August 2, 2013
What Would Happen if Retailers Paid Higher Starting Wages?
The topic of retail employee wages has gotten more attention lately with workers at fast food restaurants picketing in major cities across the country and Walmart threatening to scrap plans to open stores in Washington, D.C. should a living wage bill go into effect there.
Those supportive of the chains can point to several reasons why paying workers higher wages is a bad idea, but none hold greater sway than the argument it would increase prices to consumers, thereby putting companies at a competitive disadvantage. But just what would raising wages to $12 or even $15 an hour mean to prices?
In the case of Walmart, the most widely cited study comes from the University of California, Berkeley Center for Labor Research and Education. It estimated that if the chain passed along 100 percent of the increase associated with starting all its workers out at $12, it would increase the average shopping basket by 46 cents per trip or $12.49 a year for a consumer who spends $1,187 a year at Walmart. With a pricing advantage of between eight and 27 percent in food, for example, Walmart would still have a sizable competitive edge.
Another argument against raising wages — and therefore prices — for Walmart is that it would disproportionately hurt poorer consumers. The UCal Berkeley research addresses prior research studies which support this thesis and finds that more people in poverty would be helped by higher wages than hurt by costs that are passed along.
To muddy the waters, a so-called researcher at the University of Kansas released numbers this week showing that McDonald’s would only have to increase the price of a Big Mac by 68 cents if it doubled wages from $7.50 an hour to $15. As it turned out, Arnobio Morelix, an undergrad at the school, made some significant errors in his calculations, causing publications and websites to post retractions.
In the place of Mr. Morelix’s numbers come some from the Employment Policies Institute, a research organization that focuses on issues related to entry-level employment. According to the group, the price of a Big Mac would increase $1.28 if McDonald’s paid $15 an hour to start.
Dean Baker, co-director of the Center for Economic and Policy Research and blogger for The Huffington Post, said doubling fast food workers starting wages would cost jobs. On the plus side, however, he said the extremely high turnover rates at McDonald’s and elsewhere would be reduced significantly.
- Will Walmart Bail on Washington Over the ‘Living Wage’ Bill? – RetailWire
- Living Wage Policies and Big-Box Retail – University of California, Berkeley Center for Labor Research and Education
- Fast Food Workers Kick-Off Nationwide Strikes in NYC in Support of Higher Pay, Unions – brandchannel
- Errors in McDonald’s Wage Analysis – The Huffington Post
- About Us – Employment Policies Institute
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Recent Discussions
Discussion Questions
Is there a different approach to starting wages paid at retail that would bring employers and employees together and benefit not just the parties directly involved, but the national economy, as well?
Poll
It’s already being done with great success. In my opinion, prices would not have to be raised to justify a higher wage, and there would be no meaningful impact on the economy.
Do Costco, Aldi, Trader Joe’s and other higher paying retailers raise their prices to pay for higher wages? No! If McDonald’s, Walmart, or whoever started people out at $12 an hour would simply hire people worthy of that wage, they would have less turnover. Most likely the less than ordinary worker they relied on in the past would be fired and made redundant through changes in their business models.
Fast food and discount retail probably has a plan already in place just in case labor rates were increased. One benefit would be that the less than ordinary worker would have to step it up in order to keep their job and do a better job in selling themselves to their employer, which means a better experience for the consumer. Culver’s, a burger and custard chain, pays their employees a much higher wage. In turn, prices are slightly higher, the employees look like the Stepford children — exceptional quality and service, and their customer base appears to be more refined.
Companies that pay higher than the minimum wage—The Container Store and Starbucks come to mind—enjoy better employee retention and happier customers.
We as an industry are going to have to decide whether we want inexpensive labor that doesn’t have much to contribute to the store experience, or more knowledgeable workers who bring a point of view and real energy to the job. This is less a question about cost and more a question about approach, as the discussion plays out over the next several years.
