By Gracie Aylmer and Dan Dudis
Over the last few decades, businesses have become far more focused on increasing profits than on providing quality workplaces for their employees. Executives have come to regard workers as simply a cost center, to be squeezed ever more tightly. Indeed, labor’s share of national income has dropped somewhere between 3 and 8 percent since 1980, a trend that has accelerated since 2000. This drop annually shifts about $750 billion from workers to business owners, meaning gains flow disproportionately to the already well-off. This shift is one of the drivers of deepening income and wealth inequality in the United States.
The U.S. Chamber of Commerce has been among the most forceful proponents of such Darwinian thinking. It opposes any increase in the shamefully low minimum wage. And it has led the charge against the overtime rule, which would raise the salary level below which salaried employees are entitled to be paid for overtime from $23,660 to $47,500 per year.
Real world business evidence is now beginning to mount showing that the Chamber’s opposition to higher wages is wrongheaded, not just for the millions of workers it shortchanges, but for the businesses the Chamber claims to represent. Many retailers have discovered that they see greater returns when they pay their employees better wages.
Costco recently raised its starting salary to $13 an hour for full and part time employees. Costco Co-Founder Jim Sinegal has observed that paying good wages “is not altruism, it’s good business,” which in turn leads to increased productivity and lower rates of employee turnover. Ikea has adopted a new policy that increases employee wages based on the prevailing living wage of the region in which they work. This resulted in an average increase of 17 percent over the company’s average minimum hourly wage. As a result of this new policy, Ikea experienced a 3 percent drop in employee turnover rates.
Perhaps the most dramatic example of the business case for paying employees more comes from where you might least expect it: Walmart. In 2014, the company realized it had a serious problem. According to a recent New York Times report, “shoppers were fed up. They complained of dirty bathrooms, empty shelves, endless checkout lines and impossible-to-find employees. Only 16 percent of stores were meeting the company’s customer service goals.” The retail giant, famous for treating employee wages as a cost to be curtailed, was watching sales plummet; revenue fell for the first time in 45-years.
Faced with a serious threat to its profitability, Walmart was forced to find a solution. Its executives, breaking with the last few decades of management dogma, began to suspect that perhaps paying employees more and offering better opportunities for advancement might offer a solution to Walmart’s problems. Starting in early 2015, Walmart raised hourly pay for workers and began offering them training as well as greater opportunities to advance and build a career at the company.
The results have been impressive. Walmart’s customer survey reviews have improved over the past 90 consecutive weeks, and at stores that have been open for at least a year, sales were up 1.6 percent over the previous year in the most recent quarter. And this, while sales fell at competitors.
And then just last week, Walmart announced that it would be raising assistant managers’ salaries from $45,000 to $48,500 in response to the new overtime rule. Walmart’s decision to preemptively raise the salaries of assistant managers has exposed the Chamber’s prediction that the new overtime rule would have disastrous effects for businesses and workers as just another example of the Chamber crying wolf. The Chamber’s response to any new rule or regulation is to predict doom, and then when the sky fails to fall, it moves on to sounding yet another false alarm about something else.
Businesses aren’t the only employers who see value in paying employees higher wages. Over 150 non-profits have already signed onto a letter in support of the overtime rule stating that it is “a critical opportunity to improve the working conditions and the economic lives of the people [they] serve,” noting that their own workers deserve fair compensation and greater economic security. These non-profits, like the giant retailers discussed above, recognize that when they pay employees more, they are, in turn, happier and more productive.
As more and more businesses discover what economists have long known – that paying workers more makes them more productive – the Chamber’s steadfast opposition to measures that would increase wages becomes harder to justify. The Chamber is supposed to be the voice of business and yet in this instance, it is opposing policies that are actually beneficial to business. While one wouldn’t expect the Chamber to stand up for workers, something is very wrong if the Chamber isn’t even standing up for business.
So whose interests is the Chamber standing up for? As discussed above, the decline in workers’ share of national income has shifted hundreds of billions of dollars to CEOs and business owners. It would appear that the Chamber is standing up for the interests of very wealthy individuals, whose short-sighted greed has led them to embrace a management credo that isn’t even good business.
In a much earlier era, the United States had visionary businesspeople who understood that it was good business to pay workers a decent wage. Which leads one to wonder: if iconic American capitalist Henry Ford understood at the beginning of the last century that paying his employees higher wages was good business, why has the Chamber still not caught up over 100 years later?