacks makes total sense.
Using public funds as a lever for discouraging this practice is good policy. But why just go after semiconductor companies?
Taxpayers want every dollar of their public investments to produce maximum benefits. But every dollar spent on stock buybacks is a dollar not spent on worker wages, R&D, and other productive investments to stimulate long-term growth and make U.S. companies more competitive. Analysts have documented how buybacks are associated with reduced capital investment and innovation and wage stagnation.
And yet in the past two years, S&P 500 corporations spent record annual sums repurchasing their own stock—$922.7 billion in 2022 and $881.7 billion in 2021. In the first half of 2023, share repurchases were down a bit but still an eye-popping $390.5 billion.
What’s the goal of all these buybacks? This financial maneuver artificially inflates the value of a company’s share price by reducing the supply on the open market. That keeps shareholders happy. It also creates huge windfalls for CEOs, since most of their compensation is in some form of stock-based pay, and their bonuses are often tied to financial targets that can be influenced by stock buybacks.
Using public funds as a lever for discouraging this practice is good policy. But why just go after semiconductor companies? Why not all corporations receiving federal funds of any sort?
Chip makers are notorious for their profligate buyback spending. But so are many other companies that are feeding at the federal trough—or stand to do so through new legislation.
Source: Institute for Policy Studies, Executive Excess 2023. *Jassy accepted modest pay in 2022 after receiving a 2021 stock grant valued at $212 million.
A recent Institute for Policy Studies report takes a deep dive into the 100 S&P 500 corporations with the lowest median worker wages, a group we’ve dubbed the “Low-Wage 100.” We found that 51 of these firms are federal contractors, with a combined $24.1 billion in deals during fiscal years 2020-2023. Meanwhile, these 51 low-wage contractors spent nearly $160 billion on stock buybacks.
The largest? Amazon, with at least $10.4 billion in contracts for web services. Since January 2020, the e-commerce goliath has spent $6 billion on buybacks while paying their median worker just $34,195. These share repurchases have helped pump up Amazon CEO Andy Jassy’s personal holdings of Amazon stock to $265 million. These millions do not include the bulk of his 2021 mega-grant, a reward that will vest over 10 years.
FedEx, the second-largest contractor in the Low-Wage 100, pocketed $6.2 billion from Uncle Sam in fiscal years 2020-2023. FedEx spent $3.6 billion on buybacks during this period, a maneuver that helped prop up the value of CEO Fred Smith’s more than $5 billion in personal stock holdings, the largest stash held by any CEO in the Low-Wage 100.
We should view these public funds as a source of power to create an economy that works for everyone.
In 2022, his last year before transitioning to the FedEx executive chair slot, Smith made $10.6 million, 271 times FedEx median worker pay. Unlike competitor UPS, where more than 70% of employees are unionized, FedEx is notoriously anti-union.
Number three on our low-wage contractor list is Johnson Controls. Originally based in Milwaukee, the company moved its headquarters to Ireland in 2016 to lower its U.S. tax bill. But the company continues to receive major taxpayer-funded federal contracts, a haul worth nearly $2 billion in FY2020-2023, primarily for upgrading federal buildings to a more energy-efficient status.
The firm could receive considerably more federal support over coming years, thanks to new infrastructure and energy legislation. Under CEO George Oliver’s leadership, the firm has spent $4.5 billion on stock buybacks since 2020. That contributed to a 139% increase in his personal stockholdings, to $131.7 million. In 2022 Oliver made 314 times as much as his typical employee.
Extending the CHIPS program conditions on stock buybacks to all firms receiving federal contracts, subsidies, and grants should be a no-brainer. It would complement President Joe Biden’s support for other tools for reducing buybacks, including his proposal to quadruple a new 1% excise tax on share repurchases.
The administration could also do much more to leverage the power of the public purse against extreme pay disparities. The proposed Patriotic Corporations Act could serve as a model. This bill would grant preferential treatment in contracting to firms with CEO-worker pay ratios of 100 to 1 or less, among other benchmarks, including neutrality in union organizing. The Congressional Progressive Caucus has called on Biden to introduce such incentives.