Paying a living wage should be the goal for all organizations that hire adults. If it’s a part-time job for kids in high school and maybe college, that’s one thing. But adults should not make that amount. It’s a difficult discussion because no one wants to raise prices, but as the costs of living rises, employees owe it to their employees to meet at some common ground. In the case of Walmart, costs rising $.49 per trip, or $12.49 per year, would be worth it to offer a living wage. I’d be interested in hearing what employees as well as consumers think about the proposition of invoking a living wage.
Also, it’s interesting to factor how much it costs to raise a salary $4-$7/hour and those prices are automatically passed onto the consumer. Who foots the bill when executives receive raises?
Obviously higher wages mean a higher cost of doing business, and most likely that would passed on to the consumer unless….
The higher wages brought a better employee, who through better customer service and sales skills might be able to increase a customer’s average purchase. Then, it’s a win/win. And it probably wouldn’t hurt the economy either.
One of the biggest pluses is there would be less turnover and more continuity. Those paying higher wages are those with the best reputation for quality customer service. The Container Store is a prime example.
I think the increase in pay translates to increased talent level, better customer service and lower turnover.
My take is the pay structure is backwards—cashiers should be highest paid in the store as they interact with customers on every transaction and give the final store impression.
Sure…change a lot of anti-business, anti-private sector regulations, legislation, and activity in Washington so consumers and retailers could thrive. In the ensuing boom, with so many people employed, retailers would be forced to pay more for labor, and retailers could afford to do so.
Those who are out there complaining about low wages, striking, or advocating for them will be the losers. If higher wages are put into place, the new VP of human resources will be Charles Darwin. It’s going to turn out badly for the less than ordinary worker and a win win for everyone else.
Speaking from first hand experience, I can say that retailers do need to look at how to change their pay programs to retain top people.
One of my college level kids recently left a major retailer due to the pay issue. He loved the store and had worked from 4 a.m. re-stocking, to floor area lead, to the front (clerk to lead clerk—the guy with the KEY and approval codes). He was the top up-seller in the store and even up-sold his parents.
His problem was the pay. He knew of other retailers and service operations that paid better and finally, sadly had to leave. He had received raises (small), but still they paid too low.
The real pain for the retailer is that kids like my son are on time, stick with their store roles, smile a lot and sell. Many of his associates complained and quit due to the work and customers that were picky.
The pay issue is about holding onto the employees that make your store a favorite. Retailers need to decide…keep the good ones or keep the turnover and people that just do not want to work.
How ’bout this: if you don’t want to pay/take care of your people, just automate your stores and see how that goes. Or, just turn into an online retailer and see how that goes against Amazon.
Everyone now looks at unions as a great evil, but why do we think they form? If, as was mentioned above, you act more like Starbucks and less like a fast food or big box, you will be much better off in the long run, and there will be no union threat.
The premise that increased costs are simply “passed along” is flawed: if people were willing to pay higher prices for the same (quantity of) purchases, then retailers would already charge them; so “estimations” of 100% pass-thru are meaningless.
Similarly, the premise that raising wages will raise the caliber of employees seems to suffer from a fallacy of composition: the supply of David’s tanned, trim Stepfordites is limited—in fact, just recently the NYT ran an article on the shirtless slobs prowling the Big Apple’s byways—and while the best paying companies may get them, all companies (obviously) can’t be the best paying.
But the whole issue is in the abstract anyway: I’m sure 100% of business owners feel they know what the “right” wage is, and I’m sure they’re equally insistent they’re already paying it.
For large chains, it’s likely much easier to keep a tight rein on wages than it is to honestly assess the top line benefits of paying a living wage. As others in this forum aptly point out, there are some excellent examples of retailers who pay well and enjoy excellent price reputation with shoppers—Trader Joe’s and Costco come immediately to mind.
Paying a living wage is a moral and macroeconomic issue for the country, but it’s also an important cultural decision for each employer. I believe a “cheap and nasty” wage policy is likely to permeate a company from bottom to top and hurt its standing with shoppers. (Come to think of it, a cheap and nasty minimum wage is likely to permeate the country too.)
