The Walmart egg cracks at last

The Thinker by Rodin

Walmart protesters like me are cheering, somewhat tentatively. We are celebrating Walmart’s announcement this week that it is raising its starting wages. Walmart will boost starting wages to $9 per hour this year and it will raise them to $10 per hour by February 2016. $10 an hour is still not a living wage, but it is at least a start in the right direction. In addition, Walmart is changing policies to allow more predictive schedules for its employees, many of who are part time and many of who have to struggle their Walmart schedules with other job schedules. Employees will know more than two weeks in advance what their hours will be and when their hours will be. In addition, those desiring more hours will be able to request them. This good news is trickling up. Department managers will get a raise too, up from $13 an hour to $15 an hour.

So hip hooray, for Walmart, but certainly not a hip-hip hooray. Walmart has obviously been assessing the optics of its labor policies for a long time. Organizations like Making Change at Walmart have given widespread attention to their lagging wages, and the hassles and often brutish conditions that their employees endure. This included some strikes, sit-downs and walkouts, not to mention Black Friday protests such as I helped organize last year. It is quite likely that without these events there would have been no announcement this week from Walmart.

I have been focusing on Walmart’s unfair labor practices for many years because I believed it was where the fulcrum of labor change needed be applied. This is because it is the nation’s (if not the world’s) largest private employer. So affecting real change in Walmart was likely to have a nudging effect on all the other private employers out there. Indeed, that is the expectation. There is at least one Walmart in any community of size. $10 an hour may still not be a living wage, but when someone looking for a job has a choice between Walmart at $10 an hour and washing dishes at an Applebees at $7.25 an hour, they will go with Walmart. Walmart gets a richer set of potential employees to choose from. To compete at some point Applebees has to raise its wages too.

Unquestionably some of this is due to the improving economy. With the official unemployment rate at 5.8 percent and many disaffected people rejoining the labor market each month, the labor pool is tightening up at last. A number of employers have been proactive. Costco and Wegmans have long paid their starting employees a living wage and not coincidentally have prospered. Starbucks, Gap Inc., Hobby Lobby and IKEA have all seen this freight train coming their way and recently raised wages. Walmart then is something of a laggard. However, due to its size it has sent a signal that other employers must respond to or have their businesses put in peril.

I doubt that the bean counters at Walmart have figured this out, but raising their employees’ wages is good for their bottom line as well. Most likely much of the raises will be spent at Walmart. As starting wages are raised nationwide Walmart stands to increase sales, as they cater to value customers that come predominantly from the middle class, working class and poor. Happier employees are likely to be more productive as well, which means that Walmart’s notoriously poorly stocked shelves may be less so in the future.

It also means, however marginally, that money which would have otherwise gone toward the rich, where it is unlikely to be spent, will instead go toward the working class, where it will almost certainly be spent. In short, it will mean that the economy will grow more than it otherwise would have. Since the United States leads the world economy, our greater prosperity and our demands for goods and services will spur the world economy, the beginning of a virtuous cycle.

None of this should be news, but it may be to those who favor austerity. Walmart’s and all employers’ low wage policies are ultimately self-defeating. Low wages create high turnover and lower employee morage. Low wages do not build employee loyalty and give no onus for employees to be productive. Low wages make employees feel used instead of valued. It creates unnecessary conflict between employees and management and creates the conditions for labor to organize that employers don’t like. It taints businesses by projecting them as cheap, uncaring and harsh.

It also tends to stifle business creativity. Fast food restaurants like Chipotle are prospering by offering fresher, tastier, trendier and more natural foods. Chipotle’s simple use of a cafeteria line moves customers through more quickly and more cheaply while allowing them to pay employees more while needing fewer of them. In short, this makes them more productive and profitable. McDonalds, which has used the counter methodology for its more than sixty years in business, can’t seem to rethink its business model in such obvious ways. Clinging to tradition rather than embracing change is a major reason for their lackluster sales.

Employers that demonstrate that they value employees in the form of living wages set up a virtuous cycle wherein higher profits are a probable outcome of a generous corporate philosophy. Walmart is beginning to dimly grasp this but in fact this is what worked for American for most of the latter half of the 20th century. In truth, Walmart’s profitability is centered on its ability to treat its employees with respect through living wages and humane working conditions. Without employees it simply cannot survive. It needs to see its employees as invaluable and treasured assets, not as commodities. Living wages are the primary way to demonstrate this. Then Walmart may see sustainable increases in sales and profits again.

The power and profitability of treating workers with dignity

The Thinker by Rodin

It’s taken a few years but striking fast food and Walmart workers are slowly getting some national attention. This Black Friday there was a continuation of strikes and protests that happened on Black Friday 2012, only bigger, with at least 111 protestors arrested around Walmart stores nationwide. Organizers at Our Walmart, a group organizing Walmart workers (I have given to their strike fund) claim 1500 actions at Walmarts nationwide, up from 400 last year.

One-day strikes at fast food restaurants, which used to be rare, are now becoming routine as well. Just the other day a strike was held by workers at a McDonalds inside the National Air and Space Museum here in Washington, D.C. The workers there are making the minimum wage of $7.25 an hour. You would think that since these are federal facilities, contracts with fast food vendors would require contractors to pay their employees a living wage. But you would be wrong.

