Higher Minimum Wage, Faster Job Creation

From yesterday’s NYT “Taking Note” Blog by Teresa Tritch:

The standard argument against a higher minimum wage is that it will lead to job loss as employers, unable to pay more, lay off current workers or don’t hire new ones.

It’s important to state up front that research and experience don’t bear that out. The minimum wage has been raised many times without hurting employment. Rather than cut jobs, employers have offset the cost of higher minimums through reduced labor turnover. Employers also cope with a higher minimum by giving lower raises further up the wage scale, raising prices modestly or other adjustments.

Bolstering what we already know, new evidence shows that job creation is faster in states that have raised their minimum wages. The Center for Economic and Policy Research used federal labor data to tally job growth in 13 states* that raised their minimums in 2014. In all but one, New Jersey, employment was higher in the first five months of 2014 (after the wage increase) than it was in the last five months of 2013 (before the wage increase). In nine of the 12 states with faster growth, employment gains were above the national median.

That doesn’t mean that a higher minimum wage caused the job growth, a point clearly stated by the researchers at CEPR.  But it indicates that raising the minimum didn’t hurt job growth, as opponents claim ad nauseam.

That hasn’t stopped those opponents — especially in the restaurant industry — from attacking the findings. But their only argument is bluster. They don’t dispute the job gains in states that have raised their minimums. Rather, they claim that it may mask job loss among low-wage workers directly impacted by the raise. To support that conjecture, they have pointed to a study from 2010, sponsored by the restaurant lobby, which found a link between a higher minimum wage and lower teen employment.

The fact of the matter is that no one knows why job growth has been above trend in states with higher minimum wages. A plausible explanation is that a minimum-wage hike may have a more pronounced stimulus effect in a generally weak economy than it would have in a strong economy, as workers who long have struggled to make ends meet quickly spend their extra dollars, providing an economic boost that help job growth.

What is clear is that there is no need to fear a minimum wage increase — unless, apparently, you are a restaurant lobbyist, whose job depends on keeping wages low for already very low paid waitresses, waiters and fast-food servers.

*Four states passed legislation to raise their minimum wages in 2014: Connecticut, New Jersey, New York, Rhode Island. Nine states automatically increased their minimums in line with inflation: Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Vermont and Washington.

The Economy May Be Improving. Worker Pay Isn’t.

From NYT’s “The Upshot” by Neil Irwin:

The latest economic data out Tuesday morning was generally good. Home building activity remained above the one million a year rate. Consumer prices rose 0.4 percent in May, such that inflation over the last year is now 2.1 percent, about in line with what the Federal Reserve aims for.

But that inflation news carried with it a depressing side note. Now that the Consumer Price Index for May has been published, it is possible to determine inflation-adjusted hourly earnings for the month. And the number is not good.

Average hourly earnings for private sector American workers rose about 49 cents an hour over the last year, to $24.38 in May. But that wasn’t enough to cover inflation over the year, so in real or inflation-adjusted terms, hourly worker pay fell 0.1 percent over the last 12 months. Weekly pay shows the same story, also falling 0.1 percent in the year ended in May.

Pause for just a second to consider that. Five years after the economic recovery began, American workers have gone the last 12 months without any real increase in what they are paid.

Read the entire article here.

Room for Debate: Overcoming the New Low-Wage Economy

From the NYT “Room for Debate” by Robert Reich:

By raising its minimum wage to $15, Seattle is leading a long-overdue movement toward a living wage. Most minimum wage workers aren’t teenagers these days. They’re major breadwinners who need a higher minimum wage in order to keep their families out of poverty.

Across America, the ranks of the working poor are growing. While low-paying industries such as retail and food preparation accounted for 22 percent of the jobs lost in the Great Recession, they’ve generated 44 percent of the jobs added since then, according to a recent report from the National Employment Law Project. Last February, the Congressional Budget Office estimated that raising the national minimum wage from $7.25 to $10.10 would lift 900,000 people out of poverty.

Seattle estimates almost a fourth of its workers now earn below $15 an hour. That translates into about $31,000 a year for a full-time worker. In a high-cost city like Seattle, that’s barely enough to support a family.

The gains from a higher minimum wage extend beyond those who receive it. More money in the pockets of low-wage workers means more sales, especially in the locales they live in – which in turn creates faster growth and more jobs. A major reason the current economic recovery is anemic is that so many Americans lack the purchasing power to get the economy moving again.

With a higher minimum wage, moreover, we’d all end up paying less for Medicaid, food stamps and other assistance the working poor now need in order to have a minimally decent standard of living.

Some worry about job losses accompanying a higher minimum wage. I wouldn’t advise any place to raise its minimum wage immediately from the current federal minimum of $7.25 an hour to $15. That would be too big a leap all at once. Employers – especially small ones – need time to adapt.

But this isn’t what Seattle is doing. It’s raising its minimum from $9.32 (Washington State’s current statewide minimum) to $15 incrementally over several years. Large employers (with over 500 workers) that don’t offer employer-sponsored health insurance have three years to comply; those that offer health insurance have four; smaller employers, up to seven.