If there is pressure to pay minimum wage to new hires, based on shareholder value or some such excuse, then a wise retailer should consider significant, automatic bumps up in compensation for workers who meet expectation after three, six and 12 months. The associate who moves from $8.50 an hour to $15.00 in a year has a strong incentive to keep their job and project a positive demeanor to customers.
Yes, there’s a different approach: Eliminate the minimum wage. The best way to address this idea is logically, not emotionally. We should leave out words like “deserve” and “entitled” and “fairness” and “living wage,” and plug into our logic circuits.
Recently, Senator Elizabeth Warren (D-MA) asserted that the minimum hourly wage should be $22 instead of $7.25, calculated by the idea that increases in the minimum wage should follow increases in worker productivity since 1960. This without considering that worker productivity increases are almost universally due to reduction in workforces made possible by technology rather than by employees doing more. In other words, employers invested in technology to make each employee hour more efficient. Did the employee do this, thus being deserving of more compensation? No.
Following up on Warren’s half-baked theory, Dr. Arindrajit Dube—a University of Massachusetts economics professor—doubled down by stating that the minimum wage should actually be $33 per hour based on the idea that it should keep pace with the rate of income increases enjoyed by the top 1% of taxpayers. Hey, let’s base it on the increase in the national debt or on the pork barrel spending by Congress since 1960! We’d be looking at more than $100 per hour! How about we base it on the increase in gold prices, or the cost of tickets at Disneyland and Disney World?
These are made-up numbers. The minimum wage is a made-up number. It was never intended to enable a worker to support a family of four, a so-called “living wage.” Instead, it was intended to be an entry-level wage for the totally inexperienced worker who had to be trained and who had to gain experience.
Labor unions are complicit in this debate. As the minimum wage is increased, they can argue that their $50/hr. members should receive a similar percentage increase. This enriches the unions, who in turn campaign for additional increases in the minimum wage.
Bottom-line, the minimum wage actually keeps truly inexperienced folks out of the workforce. The arbitrary attachment of a price to a job, regardless of what it is, does not take into account market forces—the all-important concept which drives, sustains, and sometimes kills businesses that employ entry-level workers with no experience or skills. It would be a good idea to allow companies to pay hourly employees what they’re worth to the success of the business, with opportunities to increase their compensation based on skills and experience.
How about a short term raise in the in the minimum wage due to the recession? Double it for a few years and then take it down once we have recovered from the economy and then lower it until it is back to the previous level over 7 years?
Thinking about the wage scale from the point of view of the worker, however interesting the range of discussion, is looking at this from the wrong end of the telescope. We have diminished effecetive working wages for about 40 years. For the last 15 years, about 60% of the US has been unable to earn enough to keep up with inflation in basic needs. Add in health care, education, and a few other things not captured in the CPI and it is much worse.
If you run a business that depends on consumers being able to consume, you are at enormous risk of losing most of the market potential of the US. Whether retailer or supplier, a prevailing wage rate based on the current minimum is too low to maintain a consumer driven society.
Never mind the morality, the determination of whether this should be mandated, whether it is somehow “earned” or not. At the rate we are going it will be impossible for any business based on a broad consumer population to grow. Save yourselves—pay someone more.
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It’s already being done with great success. In my opinion, prices would not have to be raised to justify a higher wage, and there would be no meaningful impact on the economy.
Do Costco, Aldi, Trader Joe’s and other higher paying retailers raise their prices to pay for higher wages? No! If McDonald’s, Walmart, or whoever started people out at $12 an hour would simply hire people worthy of that wage, they would have less turnover. Most likely the less than ordinary worker they relied on in the past would be fired and made redundant through changes in their business models.
