Whose responsibility is it to ensure all workers are paid a reasonable wage? Whatever their motives, a handful of companies in the US and UK are raising their lowest pay rates
The common assumption about wage levels is that they are based on supply and demand. Fewer jobs mean employers can select the best candidates and pay them lower salaries because they are just grateful to be hired. A surplus of job openings puts the pressure on employers to lure workers with higher wages and other perks.
Tinkering with that formula, many argue, by simply raising wages could lead to an economy out of whack. But recent events and studies are changing those beliefs, leading some to think that paying lower wages is a choice, not a result of economic forces, and boosting salaries can help the economy, rather than throw it into turmoil.
“In many low-paying sectors, higher wages can reduce staff turnover, which in turn reduces recruitment costs,” says Conor D’Arcy, policy analyst at the Resolution Foundation, a non-partisan thinktank working to improve the living standards of low-to-middle income Britons. “Many of the same fears were expressed when the UK introduced a minimum wage and raised it significantly over a number of years, but it has had a negligible impact on overall employment.”
Joseph E Stiglitz, a Nobel laureate in economics and a professor at Columbia University in the US, argued in a Washington Monthly article in November 2014 that bad choices about who and what to tax and how much and in what areas to invest public money have contributed to a huge income gap in the US between rich and poor and hampered the ability of lower-income citizens to earn more. Countries that choose to invest more in infrastructure, health care and education provide citizens with more opportunities to advance, he said.
“The extreme to which inequality has grown in the United States and the manner in which these inequities arise undermine our economy,” Stiglitz wrote. “Too much of the wealth at the top of the ladder arises from exploitation.”
Walmart’s highly publicised move to raise the pay base for its starting employees in April, affecting half a million workers, supports the choice argument, since it took place in the absence of any major changes in the labour market. The company plans to increase base pay for new employees to at least $9 an hour, which is $1.75 above the US federal minimum wage, and increase wages by 1 February 2016 to at least $10 an hour. Walmart also announced it will be offering employees more scheduling flexibility and enhanced training they can use as their careers advance at Walmart or other companies.
While some employees will be affected more than others, because Walmart is the world’s largest employer, these increases will be felt by many different people who don’t even work at the company, according to Stewart Acuff in an article for the Daily Kos, an American political blog that publishes news and opinions from a liberal viewpoint.
Ironically, not long after the pay increases took effect, Walmart’s trail-blazer image took a hard hit when it announced that it was temporarily closing five U.S. stores, including one in Pico Rivera, California, where employees have been very vocal about the need to raise wages. The layoffs affect 2,200 workers nationwide. The reason, Walmart claims, is ongoing plumbing issues that will require extensive repairs. The stores will be closed for at least six months.
Pico Rivera employees have been very active pushing for higher pay through a group called OUR Walmart, which stands for Organization United for Respect, according to an April 21 Los Angeles Times article. OUR Walmart filed a complaint with the regional director of the National Labor Relations Board in Los Angeles on April 20th.
“… Walmart is attempting to weed out many of the activists in the Pico Rivera store as well as the other stores who are subject to this sudden and wholly unexplained ‘closure’ because of unexplained ‘plumbing problems’,” according to the complaint’s cover letter.
The complaint notes that Walmart has not filed for work permits for plumbing work. According to the article, the employees will receive severance pay, 60 days in California, and can apply for jobs at other stores. But they must re-apply for their jobs when the stores re-open after the repairs.
Politics and pay
A new collection of essays published in March by the Resolution Foundation also calls for government intervention to raise pay rates, urging the next British government to introduce “bold new policies to support strong wage growth that is shared throughout the workforce”. Among the issues with which the UK is still coping since the 2007 recession are large numbers of self-employed and underemployed workers, a wage gap between older and younger workers and lower salary gains for men, according to the foundation.
“The authors reject the idea that all these issues will automatically resolve themselves as the economy recovers and eschew the notion that policymakers are powerless in the face of global economic forces, arguing that positive intervention can make a real difference,” says the Resolution Foundation in a statement about the essays. “There is, however, no simple or single measure that will stimulate productivity and pay: a range of approaches are advocated.”
D’Arcy, though, says he would not characterise lower wages as a political choice. “In the UK, widespread low pay has been an issue under successive governments of various persuasions,” he says. “Around one in five workers in Britain are currently low paid – a proportion that has barely shifted in the last two decades.”
Walmart’s news was followed by announcements from at least two other major US companies that they also planned to increase base wages. While companies say they are raising salaries because it is the right thing to do and will yield benefits for the companies, employees and society, not everyone is convinced that corporations are acting out of concern for the “social good”.
