Paying workers more is better for everyone

[weemadando]

http://www.demos.org/publication/retail ... overall-ec

It's an enormous article and I'm on mobile so even excerpts are a pain. But the gist is that paying retail workers in larger organisations roughly 25% more would result in lifting many people and families out of poverty at a very marginal (cents per visit) cost to the consumer.

I'm still working through it, but it seems consistent thus far.

[Rogue 9]

I was about to quote it for you, but then I got to the "executive summary" heading and realized I was looking at what amounts to a research paper more than an article. I don't know if it would hit the character limit, but don't feel like finding out. In any case, thanks for posting; it's making for a very interesting read so far.

[Guardsman Bass]

It looks like they mainly studied the impact on the biggest retailers. I'm more concerned about how it might impact other sectors of the economy, as well as smaller retailers and service businesses with lower profit margins in terms of employment.

[Napoleon the Clown]

Related

Over the past decade, the Japanese fashion chain Uniqlo has become among the most successful retailers in the world. Its success is due in large part to the fact that it has found a way to sell basic stuff that is not only affordable but also stylish and durable. And there’s something else that makes Uniqlo distinctive: it hires a lot of people, and spends a lot of time training them. When the company opened its flagship Fifth Avenue store, last fall, it hired six hundred and fifty people, and pledged to have four hundred people working there at any one time. This is not the way most retailers do business. The general dogma in recent decades has been that, in order to compete on price, you need to keep labor costs down—hiring as few workers as you can get away with and paying them as little as possible. Although leanness is generally a good thing in business, too much cost-cutting turns out to be a bad strategy, not only for workers and customers but also for businesses themselves.

A recent Harvard Business Review study by Zeynep Ton, an M.I.T. professor, looked at four low-price retailers: Costco, Trader Joe’s, the convenience-store chain QuikTrip, and a Spanish supermarket chain called Mercadona. These companies have much higher labor costs than their competitors. They pay their employees more; they have more full-time workers and more salespeople on the floor; and they invest more in training them. (At QuikTrip, even part-time employees get forty hours of training.) Not surprisingly, these stores are better places to work. What’s more surprising is that they are more profitable than most of their competitors and have more sales per employee and per square foot.

The big challenge for any retailer is to make sure that the people coming into the store actually buy stuff, and research suggests that not scrimping on payroll is crucial. In a study published at the Wharton School, Marshall Fisher, Jayanth Krishnan, and Serguei Netessine looked at detailed sales data from a retailer with more than five hundred stores, and found that every dollar in additional payroll led to somewhere between four and twenty-eight dollars in new sales. Stores that were understaffed to begin with benefitted more, stores that were close to fully staffed benefitted less, but, in all cases, spending more on workers led to higher sales. A study last year of a big apparel chain found that increasing the number of people working in stores led to a significant increase in sales at those stores.

The reasons for this aren’t hard to divine. As Fisher, Krishnan, and Netessine show, customers’ needs are pretty simple: they want to be able to find products, and helpful salespeople, easily; and they want to avoid long checkout lines. For a well-staffed store, that’s no problem, but if you don’t have enough people on the floor, or if they aren’t well trained, customers can easily lose patience. One of the biggest problems retailers have is what is called a “phantom stock-out.” That’s when a product is in the store but can’t be found. Worker-friendly retailers with more employees have fewer phantom stock-outs, which leads to more sales. And happy workers tend to stick around, which saves the costs associated with employee turnover, like hiring and training.

It’s true that, at some point, hiring more people yields diminishing returns. And, of course, if you have a lousy product selection, a bigger payroll won’t help much. But there’s a strong case to be made that corporate America’s fetish for cost-cutting has gone too far. Some of the highest-profile retailers to flop in recent years were companies that made a big deal of slashing payroll costs. In 2007, Circuit City fired more than three thousand of its most experienced salesmen, replacing them with newer workers whom it could pay less. Its sales dropped, and it was bankrupt within a couple of years. When Bob Nardelli took over Home Depot, in 2000, he reduced the number of salespeople on the floor and turned many full-time jobs into part-time ones. In the process, he turned Home Depot stores into cavernous wastelands, with customers wandering around dejectedly trying to find an aproned employee, only to discover that he had no useful advice to offer. The company’s customer-service ratings plummeted, and its sales growth stalled.

