Can Co-ops Pay a Livable Wage?

Across the country a movement is building to demand a "livable wage" (or "living wage") for employees. Although there is no official definition, a livable wage is understood to be one that allows workers to fully pay for their basic needs. There are plenty of studies to show that people working for the minimum wage, or even significantly more, still live at or below the poverty line in America. While there is no basic agreement on how a livable wage is calculated, the methodology behind government poverty indicators has been challenged, and advocates of a livable wage have come forward with new measures to determine "how much is enough."

At first the livable wage movement targeted companies doing business with municipalities. Now in many cities any business contracting with or receiving funding or tax credits from the city must pay a designated wage. For instance, Duluth requires covered employers to pay $7.25 an hour if no health insurance is offered, $6.50 if it is, while San Francisco requires $11.75 and $10.00, respectively. Some cities peg the livable wage to a percentage (100% or more) of the poverty level.

So far only businesses that receive city money in some form are subject to livable wage laws. Voters in Santa Monica just rejected an initiative that would have applied a livable wage to all employers in the city with more than $5 million in annual gross receipts. However, local livable wage movements are engaging in moral suasion to induce employers in their area to raise base wages to a targeted amount, and some co-ops are now feeling the heat.

Working model fits cooperative values

Probably all co-op managers and boards want to pay their employees enough to support themselves, as a matter of simple economic justice. Moreover, a livable wage could result in lower turnover, with reduced costs for recruitment and training, and could be a competitive advantage in a tight labor market. However, livable wage advocates are not always concerned with co-ops' ability to be financially viable, nor do they recognize the value of the benefits that co-ops offer their employees. We need a practical working model that fits with cooperative values and is economically sound.

In response to this need, Cooperative Grocers' Information Network (CGIN) is sponsoring the Livable Wage Model Project. The purpose of the project is two-fold:

1. To develop a formula that co-ops across the country can use to determine a living wage level for their local area.
2. To develop written materials for co-op managers and boards to use in explaining the rationale for the co-op living wage to their staff, members and wider community.

Both the formula and supporting materials will be offered on the CGIN web site by the end of January, 2003. Our concept of the livable wage model is an equation with living costs on one side, income on the other. [See graphic.] On the living cost side of the equation are the outlays required in a geographical area for identified basic needs: food, housing, transportation, health care, etc. On the income side of the equation co-ops need to combine the value of benefits provided by a co-op employer with the livable wage needed to cover the remaining living costs.

The task force studied the methodology used by ten different models. We departed from these models where we felt necessary to reflect the unique nature of natural foods retail co-ops. The supporting materials on the CGIN website will explain our positions in depth and give co-ops choices in how they might tailor the model to their situation.

In developing our model we faced several challenges: deciding who would receive the livable wage, what the basic needs are and how their costs can be determined, and how the model could be adapted for vastly differing circumstances among co-ops.

LIVABLE WAGE MODEL Co-op benefits        + Livable wage          = Living costs Health insurance,
flexible savings account,
flexible savings account
tax savings, retirement
plan contributions, staff
discount, parking subsidy   Food, housing, health
care, transportation,
phone/internet,
recreation, personal
care, savings, and taxes

Who receives the livable wage?

Full-time workers: All the models we encountered were based on the assumption that the employee earning the livable wage is working full-time:

40 hours per week, 2080 hours per year. We agreed with this because we envision the livable wage for careers, not fill-in jobs. Our co-ops are not seasonal industries; they operate year-round.

Entry-level workers: We assumed that the livable wage would be for workers in the lowest-paid regular positions in the co-op, not including those on special "supported employment" programs.

Workers with one year of employment at the co-op: All other models focus on starting pay for new workers. They fail to take into account any impacts on the rest of the wage scale, including employees who have worked for the co-op for many years, and those in jobs with higher levels of responsibility. By targeting the livable wage for people with a proven record and job skills, we are reinforcing our vision of co-op jobs as a career.