Fast food and discount retail probably has a plan already in place just in case labor rates were increased. One benefit would be that the less than ordinary worker would have to step it up in order to keep their job and do a better job in selling themselves to their employer, which means a better experience for the consumer. Culver’s, a burger and custard chain, pays their employees a much higher wage. In turn, prices are slightly higher, the employees look like the Stepford children — exceptional quality and service, and their customer base appears to be more refined.
Companies that pay higher than the minimum wage—The Container Store and Starbucks come to mind—enjoy better employee retention and happier customers.
We as an industry are going to have to decide whether we want inexpensive labor that doesn’t have much to contribute to the store experience, or more knowledgeable workers who bring a point of view and real energy to the job. This is less a question about cost and more a question about approach, as the discussion plays out over the next several years.
Paying a living wage should be the goal for all organizations that hire adults. If it’s a part-time job for kids in high school and maybe college, that’s one thing. But adults should not make that amount. It’s a difficult discussion because no one wants to raise prices, but as the costs of living rises, employees owe it to their employees to meet at some common ground. In the case of Walmart, costs rising $.49 per trip, or $12.49 per year, would be worth it to offer a living wage. I’d be interested in hearing what employees as well as consumers think about the proposition of invoking a living wage.
Also, it’s interesting to factor how much it costs to raise a salary $4-$7/hour and those prices are automatically passed onto the consumer. Who foots the bill when executives receive raises?
Obviously higher wages mean a higher cost of doing business, and most likely that would passed on to the consumer unless….
The higher wages brought a better employee, who through better customer service and sales skills might be able to increase a customer’s average purchase. Then, it’s a win/win. And it probably wouldn’t hurt the economy either.
One of the biggest pluses is there would be less turnover and more continuity. Those paying higher wages are those with the best reputation for quality customer service. The Container Store is a prime example.
I think the increase in pay translates to increased talent level, better customer service and lower turnover.
My take is the pay structure is backwards—cashiers should be highest paid in the store as they interact with customers on every transaction and give the final store impression.
Sure…change a lot of anti-business, anti-private sector regulations, legislation, and activity in Washington so consumers and retailers could thrive. In the ensuing boom, with so many people employed, retailers would be forced to pay more for labor, and retailers could afford to do so.
Those who are out there complaining about low wages, striking, or advocating for them will be the losers. If higher wages are put into place, the new VP of human resources will be Charles Darwin. It’s going to turn out badly for the less than ordinary worker and a win win for everyone else.
Speaking from first hand experience, I can say that retailers do need to look at how to change their pay programs to retain top people.
One of my college level kids recently left a major retailer due to the pay issue. He loved the store and had worked from 4 a.m. re-stocking, to floor area lead, to the front (clerk to lead clerk—the guy with the KEY and approval codes). He was the top up-seller in the store and even up-sold his parents.
His problem was the pay. He knew of other retailers and service operations that paid better and finally, sadly had to leave. He had received raises (small), but still they paid too low.
The real pain for the retailer is that kids like my son are on time, stick with their store roles, smile a lot and sell. Many of his associates complained and quit due to the work and customers that were picky.
The pay issue is about holding onto the employees that make your store a favorite. Retailers need to decide…keep the good ones or keep the turnover and people that just do not want to work.
How ’bout this: if you don’t want to pay/take care of your people, just automate your stores and see how that goes. Or, just turn into an online retailer and see how that goes against Amazon.
Everyone now looks at unions as a great evil, but why do we think they form? If, as was mentioned above, you act more like Starbucks and less like a fast food or big box, you will be much better off in the long run, and there will be no union threat.
The premise that increased costs are simply “passed along” is flawed: if people were willing to pay higher prices for the same (quantity of) purchases, then retailers would already charge them; so “estimations” of 100% pass-thru are meaningless.
Similarly, the premise that raising wages will raise the caliber of employees seems to suffer from a fallacy of composition: the supply of David’s tanned, trim Stepfordites is limited—in fact, just recently the NYT ran an article on the shirtless slobs prowling the Big Apple’s byways—and while the best paying companies may get them, all companies (obviously) can’t be the best paying.
