Two companies see benefits from raising the minimum wage

As Washington debates legislation to raise the minimum wage, two large retailers see the benefits of paying workers more.

Barack Obama

HOST INTRO: President Obama made a big push for a bill that will raise the minimum wage to $10 dollars and 10 cents for all workers when he signed an executive order doing just that for federal contractors.

But a report released by the Congressional Budget Office said that a higher minimum wage could mean fewer jobs. At about the same, two large retailers – the Gap and Wal-Mart– announced initiatives that seemed to align with the president’s agenda. Chris Mossa reports on a trend in companies seeing the benefit of paying higher wages without being told they have to by the government.

The first major step in the minimum wage debate began with a giant leap exactly a hundred years ago. At the time, an employee at Ford made a little less than $2.50 an hour assembling Model Ts. But in 1913, Henry Ford revolutionized the manufacturing industry when he developed the assembly line. And he needed reliable workers to show up everyday to do the same work, the same way, at the same speed. The jobs were tedious and dull and morale dropped. Bob Kreipke is the historian for the Ford Motor Company.

KREIPKE: We needed workers to keep working – it also created a lot of absenteeism. So we knew we had to do something to stabilize the workforce and keep them on the job. (0:12)

That something was a dramatic increase in pay. In January 1914, Ford more than doubled the minimum wage in his factories to $5 a day. The wage hike was as revolutionary as the assembly line itself. Employee turnover, which had been above 300%, plummeted as workers lined up in droves to get a job at Ford. Kreipke says it had a profound effect not only on Ford, but on the entire industry.

KREIPKE: It obviously upset our competitors because suddenly they were in a position where they  had to make the next move. (0:10)

Fast forward to today. Last week, Gap announced plans to raise the lowest wage for 65,000 U.S. employees to $10 an hour by the end of next year. Stephanie Luce is a professor of labor studies at the City University of New York. She says that employers who care about holding on to their employees see a benefit to increasing wages.

LUCE: Turnover tends to go down, absenteeism tends to go down, productivity tends to go up — with a wage increase.  (0:07)

But it’s not just about keeping employees. Supporters of a wage hike say those employees will spend more and that’s good for the economy. The Congressional Budget Office reported that raising the minimum wage will put an extra $31 billion into the pockets of low-income workers. And almost all of that will end up in cash registers around the country.

LUCE: Low-wage workers tend to spend all of the extra money they get. They put it right back into the economy. They create demand for new products or services. That in turn can create new jobs. (0:10)

And that may help explain another surprise announcement last week. Wal-Mart may support the fight to raise the federal minimum wage. Wal-Mart is the nation’s largest private employer. And many of those employees are also shoppers. A good portion of those additional wages may come right back to the Company.

And lets not forget that its popular. Michael Hillard is a labor economist at the University of Southern Maine.

HILLARD: Right now, the polls show that 60 – 70 percent of the public, including a majority of Republican voters, support an increase in the minimum wage. I think Wal-Mart’s consideration has a lot to do with them trying to affect their public image for something they see as more or less inevitable anyway. (0:21)

And if even if Wal-Mart passed every cent onto consumers through higher prices, some argue it would barely be noticeable. Ken Jacobs runs the Labor Center at the University of California at Berkeley. He estimates that raising the minimum wage under the president’s plan would cost Wal-Mart $200 million dollars a year.

JACOBS: If they were to pass all of that on to increased prices it would be the equivalent of one penny on a $16 DVD.  (0:07)

But industry groups like the National Retail Federation and the Chamber of Commerce oppose the increase partially because it unfairly targets smaller companies who can’t absorb the cost increases. It’s impossible to know how a wage hike will play out in every business but Stephanie Luce says the trade-offs are worth it.

LUCE: Some of the research on minimum wage shows that small employers tend to pay higher wages than large employers. What we think happens is that small employers are much more dependent on a long-term reliable workforce. They want their workers to stick around. (0:16)

Senate Majority Leader Harry Reid plans to introduce the bill this spring.

Chris Mossa, Columbia Radio News.

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