My guess is Seattle’s businesses will adapt without any net loss of employment. Seattle’s employers will also have more employees to choose from – as the $15 minimum attracts into the labor force some people who otherwise haven’t been interested. That means they’ll end up with workers who are highly reliable and likely to stay longer, resulting in real savings.

Research by Michael Reich (no relation) and Arindrajit Dube confirms these results. They examined employment in several hundred pairs of adjacent counties lying on opposite sides of state borders, each with different minimum wages, and found no statistically significant increase in unemployment in the higher-minimum counties, even after four years. (Other researchers who found contrary results failed to control for counties where unemployment was already growing before the minimum wage was increased.) They also found that employee turnover was lower where the minimum was higher.

Not every city or state can meet the bar Seattle has just set. But many can – and should.

Read other views in the debate here.

Why I Didn’t Give Year-End Bonuses

From the New York Times blog, “You’re the Boss” by Jay Goltz:

A couple of weeks ago, my production manager asked me a question that I have not looked forward to answering for several years now. “Are we going to be giving any bonuses this year?” asked Dale, who oversees 38 people in my picture-framing business.

For years, I have given an end-of-the-year bonus to everyone who works for me — the exception being when sales have declined because of a recession. Unfortunately, that’s been the case since 2008. I told Dale that there would be no bonuses for 2013. We are doing better, we are almost there, but it would be irresponsible for me to give them out at this point.

My businesses are all home-furnishings-related, which means they rely on discretionary spending, and they are most certainly affected when consumer confidence falls. In our case, and the case of many small-business owners I know, business has not rebounded from this recession the way it did from the previous recessions I have lived through.

Although it has been several years since the recession came to an official end, there have been plenty of other issues keeping things challenging: more competition, changing buying habits, higher expenses, to name a few. I don’t mean to complain. Things are continuing to get better for my businesses, in part because of the (slowly) improving economy and in part because several investments that I made in new products, new equipment and a new warehouse and production building are beginning to pay off. None of these improvements came cheap, and in the short-term, they all had a negative impact on our cash flow. I remain confident, however, that they are starting to help and will pay off in the long term.

I asked Dale if he wanted me to explain the situation at the weekly production meeting? I didn’t take the time to explain last year, and I now know that wasn’t a good decision. But it was easy, which is often a bad sign.

Dale: “You could just skip the meeting. I’m afraid that no matter what you say, people are going to be aggravated.”

Jay: “You know what? You’re the one that has been on the front line with people asking for more money and I think you may be suffering from battle fatigue. I have to believe that most people will understand. And even if it is only some of them who don’t, I think I owe them an explanation.”

Dale: “You’re right. Have the meeting. We’ll see what happens.”

Jay: “I have to tell you, I’m a little frustrated myself. We didn’t lay anyone off, we have gotten everyone back to full hours plus a good amount of overtime, and this year we have caught up on raises. I would have loved to give out bonuses, but the thought of people being mad that they didn’t get a bonus — abonus! — when we didn’t make enough money to justify it, doesn’t make me feel great. If I wanted to be cynical, I could argue that I should have never started giving bonuses in the first place.”

Dale: “I understand, but you know how people are. They are more upset if you take something away than if you never gave it to them in the first place.”

Jay: “I know. But I would like to believe that they will get it. I can tell you this, while I wish we could have given bonuses, I certainly don’t feel guilty about it. It would have been a really bad business decision. We’re growing again, we’re stable, and if everything goes as planned, we should be able to give bonuses in 2014.”

So I had the meeting about two weeks before Christmas. I explained all of the things that we have been spending money on, and all of the good results that have started to pay off. For the sake of those employees who were not here five years ago, I went through our sales history. And I reminded them that they are working at a stable company in an unstable market. And I thanked them all for working together to get us where we were. As they say in sports, I left it all on the field. There were no comments or questions. Everyone went back to work, except for me.

I waited around until the jury came back, which took about 20 minutes. One of the supervisors gave me the verdict: Several people he spoke to said they appreciated that I had given them the whole story. They understood that we have been rebuilding, and they are happy to have a stable job where they are treated well.

Now, do I believe that everyone is happy all of the time and that they think I am the greatest boss ever? Of course not. But we have very little turnover, which is part of the reason I believe that most employees understand and that most appreciate the fact that I appreciate them. And if the rest are justpretending to get it, that’s O.K., too. I plan on giving bonuses out at the end of 2014, and if that happens, it will be a very happy day for me, as well as for them.

Economic inequality is a problem, as is gap between ideal and reality










Check out this informative video that provides a graphic representation of wealth inequality in the U.S. and the gap in perception between what people think an ideal distribution of wealth should look like and what it really is in fact.

LA city workers rally for living wage

From yesterday’s LA Times Local:

Hundreds of workers rallied outside the Los Angeles County Board of Supervisors meeting on Tuesday, demanding an increase to the “living wage” that county contractors are required to pay employees.

