In January, Aetna (a Center for Higher Ambition member company) announced that it was raising its minimum wage in the United States to $16.00 per hour. CEO Marc Bertolini told the media that it was “the right thing to do” and that he hoped that it would help the insurance company attract and retain the best talent. The wage increase was part of a broader initiative that included benefits increases as well.
In February, WalMart announced that it was raising its minimum wage to $9.00 per hour, giving a raise to approximately 500,000 workers. The rate will rise to $10.00 next year.That generated extensive media coverage as WalMart is the largest private employer in the U.S. Retail rival TJX Companies quickly announced that it would match the raise. How does one look at these moves through a Higher Ambition lens?
WalMart CEO Doug McMillon called the company’s wage increase a “bold” move to improve their customers’ experience. High turnover and low engagement were reflected in the service customers received and that, in turn, hurt the bottom line. McMillon told CNBC that the company hoped increasing wages and training would boost employees’ feelings of ownership and pride in the company and reverse the service slide. That certainly sounds like a Higher Ambition approach–engaging the full range of stakeholders in ways that result in both superior financial and social value creation.
There are other views, however. Daniel Gross, managing editor at Strategy+Business wrote that compliance may have been a stronger force in these moves than is indicated in the press releases. He noted that while the federal minimum wage remains at $7.95 per hour, states and cities have taken the initiative to move the minimum higher. California, a major employment state for each of these retailers, raised its minimum wage to $9.00 in 2014 and it will move up to $10.00 next year. In total, 29 states and the District of Columbia mandate a minimum wage higher than the federal standard. Additionally, the growing number of open jobs nationally means that WalMart and its rivals are in a more competitive labor market.
We will take McMillon at his word as his sentiments reflect an understanding of the link between associate job satisfaction and consumer behavior (documented over many years by the work of Jim Heskett and colleagues at Harvard Business School on the “service-profit chain.”).
Still, the arguments that wage increases–particularly government-mandated increases in the minimum wage–kill jobs and hurt the economy. The hard evidence indicates that this is not true. Arindrajit Dube is an associate professor of economics at the University of Massachusetts and has spent more than 10 years examining this issue. He recently told UMass Magazine:
“What we found went against the simplest economic theory that says when the price of something rises, demand for that thing falls. Whether you look at a low-wage sector like restaurants or retail or a low-wage workforce like teens, when the minimum wage went up there was no reduction in jobs.”
Dube noted that the wage increases in individual states and cities has made it possible to study minimum wage differential in greater depth. He and his colleagues looked at “504 border counties in 316 distinct pairs straddling states with different minimum wages over a 17-year period.” The benefits they found were significant: a “sharp reduction in turnover” and while the wage increase correlates to a minor rise in prices, “the impact on the overall inflation rate is extremely small.” The research also showed that a 10% increase in the minimum wage decreases the poverty rate by 2% and lowers the demand for food stamps.
Will these private moves ignite a wage war? Only time will tell. We hope that Aetna, WalMart, and others catalyze a robust discussion of the role of workers as vital stakeholders in a company’s ability to compete and thrive over the long term. A greater understanding of how each stakeholder contributes to financial and social success is a Higher Ambition conversation worth having.