Single workers vs. those with families: We developed formulas for calculating a livable wage for a single person living alone and for a family of four with one child in school and one in day care, both parents working full-time at a livable wage and splitting the family costs equally. It's true that the entry-level workforce at most co-ops tends to be young and single, but we did not want to assume it must always be that way. The results of our calculations showed that for many geographical areas, a livable wage to support a family would be unsustainable for a natural foods grocery store competing in the marketplace. This was disappointing to us. On the other hand, we do see a livable wage for single employees as a reachable target. As part of the Livable Wage Model we will provide resources to co-ops for calculating a livable wage both for single people and for families, including costs of child care.

Under no circumstances would we advocate different wages for different employees based on family size. Some of us worked in co-ops that followed this practice in the 1970s and '80s, where the ironic consequence was a disincentive to hire workers with families because they cost too much for the labor budget.

What is covered?

On the living cost side of the equation:

Food: We chose the USDA Moderate-Cost Food Plan, which assumes that all meals and snacks are purchased at stores and prepared at home. All other models use the Low-Cost Food Plan, but since we are businesses promoting healthy natural and organic foods, we wanted to allow for more money to spent on higher-quality food.

Housing: Like all other models, we are using HUD's Fair Market Rent, set at the 40th percentile of rents for a one bedroom apartment in a given area. This number includes all utilities except telephone.

Health care: The cost of insurance takes up the lion's share of health care costs. This is based on the monthly premium, whether the employer pays the whole amount or not. But how to calculate out-of-pocket medical expenses? Given the diversity of insurance plans among co-ops, some built around deductibles, others built around co-payments, it is no easy task to come up with a formula. We will provide several approaches based on the experience of the co-ops represented on the task force. For co-ops that don't offer health insurance, we will provide a web site to get quotes for individual insurance plans in different states.

Transportation: This expense involves public transportation, car maintenance and insurance, gas and oil, and trips to work. This data will be available from the National Household Travel Survey based on the 2000 census.

Phone and Internet Access: For basic phone service (no bells and whistles) we turned to local phone company rates, while for Internet access we chose typical monthly fees of national providers.

Entertainment and Recreation: Although all but one livable wage model exclude these types of expenses, we felt that this was an important part of quality of life. We are allowing a modest amount for purchases of tickets to entertainment and sport events, sports equipment, reading materials and cable TV service.

Personal Care: Using the methodology of one model, we are assuming that the costs of personal care products and services and clothing will run at 10% of the costs of other basic needs.

Savings: While all the other models specifically exclude savings, we agreed with Alternatives Credit Union in Ithaca, N.Y., that the way out of poverty is to build assets. Therefore we are assuming a modest level of monthly savings both in retirement accounts and in more liquid form.

Taxes: We are developing a worksheet that will allow co-ops to figure the pre-tax income needed to cover the basic costs listed above and pay federal and state income taxes, assuming the standard deductions. (Sales taxes are covered in the costs of items purchased, and property taxes are included in rent.)

On the income side of the equation:

The following benefits address at least some portion of the living costs on the other side of the equation:

• Employer-paid portion of health care premiums
• Employer contributions to flexible savings accounts
• Tax savings from flexible savings accounts
• Employer contributions to retirement plans
• Staff discount
• Parking subsidies

By calculating the value of benefits and subtracting them from the costs of living on the other side of the equation, you can come up with the livable wage.

One of the most challenging issues for the task force was the sense that we were somehow dictating how other people should live. While we all want to see a wage that allows employees to meet basic needs, we understand that individuals will make their own choices with the resources they have. By offering the Livable Wage Model, we hope to give co-ops a methodology that has integrity and makes sense in the real world of business, while offering the flexibility to make choices that fit the values and circumstances of each co-op.

Funding for the Livable Wage Project comes from the generosity and vision of GreenStar Co-op in Ithaca, N.Y., Brattleboro Food Co-op in Brattleboro, Vt., Twin Cities Natural Foods Co-ops, and Cooperative Grocers Association Midwest. As the project manager, Carolee Colter is supported by a task force consisting of Karen Zimbelman of Cooperative Grocers' Information Network (CGIN); Patrice Jennings, general manager of GreenStar; Alex Gyori, general manager of Brattleboro Food Co-op; and Claire Strader, human resources manager of Willy Street Co-op. In addition, the task force has received assistance from Paul Cultrera, general manager of Sacramento Natural Foods Co-op, who has given many hours to provide information from a marketing data base.