‘Living Wage’ Movement Beckons CEOs To Respond

While the ‘Living Wage’ issue seems to affect only the largest retailers and fast-food giants, the effort, if successful, will alter every business’ ability to enter into basic agreements with individuals resulting in a benefit for both parties.

December 1 2013 by Dale Buss


More CEOs in retail, quick-serve restaurants and other industries where low wages prevail likely will be probed for their own views on this pestering concern in the months ahead. Just this week, Swedish bargain-fashion giant H&M said that it would ensure its international garment workers are paid a “sort of” living wage; and, like socialism and brie, what is popular in Europe eventually comes to American shores.

But a near-minimum-wage, largely part-time workforce is essential to business models in industries such as discount retailing and fast food because companies require market-bottom overhead to make their goods affordable to their crucial clientele of low-income Americans. Average wages also hover below what it would take for an American household to survive in part because turnover is high in these businesses.

Walmart proved that even extremely leftist politicians can be reasoned with on this score when it won its battle to overturn a requirement, passed several weeks ago by the Washington, D.C., city council, for the chain to pay a minimum wage about 50 percent higher than the $7.25-an-hour federal minimum in the six stores the company was planning to build in the area. The trumping argument was the low prices, variety of retail goods and hundreds of reliable jobs that Walmart was bringing to downtrodden sectors of D.C.

The world’s largest retailer also argues against living-wage mandates because it crimps opportunities for upward mobility of labor. Duke’s just-named heir apparent as CEO of Walmart, Doug McMillon, started with the company in 1984 as a summer part-time hourly worker in a distribution center.

McDonald’s Don Thompson uses a similar rationale to parry with living-wage adherents. He asserts that McDonald’s provides one of the most important gateways in America for upward mobility of labor. About 40 percent of McDonald’s executives started as hourly employees, and half of the chain’s franchisees did as well, Thompson told the Chicago Tribune. “There is no other institution I know of that can boast of those opportunities and success stories,” he recently told Bloomberg TV.

Other CEOs in these verticals have been pitching in to make some of the same arguments. “The benefit of this industry is we’re one of the largest employers of those who don’t have a good start otherwise,” Denny’s CEO John Miller said recently. “Many can start in this industry and work their way to management or ownership.”

Some other CEOs have let it be known that they’d like to see the federal minimum wage rise to closer to a living wage. Costco President Craig Jelinek, for instance, recently came out in support of the Fair Minimum Wage Act of 2013, which aims to raise the federal minimum wage to $10.10 an hour then adjust after that for inflation. But Costco already pays a starting hourly wage of $11.50, and its clientele isn’t low-income Americans but rather middle- and upper-class consumers in search of great bargains.

Economists are clear that most of the evidence points to job loss following wage hikes. Yet, clearly the living-wage movement seems to be gaining a sort of momentum, not least because the sluggish U.S. economy is retarding business expansion and thus upward mobility and consumer incomes. But understandably, the case against the Obama administration in this regard is one that CEOs are ginger about making as a partial defense against the living-wage critique.

Recent research by a small group of economists affiliated with the labor-aligned Institute for Research on Labor and Employment doubted prior studies on the minimum wage that blamed the policy for a drop in employment opportunities among less-skilled employees and in service-concentrated industries. But a foremost expert, David Neumark at the University of California-Irvine, has come out not only pointing to “serious problems with these research designs” but also new, “stronger evidence of disemployment effects.”

In fact, the living-wage “movement” generally seems to represent the next evolution of the failed Occupy Wall Street trope of a couple of years ago. Thus, the movement is being supported by the usual anti-capitalistic forces in celebritydom and the news media. Actor Ashton Kutcher, for instance, recently took to his heavily followed Twitter account to criticize Walmart for its wage structure. “Walmart, is your profit margin so important you can’t pay your employees enough to be above the poverty line?” Kutcher tweeted.

So, continuing to present their rationale as a business and economic argument soon may no longer cut it for CEOs such as Duke, Miller and Thompson. Living wages is a critique that appears to be here for the long haul.

Read: http://www.washingtonpost.com/business/economy/walmart-wages/2013/11/21/8447fa5c-5228-11e3-9e2c-e1d01116fd98_story.html

Read: http://online.wsj.com/news/articles/SB10001424052702304281004579219911549411936

Read: http://articles.chicagotribune.com/2013-07-24/business/chi-mcdonalds-don-thompson-20130724_1_minimum-wage-chief-executive-don-thompson-oak-brook-based-burger-chain

Read: http://www.huffingtonpost.com/2013/03/06/costco-ceo-minimum-wage-craig-jelinek_n_2818060.html?view=print&comm_ref=false

Read: http://finance.yahoo.com/blogs/breakout/15-minimum-wage-denny-ceo-weighs-worker-pay-162034442.html

Read: http://www.epionline.org/studies/Neumark-01-2013.pdf

Read: http://www.nber.org/papers/w18681