But the whole issue is in the abstract anyway: I’m sure 100% of business owners feel they know what the “right” wage is, and I’m sure they’re equally insistent they’re already paying it.
For large chains, it’s likely much easier to keep a tight rein on wages than it is to honestly assess the top line benefits of paying a living wage. As others in this forum aptly point out, there are some excellent examples of retailers who pay well and enjoy excellent price reputation with shoppers—Trader Joe’s and Costco come immediately to mind.
Paying a living wage is a moral and macroeconomic issue for the country, but it’s also an important cultural decision for each employer. I believe a “cheap and nasty” wage policy is likely to permeate a company from bottom to top and hurt its standing with shoppers. (Come to think of it, a cheap and nasty minimum wage is likely to permeate the country too.)
If there is pressure to pay minimum wage to new hires, based on shareholder value or some such excuse, then a wise retailer should consider significant, automatic bumps up in compensation for workers who meet expectation after three, six and 12 months. The associate who moves from $8.50 an hour to $15.00 in a year has a strong incentive to keep their job and project a positive demeanor to customers.
Yes, there’s a different approach: Eliminate the minimum wage. The best way to address this idea is logically, not emotionally. We should leave out words like “deserve” and “entitled” and “fairness” and “living wage,” and plug into our logic circuits.
Recently, Senator Elizabeth Warren (D-MA) asserted that the minimum hourly wage should be $22 instead of $7.25, calculated by the idea that increases in the minimum wage should follow increases in worker productivity since 1960. This without considering that worker productivity increases are almost universally due to reduction in workforces made possible by technology rather than by employees doing more. In other words, employers invested in technology to make each employee hour more efficient. Did the employee do this, thus being deserving of more compensation? No.
Following up on Warren’s half-baked theory, Dr. Arindrajit Dube—a University of Massachusetts economics professor—doubled down by stating that the minimum wage should actually be $33 per hour based on the idea that it should keep pace with the rate of income increases enjoyed by the top 1% of taxpayers. Hey, let’s base it on the increase in the national debt or on the pork barrel spending by Congress since 1960! We’d be looking at more than $100 per hour! How about we base it on the increase in gold prices, or the cost of tickets at Disneyland and Disney World?
These are made-up numbers. The minimum wage is a made-up number. It was never intended to enable a worker to support a family of four, a so-called “living wage.” Instead, it was intended to be an entry-level wage for the totally inexperienced worker who had to be trained and who had to gain experience.
Labor unions are complicit in this debate. As the minimum wage is increased, they can argue that their $50/hr. members should receive a similar percentage increase. This enriches the unions, who in turn campaign for additional increases in the minimum wage.
Bottom-line, the minimum wage actually keeps truly inexperienced folks out of the workforce. The arbitrary attachment of a price to a job, regardless of what it is, does not take into account market forces—the all-important concept which drives, sustains, and sometimes kills businesses that employ entry-level workers with no experience or skills. It would be a good idea to allow companies to pay hourly employees what they’re worth to the success of the business, with opportunities to increase their compensation based on skills and experience.
How about a short term raise in the in the minimum wage due to the recession? Double it for a few years and then take it down once we have recovered from the economy and then lower it until it is back to the previous level over 7 years?
Thinking about the wage scale from the point of view of the worker, however interesting the range of discussion, is looking at this from the wrong end of the telescope. We have diminished effecetive working wages for about 40 years. For the last 15 years, about 60% of the US has been unable to earn enough to keep up with inflation in basic needs. Add in health care, education, and a few other things not captured in the CPI and it is much worse.
If you run a business that depends on consumers being able to consume, you are at enormous risk of losing most of the market potential of the US. Whether retailer or supplier, a prevailing wage rate based on the current minimum is too low to maintain a consumer driven society.
Never mind the morality, the determination of whether this should be mandated, whether it is somehow “earned” or not. At the rate we are going it will be impossible for any business based on a broad consumer population to grow. Save yourselves—pay someone more.