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Why Wage Hikes Should Be All the Rage

Amy Traub

Airports are doing it. Big retailers are doing it. Cities are getting in on the action too. Earlier this month, I even got to see the President of the United States do it.

Raising wages for low-paid workers is shaping up to be the hot new trend – and the evidence suggests it will have powerful positive effects on working people, their families, and the health of our economy as a whole. Maintaining a floor on the labor market is a basic workplace standard we’ve allowed to erode at our peril, and raising wages at the bottom is also a critical step toward addressing the inequality corroding our society. At the same time, the growing momentum behind minimum wage hikes provides a chance to consider what it would really take to lift up low-paid jobs and to listen to the workers who are calling for more.

First, let’s consider the benefits of the increases we’ve seen so far. When retailer Gap Inc. announced this week that it would raise its minimum pay for U.S. employees to $10 an hour by 2015, it was making a smart move for its employees, the economy, and even its own bottom line.  As my colleague Catherine Ruetschlin explained in her 2012 study, “Retail’s Hidden Potential” if large retailers like the Gap (which owns six retail brands, including Banana Republic and Old Navy, that will also raise wages) increased pay for all of their US retail workers to at least $12 an hour, more than 700,000 Americans would be lifted out of poverty, GDP would rise more than $11 billion a year, and more than 100,000 new jobs would be created. At the same time, retailers themselves could expect to see sales climb by as much as $5 billion a year as employees use their newfound purchasing power. Increased employee morale and productivity and lower turnover would help to offset increased costs, meaning any effect on consumer prices would be minimal.

As Ruetschlin explained to MSNBC yesterday, Gap Inc. appears to “have a history as an employer that thinks of their employees as a cost rather than an investment… Gap is raising their wages in a decision designed to change their business model” to one that begins to recognize the benefits that investing in employees can have. These benefits to business are explored extensively by MIT management professor Zeynep Ton in her new book The Good Jobs Strategy.

The first question is whether more retailers and other low-wage employers will follow suit. As usual Walmart, the nation’s largest employer with 1.3 million U.S. workers and $17 billion in annual profits, is the elephant in the room. As Ruetschlin and I noted in a recent study, Walmart spent $7.6 billion in 2012 solely to buy back shares of its own stock. Yet the buybacks did nothing to boost Walmart’s productivity or its bottom line. If these funds were redirected to Walmart’s low-wage workers, they would each see a raise of $5.83 an hour, without any increase in costs to consumers at all. Yet Walmart has denied it would even support a minimum wage increase that applied to all workers, despite the clear benefits a wage hike would offer to Walmart's faltering sales. Clearly it will take more for the pioneer of low-wage retail to shift its business model – and Walmart workers themselves, calling for a modest minimum of $25,000 a year, are not letting up the pressure.

It’s a positive step when companies themselves realize the benefits of raising wages, but as the Walmart case vividly illustrates, we can’t count on it. The most straight-forward solution would be for Congress to take action raising the minimum wage for everyone employed in the United States, including a much-needed increase in the tipped minimum wage and a provision linking the minimum wage to inflation, so that its value doesn’t continually erode over time.  Barring that, states and private companies must act – while cities like New York must fight to raise their own minimum wage.  The danger of this piecemeal approach is that it leaves out workers in companies and jurisdictions that fail to raise the wage floor (although workers may vote with their feet to push up pay across borders). The benefit is that it engages citizens, workers, and political and business leaders in a potentially deeper conversation about our jobs, our economy and what it takes to make ends meet in America.

Make no mistake: the policy debates and business model shifts we are seeing today are a result of the powerful strike actions by fast food workers, Walmart workers, federal contract employees, and others who took to the streets in unprecedented numbers over the past two years demanding better pay. But their call was not simply for $10.10 an hour implemented over years: instead fast food workers demand the $15 they assert is needed to support a family with a decent standard of living, and to build a life beyond minimum wage employment, while Walmart workers want $25,000 minimum a year. And workers are calling for  predictable and reliable schedules that give them enough hours to make ends meet, paid sick time to care for families, and employers’ respect for their right to organize unions and engage in the type of collective bargaining that built the American middle class.

The minimum wage sets a critical floor that benefits everyone who goes to work for a living. We should make the most of the recent momentum around raising it to lift pay – and increase the power of low-wage workers to get a better deal on the job.