Tying Equity Strings on the Semiconductor Subsidies

The Senate recently approved $52 billion in subsidies for the semiconductor industry. Republicans — and many centrist Democrats — have traditionally frowned on such “interventionist” industrial policy. But by wrapping the subsidies in anti-China rhetoric, supporters were able to garner overwhelming bipartisan support.

Senator Bernie Sanders was the lone non-Republican to vote against the deal. While he supports efforts to address the semiconductor shortage, Sanders has cautioned against the saber-rattling tone of the debate, urging instead a more cooperative approach towards China.

The Vermont Independent also objected to giving semiconductor firms a blank check, pointing out that the industry’s top executives have a track record of enriching themselves and wealthy investors while slashing U.S. jobs and shifting production overseas.

In the House version of this legislation, lawmakers should do much more to leverage taxpayer-funded subsidies to advance economic justice — in the United States and in the developing countries where semiconductor companies are likely to continue to do most of their manufacturing.

A White House report points out that the semiconductor industry creates “high-quality, well-paying jobs,” with average 2019 salaries of $163,871. But the pay picture in this sector is complicated for a couple of reasons.

First, any employee average is going to be skewed by sky-high executive pay. As the table below reveals, the 19 publicly held charter members of the Semiconductor Industry Association had average CEO pay in 2020 of $13.7 million.

The Senate bill does nothing to prevent firms from using taxpayer assistance to line executives’ pockets. Do taxpayers really want to subsidize fat CEO paychecks?

On the employee end, median pay is indeed quite high among semiconductor companies that either don’t have manufacturing operations (because they focus on highly specialized research and development) or that subcontract production work to companies in low-wage countries.

Semiconductor firms with large numbers of manufacturing workers on their payrolls tend to have much lower median wages.

At On Semiconductor, for example, 68 percent of the global workforce of 34,500 is engaged in manufacturing. The company’s median worker, a full-time operator located in China, earned just $15,044 last year. The CEO made 684 times as much, with total compensation of more than $7 million.

At Skyworks Solutions, the CEO made $21.8 million in 2020 — 1,271 times as much as the company’s median worker, a full-time factory worker in Mexico who made just $17,148.

With such extreme wage gaps between U.S. and developing country manufacturing wages, the incentive to offshore jobs will persist, no matter how generous the government subsidies.

Lawmakers can help change that dynamic by using the power of the public purse to encourage companies to adopt more equitable business models. In fact, all federal assistance to corporations should include a range of provisions to encourage high-road business practices and deter behaviors that are harmful to society and the environment wherever they operate.

In an amendment that didn’t make it into the Senate bill, Sanders proposed a number of conditions on the semiconductor subsidies, including commitments to:

• Not pay their CEOs more than 50 times more than their global median worker pay (only 3 of the 19 publicly held members of the Semiconductor Industry Association currently fall below that threshold)
• Not buy back their own stock
• Not outsource American jobs overseas
• Not repeal existing collective bargaining agreements and remain neutral in any union organizing effort
• Not misclassify employees as independent contractors to evade tax, wage, and other responsibilities

To help lift up workers at the companies’ overseas operations, the law should also require the subsidy recipients to respect international core labor standards in all operations worldwide, backed up by independent and objective compliance reports.

These standards include the rights to freedom of association and collective bargaining, as well as bans on forced labor, child labor, and employment discrimination. The International Labor Rights Forum has spelled out additional recommendations for ensuring corporate accountability, including social audits of subcontractors.

The Senate missed an opportunity to ensure that taxpayers get the best value for their semiconductor subsidy dollars. But it’s not too late to ensure that this federal assistance both expands U.S. semiconductor production and ensures that the workers who actually produce chips here and abroad receive a fair reward for their labor.