“It is more likely to be down to the need to recruit and retain staff,” D’Arcy says. “That said, the increasing number of UK employers adopting the [voluntary] living wage shows that some do see the social benefits of higher wages with some evidence that higher pay can result in productivity gains for employers.” The UK living wage – set by the Living Wage Foundation at £7.85 – is now 21% higher than the compulsory National Minimum Wage, which is currently £6.50 an hour.
Bad press
More than a healthier economy and generosity, some US corporations may be motivated by negative publicity for posting high profits and granting raises to executives while workers struggle to get by. Several companies, including Walmart and health insurance group Aetna, did say they were hopeful increased wages would improve retention and recruitment.
Walmart in particular has been the target of harsh criticism for paying wages so low that many workers need to rely on public assistance for food and medical care. A Forbes magazine report in April 2014 estimated that Walmart cost the US taxpayers $6.2bn in public assistance paid to Walmart employees. A Walmart spokesman disputed the figures in the article.
As for why the company is raising wages now, another Walmart spokesman, Kory Lundberg, says: “The choices and decisions we made are what are right for our business at this time. These will help us take better care of our business and associates. Our focus is on making our company the best company we can, and this is what makes sense for Walmart.” The company has been well aware of the criticisms, he adds. “We listen to a lot of people. But we mostly listen to our associates.”
While wages are a big part of Walmart’s initiatives, they are just one aspect of the overall programme, Lundberg says. All current associates’ base wage is being raised to $10 an hour, and in February 2016 a training programme will be introduced. When new employees complete the six-month paid training programme, their base salaries will increase from $9 an hour to $10. Employees will also be given more flexibility in setting up their schedules, he adds.
TJX Companies, which includes stores TJ Maxx, Marshalls, HomeGoods and Sierra Trading Post Associates, is planning to raise workers’ base pay as well in June. Full- and part-time hourly US store associates will earn at least $9 per hour and, during 2016, all hourly US store employees who have been employed for six months or more will earn at least $10 per hour.
The slightly improved labour market and support from workers abroad has also made US employees a little more willing to push for higher wages. In April, McDonald’s said it would raise the pay rate for 90,000 of 750,000 US employees to $1 above the mandated minimum wages in July, and it would continue increasing to more than $10 by 2017. But the raise only applies to workers at restaurants officially owned by McDonald’s, or about 10% of the company’s locations nationwide.
This did not sit well with many McDonald’s employees. On 15 April, many McDonald’s workers walked off their jobs as part of the Fight for $15 effort, a campaign to raise the minimum wage for US fast-food workers to $15 an hour. Workers from Finland, Germany, Japan and other countries also protested in solidarity.
Also in April, Aetna increased its US minimum base wage to $16 per hour, a move affecting about 5,700 employees, according to Aetna communications consultant Matthew Clyburn. The average increase is 11% and for some employees it could be as high as 33%. Next year, the company will offer to cover more of the health care costs for about 7,000 US employees, Clyburn adds, with eligibility based on several factors including total household income. “Depending on their situation, the savings to participating employees could be up to $4,000 annually,” he says. The initiatives only affect employees in the US.
‘Do well by doing good’
In a prepared statement, Aetna chief executive Mark Bertolini cites corporate responsibility among the reasons for the changes. “Since I became CEO, one of my goals has been to help re-establish the credibility of corporate America,” he says. “I firmly believe that companies can ‘do well by doing good’. With these investments, we are leaning into the recovering economy and working to bring everyone along instead of just a few.”
The company also wants to make a significant investment in its employees, in part to increase their financial security, Clyburn says. “We did this because Aetna is striving to build a healthier, more productive workforce. We are committed to fostering a strong and successful workplace and a resilient workforce, as well as increasing our ability to attract and retain the best talent,” he says. “And, as health care moves to a consumer industry – [and more people in the US will be selecting their health insurance] Aetna is investing in the employees who interact with our customers every day.”
Perhaps the initiative with more long-term benefits than just raising wages is Walmart’s training programme. While the company’s new programmes currently focus on US employees, “we certainly think there are components with training and wages that will be applicable in international markets”, says Lundberg.
During the training, employees will learn about inventory, reading labels, customer service, stocking shelves and how what they do affects Walmart. “These skills are transferable, so hopefully the next job they get is beyond entry level,” Lundberg says. “Through the training programme, they will learn how to get from cashier to assistant manager. We have folks come in who want to be a cashier and we have the pathway for what they want to do. Others are interested in specialized areas, such as the deli … or wireless devices, and we are going to be providing the skills, training and tools to get them there.”
Management is hopeful the changes will help reduce turnover and lead to more employees staying at Walmart throughout their careers. “Last year we had 200,000 promotions, and this is going to make transitions [to different positions] easier,” Lundberg continues. “Seventy-five per cent of our managers began as hourly employees, up to and including the CEO. This will help to provide a better experience for customers and help our employees to know they are valued.”
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