If investing in employees yields such big dividends, why don’t more retailers do it? Partly, it’s a matter of incentives: store managers are typically evaluated on their payroll costs. Moreover, the benefits of keeping payroll costs low are immediate and easy to see, whereas the benefits of hiring more people are long-term and harder to track. On top of this, keeping a large staff runs counter to one of the most important trends in retail: making customers do more of the work. We’re all familiar with the phenomenon of outsourcing work to foreign companies. But there’s also been a great deal of outsourcing work to customers. Often enough, this is a good thing: the self-service layout of a modern supermarket offers more freedom than an old-fashioned grocery counter, where you have to ask for things. It seems easier to pump your own gas at a gas station than to wait for an attendant, and people are increasingly happy to use a self-service kiosk at an airport instead of standing in line for a check-in agent. But you can only outsource so much work before alienating your customers. And in retail stinting on employees doesn’t actually save you money. It just gets you less for less.

Basically, better pay and training means more productive employees because they know what they're doing and are happier. There is a point where returns diminish, but having a well-payed staff with enough bodies present makes a company more successful because the workers give more back to the company, leading to more satisfied customers.

[Flagg]

Basically, better pay and training means more productive employees because they know what they're doing and are happier. There is a point where returns diminish, but having a well-payed staff with enough bodies present makes a company more successful because the workers give more back to the company, leading to more satisfied customers.

Which makes sense. Because even though it's less convenient I'd rather go to Target or Fred Meyers to get a videogame than fucking Wal Mart where I'm lucky to find someone to open the case and ring me up before hell freezes over.

[aerius]

It's even worse these days since Amazon and various other online retailers have almost everything you need. If the store doesn't have trained, helpful employees who can service the customers, it pretty much becomes a showroom for internet shopping. Customers will walk in and fondle the goods, then walk right back out and put in an order to Amazon. If you can provide them with good helpful service, a decent number of customers will either buy the goods right then & there or feel guilty or obliged enough to come back and buy something at some point in the future.

[Lord Zentei]

Efficiency wages is a time-honoured concept in econ, so it's not all that surprising.

Wal-Mart doesn't believe in it, though.

[Simon_Jester]

Good economics as outlined by economists can get twisted up pretty bad when implemented by consultants and MBAs.

[Highlord Laan]

Basically, better pay and training means more productive employees because they know what they're doing and are happier. There is a point where returns diminish, but having a well-payed staff with enough bodies present makes a company more successful because the workers give more back to the company, leading to more satisfied customers.

Which makes sense. Because even though it's less convenient I'd rather go to Target or Fred Meyers to get a videogame than fucking Wal Mart where I'm lucky to find someone to open the case and ring me up before hell freezes over.

[rugged individual murrican] That sounds like COMMIE TALK![/rugged individual murrican]

It's not a hard concept to grasp. Happy, well paid workers work harder, have better morale, and interact with the business as a whole much better than a wage-slashed, begging for hours serf-in-all-but-name.

Try getting any corporation in the US to believe that. In this proud nation, you're supposed to grab your ankles and like it you goddamed socialist!

[Lord Zentei]

[rugged individual murrican] That sounds like COMMIE TALK![/rugged individual murrican]

It's not a hard concept to grasp. Happy, well paid workers work harder, have better morale, and interact with the business as a whole much better than a wage-slashed, begging for hours serf-in-all-but-name.

Try getting any corporation in the US to believe that. In this proud nation, you're supposed to grab your ankles and like it you goddamed socialist!