“We should not forget one of the goals of the civil rights movement was the end of poverty,” said Michael Green, a regional director of SEIU 721, which represents 55,000 county workers.

The living wage ordinance was enacted by the Supervisors in 1999 as a response to private firms that the county contracted with paying workers low wages that left them reliant on county-funded healthcare and social services. The living wage was increased in 2006 and currently stands at $9.64 per hour if the employer is providing health benefits and $11.84 per hour if the employer is not providing health benefits.

Labor leaders have argued that the wage has failed to keep pace with inflation, and Green noted that poverty in the area has increased 17% in the last five years.

“The Board of Supervisors needs to set an example,” he said. “Our message is simple — it is time to take another look at Los Angeles County’s living wage.”

Noise from the rally could be heard inside the board’s chambers, where members were holding their weekly meeting. The protestors never entered the chamber and ended their hourlong rally at 1 p.m.

Forty minutes later, board Chairman Mark Ridley-Thomas, who benefited from millions of dollars in labor spending on his bid to be elected to the board in 2008, directed county staff to provide an update on the living wage ordinance and cost-of-living increases.

“It seems  to me that we wish to be current in terms of what the living wage is for the workforce in the County of Los Angeles,” he said.

Trader Joe’s embraces living wage, rejects Walmart-style labor policies

From The Atlantic, March 25, 2013:

The average American cashier makes $20,230 a year, a salary that in a single-earner household would leave a family of four living under the poverty line. But if he works the cash registers at QuikTrip, it’s an entirely different story. The convenience-store and gas-station chain offers entry-level employees an annual salary of around $40,000, plus benefits. Those high wages didn’t stop QuikTrip from prospering in a hostile economic climate. While other low-cost retailers spent the recession laying off staff and shuttering stores, QuikTrip expanded to its current 645 locations across 11 states.

Many employers believe that one of the best ways to raise their profit margin is to cut labor costs. But companies like QuikTrip, the grocery-store chain Trader Joe’s, and Costco Wholesale are proving that the decision to offer low wages is a choice, not an economic necessity. All three are low-cost retailers, a sector that is traditionally known for relying on part-time, low-paid employees. Yet these companies have all found that the act of valuing workers can pay off in the form of increased sales and productivity.

“Retailers start with this philosophy of seeing employees as a cost to be minimized,” says Zeynep Ton of MIT’s Sloan School of Management. That can lead businesses into a vicious cycle. Underinvestment in workers can result in operational problems in stores, which decrease sales. And low sales often lead companies to slash labor costs even further. Middle-income jobs have declined recently as a share of total employment, as many employers have turned full-time jobs into part-time positions with no benefits and unpredictable schedules.

QuikTrip, Trader Joe’s, and Costco operate on a different model, Ton says. “They start with the mentality of seeing employees as assets to be maximized,” she says. As a result, their stores boast better operational efficiency and customer service, and those result in better sales. QuikTrip sales per labor hour are two-thirds higher than the average convenience-store chain, Ton found, and sales per square foot are over 50 percent higher.

Entry-level hires at QuikTrip are trained for two full weeks before they start work, and they learn everything from how to order merchandise to how to clean the bathroom. Most store managers are promoted from within, giving employees a reason to do well. “They can see that if you work hard, if you’re smart, the opportunity to grow within the company is very, very good,” says company spokesman Mike Thornbrugh.

The approach seems like common sense. Keeping shelves stocked and helping customers find merchandise are key to maximizing sales, and it takes human judgment and people skills to execute those tasks effectively. To see what happens when workers are devalued, look no further than Borders or Circuit City. Both big-box retailers saw sales plummet after staff cutbacks, and both ultimately went bankrupt.

As global competition increases and cheap, convenient commerce finds a natural home online, the most successful companies may be those that focus on delivering a better customer experience. Ton’s research on QuikTrip and other low-cost retailers–now a Harvard Business School case–is applicable across a variety of industries, she says. Toyota’s production system, for example, gives all employees–including workers on the assembly lines–a voice in improving products.

But for a publicly traded company under pressure to show quarterly earnings, it’s tempting to show quick profits by cutting labor costs. The bad economy has also made workers willing to take lower-paid positions rather than join the ranks of the unemployed. New employer-sponsored health insurance requirements under the Affordable Care Act are only going to give employers an additional incentive to shift workers to a part-time schedule.

There are also trade-offs to investing in employees. Businesses that spend more on their workers have to cut costs elsewhere. Trader Joe’s streamlines operations by offering a limited number of products and very few sale promotions. Costco stocks products on pallets, as a warehouse would. And the QuikTrip model requires investors to have the fortitude to accept possible short-term drops in profits. “You have to take a loss for a little bit,” says Maureen Conway, executive director of the Economic Opportunities Program at the Aspen Institute. “You have to pay above market. You have to change how you do business.”

At the upper echelons of the American workforce, salaries have soared. Companies are accustomed to thinking of their highest-level employees as “talent,” and fighting to hire and reward people who will help grow the company. Now Trader Joe’s and QuikTrip are proving that lower-level employees can be assets whose skills improve the bottom-line as well.