Even Walmart would agree that the facts prove their minimum wage jobs do not pay a living wage. Studies of various states routinely show Walmart employees as the largest group of recipients of food stamps in the state. Unsurprisingly, McDonalds is usually number two. On their employee web sites, both Walmart and McDonalds suggest their employees utilize public subsidies to increase their standard of living, a standard of living they refuse to provide.

This week in Washington D.C. the first two Walmarts opened in the city. There was much rejoicing, but not because their employees were going to be paid a living wage. Walmarts in the city mean that the city’s voluminous poor no longer need to take long and expensive subway and bus trips to the suburbs to get those Walmart low prices. It’s increasingly obvious though why their prices are so low. It’s because Walmart doesn’t see a point in paying a living wage when the government will keep their employees from starving for free. Food stamps will help provide basic nutrition for their employees, and Medicaid will provide health insurance of a sort thanks to the Affordable Care Act. In fact, don’t expect Walmart and McDonald’s lobbying firms to be pressing the government to get rid of food stamps and Medicaid. Their business model and profit forecasts depend on them.

What’s particularly infuriating though is that both of these employers could easily pay their employees a living wage and still make stockholders happy. They just choose not to do so. Various studies have looked at the cost of these benefits versus their profits, and it is easily affordable. They just see no point in doing this because federal subsidies effectively take taxpayer’s money and give it to their shareholders instead. And this is because we have no law that says employers must pay a living wage.

Critics of those proposing a national $15 an hour minimum wage simply say this means that employers will cut jobs. After all, they can hire two people at $7.25 an hour for one person at $15 an hour. The problem with this logic is that you cannot actually survive on $7.25 an hour without public subsidies and likely a second or third job as well. Naturally, this doesn’t bother these employers. They are in business to make money, not to be sensitive to their employees’ feelings and wallets.

If all public subsidies were removed tomorrow and the minimum wage was not raised, these employees would be showing up at work hungry (as many already do, particularly toward the end of the month) or, more likely, would have no fixed address because they could not afford rent. Their unwashed condition would probably not allow them to be employable at all. Which goes to prove that a minimum wage is not a living wage. Instead, it is a recipe for continued poverty.

There are reasons that even a Republican should embrace for paying a living wage. For those who think the government should do less, making employers pay a living wage means that federal and state governments don’t have to provide food and social services to these low wage earners. It reduces the costs and scope of the federal government.

It also ends indirect corporate subsidies. It allows companies to prove that they really are more efficient than other companies by removing the incentive toward employee inefficiency that comes with government subsidies. Think about McDonalds today and compare it to McDonalds thirty or forty years ago, if you are old enough to remember back that far. I am old enough and I can tell you for a fact very little has changed other than the menu has gotten unhealthier and the cash registers are now electronic. For forty years McDonalds has not really rethought how its restaurants could deliver better food, do so more efficiently and — here’s a crazy idea — with some actual employee engagement.

Yet Costco has found a business model that more than pays their employees a living wage, and still allows them to thrive as a business and be a leader of low prices. What incentive does Sam’s Club (a subsidiary of Walmart) have to prove their mettle when Costco can do what it refuses to do and Walmart’s profits can be boosted by government subsidies to its employees?

Perhaps most importantly, any employer worth his salt has learned long ago that employees will be more productive if you make it worth their while. They must have missed those videos by sociologist Morris Massey, such as this clip you can see on YouTube. If you want to get the best from your employees, listen to what they have to say.

It’s not that Walmart and McDonalds employees are unproductive. They are like a hamster on its wheel. They always work at top speed because they are always being monitored. They are also being told exactly how to do their job with no ability to be innovative. So mostly, they burn out or turn dull and unremittingly sullen. You can’t keep this up forever at $7.25 an hour so you will tend to quit. Even if the next job only pays $7.25 an hour, you quit on the hope that maybe you won’t have to run so quickly on the wheel with the next employer.

These “associates” have no particular loyalty because they are not given any incentive to be loyal. Give them incentives, in the form of higher pay, more interesting and challenging work, and by incorporating their ideas into the business, and you might earn some loyalty and by extension more profit. More importantly, you unleash the power of their imaginations. They’re not stupid and have plenty of great ideas on how to do things better, just no incentive to divulge them. Leveraging their ideas is a great business model. With Costco’s living wage they became keys to Costco’s success, and the key reason Walmart’s revenue stream is suffering.

The slaves on southern plantations gave all they could as well, and generally resented it. At some point they either rebelled or simply gave up. A death by beating is at least an end to suffering.

Walmart, McDonalds and most of these retailers and fast food outlets simply suffer from a poverty of imagination. The way to a sustainable business model and a happy workforce is to stop treating their “associates” like cogs in the great wheel of business. Instead, treat them as people with actual needs, like the need to have a roof over their heads and food to eat.

As a matter of public policy, there should be a national minimum wage guaranteed to be a living wage and it should be indexed automatically for inflation. It should probably vary geographically depending on the local cost of living. For those employers too unenlightened to understand that real profit comes from harnessing the minds and creativity of their employees, it at least sets a bar of decency. Any businessman worth his salt will be anxious to pay their employees more for the privilege of leveraging their thoughts and creativity to make their business thrive long into the future.