Translation: HURR DURR I BE LIBERAL, USA BAD FREE MARKET BAD CORPORATIONS BAD AMERICA BE STUPID REDNECKS LOLOLOL.

Counterpoint follows.

PDF Linka.

account of, for example, the competitiveness of particular sectors, which are ..... evidence for efficiency wages being strongest in the US, Canada and Italy, the ...

This is well illustrated by a comparison of the US and Germany since the mid 1990s: while the growth rates of wages and total labour compensation per employee were much closer to the growth rate of productivity in the US than in Germany (i.e. there was less wage moderation in the US), productivity and output grew faster in the US than in Germany, as did aggregate employment.

Let us avoid sweeping generalizations.

[weemadando]

Not to mention the flow on benefits of millions of people having more money to put into the economy (especially the local economy), reducing the REAL AND GENUINE MENTAL AND PHYSICAL ILLNESS RISKS associated with poverty and also reducing the likelihood of long term dependence on welfare and intergenerational poverty factors.

It's almost as if a genuine living wage is something that every sane nation had legislated for.

[Lord Zentei]

It's almost as if a genuine living wage is something that every sane nation had legislated for.

Ironically, as the article I posted shows, the USA actually had less wage moderation than for example Germany in the 1990s. Despite the USA being more liberalized and less unionized than the EU.

[weemadando]

What are Germany's industrial relations laws like? I know my friends there frequently gloat about their six weeks of annual leave, so I can't imagine they're *that* draconian.

[Lord Zentei]

I don't know the details of German wage laws, to be honest. Though the article speaks of wage rate of growth relative to productivity growth; it doesn't really go into amenities. These might well be more favourable in Germany than the US.

I do know that Germany is more heavily unionized than the US (not that this is hard to accomplish, lol), specifically about twice as high, IIRC (as I recall, it is something like 12% to 23% or something like that).

[Darth Wong]

Counterpoint follows.

PDF Linka.

account of, for example, the competitiveness of particular sectors, which are ..... evidence for efficiency wages being strongest in the US, Canada and Italy, the ...

This is well illustrated by a comparison of the US and Germany since the mid 1990s: while the growth rates of wages and total labour compensation per employee were much closer to the growth rate of productivity in the US than in Germany (i.e. there was less wage moderation in the US), productivity and output grew faster in the US than in Germany, as did aggregate employment.

Let us avoid sweeping generalizations.

On the contrary, all such analyses are based on generalizations, albeit generalizations derived from statistical data. In this case, they point out the interesting fact that wage share of GDP is equal between the US and Germany, despite the much stronger German trade unions. However, that doesn't necessarily contradict any statement about wage inequality in the US or deplorable conditions for low-income workers; it does not take a mathematical genius to see that if wage stagnation at the low end and wage increases at the high end balance out, then the wage share of GDP won't change.

[K. A. Pital]

As someone working in Germany I must say Germany treats unionzed workers far better than non-unionzed ones (which would obviously make the desire to have a union a lot stronger) and in general the worker relations culture is significantly different from the US, which is reflected in the laws as well.

Yes, there's "no more work than 10 hours per day - by law", whereas a month should be 8 hours/day on the average (the rest should be negotiated with the union; and monthly overtime also has a limit), and "30 work days of leave", so as weemadando could already guess, working in Germany in a company which follows the regulations (important - cause many smaller ones shit on 'em) is quite good.

[Lord Zentei]

Granted, the PDF does not imply anything about the wage inequality in the US. It was merely intended to show that it is wrong to assume that the US would shy away from paying efficiency wages.

[Stormin]

The crap some companies are pulling is pretty disgusting these days. Afriend applied at a clothing store and was told that, if hired, she was assured eight hours a week min but not on any set schedule and as a condition of working there the employees were outright not allowed to have a second job.
Companies that do this should be forced to pay extra to the government to cover welfare, food stamps etc that their low pay and random schedules force their workers to use.

