Richard Florida is a co-founder and editor at large of CityLab and a senior editor at The Atlantic. He is a university professor in the University of Toronto’s School of Cities and Rotman School of Management, and a distinguished fellow at New York University’s Schack Institute of Real Estate.
Higher wages mean more engaged employees, better customer service and higher profits.
As Americans rush out on Black Friday, it’s a good time to reflect on the meager wages paid to the people selling us all this stuff. And it’s high time to turn these low wage jobs in which millions of Americans toil into better ones that can actually support their families.
The past several months have seen mounting efforts to raise the minimum wage, through electoral processes and also protests like the kind that drew 300 demonstrators to a McDonald’s in Times Square in September. Activists have also planned protests for Black Friday: Walmart workers are expected to gather outside 1,600 stores today to agitate for a $15 minimum wage and fairer schedules for the third year in a row.
The nation’s more than 4.6 million retail sales workers earn $21,410 per year on average, or $10.29 per hour. An additional 3.3 million cashiers make even less–$18,970, or $9.12 an hour, according to data from the Bureau of Labor Statistics (BLS). More than one million retail workers and their families live near the poverty level, according to research [PDF] by the public policy organization Demos. That’s especially notable because one in five retail workers are the sole income earner in their families. The rising ranks of seasonal and temp workers fare even worse, with unpredictable schedules and limited prospects for secure employment.
And the holiday is, of course, the season of the retail worker. According to a survey by the financial news firm 24/7 Wall Street, the seven companies hiring the most seasonal help for the 2014 holiday (including Macy’s, Target, Kohl’s and Wal-Mart) will employ nearly 400,000 workers alone. Amazon is expected to bring on 80,000 seasonal workers, up from 70,000 last year. Beyond retail, UPS and FedEx are expected to hire 95,000 and 50,000, respectively, numbers that reflect the continued growth of online sales.
Retail wages vary widely across the United States. Here’s a map of hourly wages for retail workers by metro, from a previous post on CityLab that used 2012 BLS data:
The troubling fact is that retail workers do not necessarily make the most in large, high-cost metros. Retail workers in Lowell, Massachusetts, for example, average nearly $15 an hour, or more than $30,000 per year, while those in mid-size cities like Carson City, Nevada, Wausau, Wisconsin, and Midland, Texas, take home more than $14 an hour, or $29,000 a year. The only large metro to pay retail workers more than $14 an hour in 2012 was Seattle.
It’s time to upgrade the pay and working conditions of the millions upon millions of Americans who do retail work for a living.
The first thing to do is to push up the minimum wage. The current national minimum wage is an embarrassment. Once it is adjusted for inflation, it has actually fallen substantially since 1968, from $9.59 per hour in 2014 dollars that year to $7.25 per hour today, according to recent report by Arindrajit Dube, the nation’s leading expert on the economics of the minimum wage. The ratio of America’s’ minimum wage to its median wage for full-time workers has fallen to a sorry 38 percent. Those numbers put the U.S. firmly behind most other advanced, OECD countries, as the graph below from Dube’s study shows.
The good news is that the national conversation on the minimum wage has shifted. Seattle voted to increase the minimum wage to $15 over the next seven years, while San Francisco voted for $15 an hour just this past Election Day. Voters in Alaska, Arkansas, Nebraska and South Dakota all voted to increase the minimum wage, too.
While conservatives worry that raising the minimum wage will put low wage workers out of the workforce and force smaller firms out business, studies by Dube and other leading researchers (including economists David Card [PDF], Alan Krueger, William Lester and Michael Reich) show that this is not the case.
Dube’s research pegs the appropriate minimum wage—one that will boost workers’ living standards while not adversely affecting employment and the economy—at 50 percent of the local median wage to reflect differences in cost of living. His study estimates these localized minimum wages for the 50 states and for all 350-plus metros.
The table below shows the target minimum wages for the 50 states based on 50 percent of the state median wage and based on living costs or regional price parity. These range from a low of $8.30 in South Dakota (which recently increased its minimum to $8.50 by 2015) to a high of $12.45 in Massachusetts.
And living costs vary even more in denser, more knowledge based metros. The table below shows Dube’s calculations for the 20 priciest metros. Here, local minimums range from a low of $8.55 in Miami to a high of more than $13 in D.C.
Washington, D.C., would have a $13.51 hourly wage, the highest in the nation. San Francisco’s would be $13.37 (below, it should be noted, their new $15 level), Boston’s would be $12.85 (up from its current $8.00), New York’s $12.25 (currently $8.00) and Seattle’s $11.85 ($15 by 2017).
The second and bigger task is to upgrade and improve retail jobs. Zeynep Ton of the MIT Sloan School of Management shows the benefits of doing so in her detailed research on leading retail companies, in her book The Good Jobs Strategy. The highest performing retail companies, she finds, are those that pay workers more. The reason is simple: Better-paid employees are more engaged; are a source of innovation and continuous improvement for their companies; and provide better customer service, generating happier customers. Such companies, which include household names like Zara, Costco and Trader Joe’s, not only make more money but become brands that consumers trust. Conversely, companies that pay people poorly end up with dissatisfied employees and dissatisfied customers. Here is what Ton told me in an interview on this site back in 2012:
When companies offer bad jobs, they can find themselves in a vicious downward cycle. Take supermarkets, for example. That’s an industry full of bad jobs—low pay, unpredictable hours, and work that is not meaningful. But it’s also a very complex working environment. In a typical supermarket, employees manage thousands of products, serve more than 2,000 customers a day, and carry out hundreds of sales promotions a week. When you operate such a complex environment with employees who are unmotivated, poorly trained, or overworked because the store is understaffed, the result is operational problems. Products are misplaced or mis-priced … Employees can't answer customers' questions—they may not know or have time. Those problems reduce sales and profits, so sales decline, so labor budgets shrink, so companies invest even less in their people. That’s the vicious cycle. Companies can still make money operating in this cycle, but they are leaving a lot on the table. Customers come as long as there are good deals, but they have no loyalty. …
A lot of people think that the good jobs strategy requires charging customers more—but that’s not true at all. Companies that follow the good jobs strategy offer low prices. A lot of people also think that companies offering good jobs in low-cost industries must have unique characteristics that allow them to do so. That’s also not true. Any firm can follow the good jobs strategy because what makes it work is smart operational choices along with investment in people. …
There’s nothing idiosyncratic about these companies that allows the good jobs strategy to work. They aren’t flukes or special cases. But they do work hard at it and their managements have stood by the good jobs strategy even at tough moments when it would have been convenient to save some money at the employees’ expense. And when they do that, they come out even stronger and more competitive.
Inequality is rising. Our labor market is cleaving into a small share of good, knowledge-economy jobs and a much larger number of low-skill, low-wage service jobs.
But the holiday season—a time for helping others—is the perfect time to focus on rebuilding America’s middle class. To do that, we’ve got to raise the minimum wage and get on with upgrading retail jobs. This will bolster workers’ pay, but it will also improve companies’ bottom lines.
By upgrading the nearly 70 million low-wage jobs that held by more than 45 percent of Americans, we’ll pave the way for a new American middle class, one that is able to support their families with their work.