Raise the minimum wage? An alternative approach.
Apparel giant Gap follows other companies like Costco in seeing the business wisdom of boosting wages without a government mandate.
America’s largest apparel retailer, Gap Inc., did something out of fashion Wednesday. It jumped into a debate over raising the minimum wage – not by taking sides on whether government should do it but by simply hiking the pay of its 65,000 workers.
The current federal minimum wage is $7.25. President Obama wants Congress to raise it to $10.10.
Gap’s reasons for its voluntary action came out of its founding purpose of operating from a strong set of values that “do more than sell clothes.” But it also now embraces a strategy that has become more popular with businesses. Gap hopes to enjoy growth by retaining more employees, better motivating them to improve customer service, and avoiding costly staff turnover and training costs.
“To us, this is not a political issue,” said Gap chief executive Glenn Murphy. “Our decision to invest in frontline employees will directly support our business, and is one that we expect to deliver a return many times over.”
In March, the Senate is expected to take up a bill to raise the minimum wage, one of many proposals to address income inequality. The move remains controversial because of possible trade-offs and dueling studies by economists over the effects of enforced wage hikes. Last week, the nonpartisan Congressional Budget Office tried to settle the debate by reporting that Mr. Obama’s proposed hike could lift 900,000 workers out of poverty by 2016 but at a cost of as many as 500,000 jobs.
The CBO’s analysis was helped in part by the fact that 21 states and the District of Columbia now require a minimum wage that is higher than the federal standard. Ten states now also index their minimum wage to rise with inflation.
The CBO report confirms what Federal Reserve Chair Janet Yellen recently told Congress: “Changing the minimum wage has two effects. It raises the incomes of those people who get the higher wage and have jobs, and it may to some extent discourage job creation.”
Many businesses aren’t waiting for economists to agree. Costco, for example, has caught the eye of many executives with its ability to turn big profits yet pay employees an average of $21 per hour, not including overtime. Annual turnover at the big-box discount retailer is under 6 percent. Its workplace functions as a meritocracy based on building trust at all levels.
Keeping a stable, loyal workforce helps boost productivity in many ways, says Zeynep Ton, a Massachusetts Institute of Technology professor and author of a new book “The Good Jobs Strategy.” She says companies that focus too much on lowering labor costs can end up with employees who ignore customers or who do not pass on productivity tips to managers. Firms also pay more in hiring and training.
Her research runs counter to the idea that companies can always be more competitive with the lowest wages. Instead, companies that value their workers rather than seeing them as a cost to be minimized are making smart investments.
Too often, the focus in business is on negative behavior. A good example is Google’s slogan of “Don’t be evil.” Yet employees need positive incentives. In a 2012 academic article, Raymond Smith of Howard University and Daniel Singer of Towson University point out that workers are not devoted largely to measurable material gains.
“Humans can desire a life with higher ideals than satisfying their own needs and a larger purpose than themselves,” they wrote. “Without a spiritual dimension, many people feel unfulfilled and incomplete. To be spiritually self-actualized is an important goal and motivating force for many people. This metaphysical dimension to corporate social policy and reality overall is largely unrecognized by the corporation.
“Values that are critical to effective social responsibility such as love, empathy, compassion, kindness, and caring are not part of the corporate lexicon. Yet these are the very values necessary to creating a viable social presence for large businesses.”
As more companies such as Gap adopt strategies that work for all stakeholders – and not only shareholders – many public debates, such as the current one on minimum wage, might become less heated. Good business practices can lead to good politics.