Day labor: investors' new dilemma?

Socially responsible funds screen out firms that abuse workers overseas. But low-pay, no-benefit labor here in US gets no scrutiny.

Before the sun rises, poor and unskilled workers line up at meeting spots across the country for a shot at a day's pay for a day's work. By sunset, these "day laborers" commonly see their $5.15 per hour slashed by more than 10 percent after the hiring agency has extracted certain fees. These fees mean these workers earn less than minimum wage. At least one state has outlawed such practices. But for the most part, they occur day in and day out with little attention from government or nearly anyone else - including socially responsible investors.

"To the best of my knowledge, there is nobody [in the investment world] taking a look at this, and this is an issue I follow day in and day out," says Ruth Rosenbaum, executive director of the Center for Reflection, Education and Action, a Hartford, Conn., think tank for economic research and activism. "Everybody is upset about outsourcing, but you also have to look at outsourcing in the US because this is what's going on.... The whole system preys on those who are most vulnerable."

Day labor isn't an easy issue to sort out ethically. On the one hand, it lets people earn money, gain experience, and possibly move to full-time jobs. On the other hand, critics say, it can lead to abuses and exploitation of immigrants, the homeless, and other disadvantaged populations.

In other words, the issue is tailor-made for the kind of scrutiny that ethical-investment managers practice.

"You see the leaders in social investing saying labor is a high priority for them," says Timothy Smith, president of the Social Investment Forum, an association representing the socially responsible mutual-fund industry. But day labor is operating under the radar of social investors and social-justice groups, he adds. "It would be an appropriate fit for social investors to look at it."

In the absence of any comprehensive national study, the scope of day labor is unknown, although statistics gathered from the industry and the US Department of Labor suggest that upwards of 1 million people might be doing unskilled day labor through agencies each year. Some are illegal aliens, but by no means all. The biggest player in the industry, Labor Ready Inc., leads the unskilled niche with 600,000 documented workers, according to company spokeswoman Stacey Burke.

Tracking such labor is difficult because public companies don't have to disclose how much they rely on day labor or which temporary staffing agencies they use.

Some social activists support the practice. At the Davie, Fla., office of the Homeless Voice newspapers, for example, phones ring all week with requests from Labor Ready and a host of other agencies in search of homeless persons who are unskilled, able-bodied, and available. One day they might work at a south Florida hospital, another at Pro Player Stadium, where the Miami Dolphins and Florida Marlins play. Despite what critics say about day labor, Homeless Voice founder and advocate Sean Cononie is happy to provide them with names.

"I feel that they're giving [the homeless] a chance," Mr. Cononie says, noting that 35 percent of the homeless suffer from mental illness. "If they're depressed and can't come to work for a day or two, they won't lose their job."

That's just one of the benefits for day laborers, according to Jeffrey Burnette, chief executive officer at Labor Finders International, a private company franchising more than 200 offices in 27 states. The firm provides day laborers to companies of all sizes, including some on the Fortune 1000 list, he says.

"This may ultimately provide a bridge for them to get permanent employment," says Mr. Burnette, who also represents the day-labor sector on the board of the American Staffing Association. "If there's a person who has liked a person and offered them a job, we're happy to hear that."

In Chicago, 75 percent of homeless shelter residents had worked day labor within the prior year, one study found. Agencies abound to deliver these willing workers to wherever they're needed, as seen through the 548 day-labor franchises registered with the Illinois Department of Labor. In an age of cost-cutting, Chicago's many manufacturers of household products are among the growing number of big companies jumping at a chance to pay as little as $6.80 per hour for workers to pack boxes, move shipments, and haul trash, according to Nik Theodore, director of the Center for Urban Economic Development at the University of Illinois at Chicago.

"In no way is this limited to fly-by-night employers," Mr. Theodore says. "The cost savings have been very attractive [to large corporations] as a way to make what were fixed costs variable." By using day laborers, leading companies don't have to pay for unemployment benefits or worker's compensation or to endure any number of sticky human-resource issues. Given all this, he says, executives should be well-positioned to describe for shareholders the benefits and costs of the new labor reality.

"It does seem somewhat implausible that the client companies [of day labor firms] have no idea that workers are being paid such low wages," Theodore says.

There are other ethical questions too. Labor Finders hires lobbyists in various states to make sure they don't go the way of Chicago, which banned the practice of charging transportation fees for day labor. In Arizona, new laws prohibit common practices used in other states, such as charging fees that reduce hourly pay rates to levels below the minimum wage.

Arizona also outlawed day-labor agencies from requiring its workers to sign a pledge that they wouldn't take a full-time job at a client company for at least six months. The latter practice, advocates say, keeps workers doing day labor in perpetuity.

Labor Ready, a public company, finds itself frequently screened out of socially responsible portfolios as researchers cite a number of red flags in the firm's history. Two examples include a pending class-action suit brought by former employees in California and a $150,000 settlement in December 2002 with Arizona workers who claimed the company illegally charged them for check-cashing services. When asked about these and other issues, Labor Ready declined to respond. "Our goal is to be fully compliant with state laws [and] to set the standard for ethics" in the industry, says Ms. Burke of Labor Ready.

Despite such high-profile cases, leading organizations in ethical investing have seldom if ever engaged companies to find out the contractual terms of their day laborers. KLD Analytics, which studies company policies for about 250 money managers and mutual funds, asks firms to vouch for the labor practices of their suppliers, yet it does not investigate which staffing firms a company might use for its own day labor, according to research director Eric Fernald. At Walden Asset Management, where Mr. Smith is senior vice president, the question of day labor also goes unexplored. At Pax World Funds, social-research director Anita Green says requests for day-labor screens have never crossed her desk.

Since public documents don't reveal which companies use which day-labor firms, activists believe the place to start is to ask executives to clarify what standards they expect from day-labor firms. To file shareholder resolutions on this issue, "would absolutely be breaking new ground," says Dr. Rosenbaum of the Center for Reflection, Education and Action.

But some advocates might hesitate to point out problems, she adds, because their institutions are apt to have problems of their own.

"Anybody who [owns or rents space] in a building has to realize there's a good chance they're hiring day laborers to clean their offices," Rosenbaum says. "It's not just pointing a finger at these for-profit companies, but taking a look at how these arrangements are part of the operation of every institution."

With legislative action largely blocked by industry lobbyists, the ball rests primarily in the court of ethically minded investors to insist that the companies they own raise expectations of the firms they use, according to Karin Uhlich, executive director of the Southwest Center for Economic Integrity in Tucson.

"Any company that's going to use this type of staffing firm should ask them some pretty pointed questions," Ms. Uhlich says. "It's a matter of ensuring that the homeless won't be getting exploited for the sake of the company's profits."

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