[ryacko]

Not to mention the flow on benefits of millions of people having more money to put into the economy (especially the local economy), reducing the REAL AND GENUINE MENTAL AND PHYSICAL ILLNESS RISKS associated with poverty and also reducing the likelihood of long term dependence on welfare and intergenerational poverty factors.

It's almost as if a genuine living wage is something that every sane nation had legislated for.

Money is a meaningless metric, rather allocating more resources towards workers makes them more productive. Regardless, these workers are receiving more resources then their ancestors have. Maybe they should try consuming less. I don't own an I-Pod.

Besides, these companies will get what's coming to them. Low worker morale = higher theft, lower productivity, eventual socialist revolution

[Gandalf]

Besides, these companies will get what's coming to them. Low worker morale = higher theft, lower productivity, eventual socialist revolution

You're being stupid. Stop it.

It takes a lot more than just unhappy workers to make a revolution, otherwise there would have been more than a few during the last hundred years in the US alone.

[ryacko]

Besides, these companies will get what's coming to them. Low worker morale = higher theft, lower productivity, eventual socialist revolution

You're being stupid. Stop it.

It takes a lot more than just unhappy workers to make a revolution, otherwise there would have been more than a few during the last hundred years in the US alone.

True, it's more like severe incidents of social unrest and anarchist bombings.

[Esquire]

Which we also haven't had in the US.

[ryacko]

Early 1900s
http://en.wikipedia.org/wiki/Wall_Street_bombing
http://en.wikipedia.org/wiki/Lexington_Avenue_bombing
http://en.wikipedia.org/wiki/Los_Angeles_Times_bombing
http://en.wikipedia.org/wiki/May_Day_Riots_of_1919
http://en.wikipedia.org/wiki/1919_Unite ... t_bombings

1968 - onwards
http://factsanddetails.com/world.php?it ... bcatid=385
http://rense.com/general87/quick.htm
http://en.wikipedia.org/wiki/List_of_in ... ates#1960s
http://en.wikipedia.org/wiki/List_of_Weatherman_actions
http://www.fbi.gov/news/stories/2004/ja ... her_012904
http://en.wikipedia.org/wiki/1983_Unite ... te_bombing


Never say never.

[Zaune]

Early 1900s
http://en.wikipedia.org/wiki/Wall_Street_bombing
http://en.wikipedia.org/wiki/Lexington_Avenue_bombing
http://en.wikipedia.org/wiki/Los_Angeles_Times_bombing
http://en.wikipedia.org/wiki/May_Day_Riots_of_1919
http://en.wikipedia.org/wiki/1919_Unite ... t_bombings

1968 - onwards
http://factsanddetails.com/world.php?it ... bcatid=385
http://rense.com/general87/quick.htm
http://en.wikipedia.org/wiki/List_of_in ... ates#1960s
http://en.wikipedia.org/wiki/List_of_Weatherman_actions
http://www.fbi.gov/news/stories/2004/ja ... her_012904
http://en.wikipedia.org/wiki/1983_Unite ... te_bombing


Never say never.

You could also probably count a fair percentage of the people who walk into their place of work or a government building with a pistol under their coat and open fire at random towards that total; the reason given may be somewhat different, but the state of mind one has to be in to carry it out is probably quite similar.

Either way, his overall point is quite valid. If the status quo continues indefinitely then someone, some day, is going to take it into their heads to water the tree of liberty with the blood of innocent bystanders.

[Dr. Trainwreck]

Regardless, these workers are receiving more resources then their ancestors have. Maybe they should try consuming less. I don't own an I-Pod.

Well, there I stood minding my business and there was this, like, this tingling sensation that some idiot would once again begin screaming about how it is all the fault of the workers. And then ryacko jumped up and shouted, proud as fuck: "A hundred years ago, working class families could expect to have six kids and lose three of them to malnutrition or illness. Now they no longer die like flies, so any problems are their fault." And I was, like, "WTF dude? There are things between starving to death and being satisfied with your life. My oven is literally smarter than you because he (I call it Jerry) can work in more than two settings."