By encouraging big companies to narrow their pay gaps, the administration would also help ensure that taxpayers get the biggest bang for the buck for federal contract dollars. Studies have shown that companies with narrow gaps tend to perform better because more equitable pay practices tend to bring out the best in all employees.
The administration should also build on Biden’s executive order requiring large construction firms involved in public infrastructure projects to negotiate collective agreements with their workers. Unions and other pro-worker advocacy groups have called on the president to expand that requirement to contractors that provide goods and other services.
In fiscal 2022, Uncle Sam awarded more than $705 billion in unclassified contracts (and an undisclosed amount of classified contracts). Billions more go out the door every year in the form of subsidies, grants, and tax credits.
We should view these public funds as a source of power to create an economy that works for everyone. Public money should support the public goodnot line the pockets of overpaid CEOs.
The lack of investment in the care sector not only jeopardizes economic growth but also perpetuates a disregard for the significant contributions of care workers—contributions that have gone unnoticed for far too long.
The pandemic spotlighted the indispensable role care workers play in upholding the health, well-being, and economic equilibrium of individuals, families, and communities. Amid widespread care center closures, millions of Americans found themselves devoid of care worker support, leading to a marked decrease in labor force participation, especially among women.
Next month, Americans may once again experience a critical gap in care services if funding from the American Rescue Plan’s childcare stabilization fund is not renewed. One year after the Inflation Reduction Act’s and CHIPS and Science Act’s extraordinary investments in clean energy and semiconductors, it’s clear that industrial policies work and that the care sector is in dire need of investment.
Presently, more than 4.8 million Americans provide care work such as childcare, eldercare, and health and disability services. When we add teachers to this equation, the number balloons to 12.2 million workers—amounting to about 7.6% of the total workforce. This care workforce endured some of the harshest working conditions during the pandemic, deepening the legacy of systemic worker exploitation in the industry.
Policymakers have not undertaken successful initiatives to enhance working conditions for care workers or to modernize the sector to better align with the nation’s care needs.
As a result, more than 230,000 workers have transitioned from care work since February 2020. Childcare worker employment has plummeted by 101,000, and care aides and assistants have seen a reduction of 141,000 since the pandemic started. Additionally, the number of elementary and middle school teachers has dwindled by 4.4%, resulting in approximately 16,000 fewer educators.
This decline in care work employment stems largely from a decline in new entrants to the field, as younger women have opted for other industries instead. Yet, policymakers have not undertaken successful initiatives to enhance working conditions for care workers or to modernize the sector to better align with the nation’s care needs. In the absence of adequate public investments, employment in the care work sector is expected to continue its decline.
This vacuum has far-reaching economic implications, affecting labor force participation, productivity, and prices—the foundations of economic growth (Lagarde and Ostry 2018). Data shows that while prime-age women’s participation increased, the decline in labor force participation among women over 54 has offset this positive trend—dragging down the overall labor force participation rate of women.
Additionally, the dearth of healthcare support workers—nurses, psychiatric aides, occupational therapy assistants, home health aides—has overburdened existing staff, leading to burnout and high turnover. Consequently, patient care levels have suffered, culminating in adverse health outcomes. As an aging population grapples with a rise in pandemic-induced disabilities, the demand for care services is set to soar, driving up medical care expenses. The anticipated need for 2 million healthcare occupation jobs by 2031 indicates an impending surge in medical care costs that could accelerate inflation.
The lack of investment in the care sector not only jeopardizes economic growth but also perpetuates a disregard for the significant contributions of care workers—contributions that have gone unnoticed for far too long. President Joe Biden proposed investments in the care sector in 2021 as part of his Build Back Better legislative package, but those provisions were cut in negotiations with Congress over the Inflation Reduction Act.
As implementation of the IRA continues, care work still deserves to be one of the administration’s primary issues. In the absence of an industrial policy that bolsters care work, investments in various industries and the broader economy will be severely compromised, as will the economic security of care workers.