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Why Gap’s Wage Hike Matters


The odds that Republican House Speaker John Boehner will allow a vote on raising the minimum wage remain as low as ever, but some large retailers are already raising the wage on their own initiative. On Wednesday, clothing chain Gap Inc. announced it would be raising its base wage from $9 to $10 per hour next year, directly benefiting as much as 72% of its hourly workforce.

Gap Inc. is a for-profit company, and the decision to increase pay was not an act of charity. Instead, it appears to stem from a realization that the old retail model of aggressively driving down labor costs is not working, according to Catherine Ruetschlin, a policy analyst for the left-leaning think tank Demos.

“Gap is raising their wages in a decision designed to change their business model,” she said. “Right now, more than 70% of their American employees are making less than $10 per hour, which means they have a history as an employer that thinks of their employees as a cost rather than an investment.” [...]

Wages in the United States have been declining relative to inflation for decades, but Gap’s announcement suggests they may have finally reached a sort of floor. Although many large employers have been able to enlarge their profits by suppressing wages on the low end of the spectrum, they may now be struggling to contain the fruits of their own success.

“More and more of the research coming out on retailers in particular is showing these productivity benefits retailers gain from raising the wage are substantial and meaningful,” said Ruetschlin. But it remains to be seen whether Gap’s decision to go after those benefits is an isolated event.