From the Publisher: Minimum wages, major impacts

While some type of minimum wage is necessary, specific needs should dictate what a retailer is willing to pay its employees, not government intervention.

I am not sure that Gap’s much-ballyhooed decision to unilaterally raise the minimum wage for what it pays its employees would play out too well at most supermSethNEW10-10arket chains.
What I am sure of is that politicians should take a deliberate step back and see exactly how a dramatic spike—minimum wage could rise by nearly 30% over the next three years and then be tied to inflation rates afterwards—will impact such operations as the grocery industry.

While willingly offering all of its lower-compensated employees a bump in pay may work perfectly for Gap, it could hurt grocery stores, leading to declining profits for retailers and eventually forcing merchants to layoff workers to make ends meet. In fact, the rising popular clamor by TV talking heads and in the halls of Congress of dramatically increasing the minimum wage could put a number of grocery chains in financial peril.

Many grocery store executives and industry associations have already confirmed that any significant increase in the minimum wage—even if it is implemented gradually—could have a strong impact on how they operate their businesses. Workers may be getting more money, they argue, but there may just be fewer of them earning those dollars at supermarkets. Confirming these fears, the Congressional Budget Office issued a report in February that said a significant wage increase could cost about 500,000 workers their jobs.

Why the difference in approach from these two types of retailers? The answer is that Gap and other fashion-focused retailers need a somewhat higher level of sophistication from their workers to maximize sales. With relatively high margins and intense competition from other traditional retailers and online merchants, Gap officials have realized that they need to pay their staff better. The goal is that the higher pay will attract more seasoned sales people who can convince shoppers they need to buy that one extra blouse or dress now before they go home and find a better price online.

It should be noted that several upscale or unique grocery operations—including Whole Foods and Costco—have voluntarily decided to raise their own pay minimums, citing the need to reduce employee turnover.

Whole Foods and Costco aside, most grocery stores have few such issues. In fact, the industry has long survived on a business model that stresses the need for lots and lots of low-cost workers who efficiently keep shelves stocked and customers quickly making their way through the checkout. Frankly, paying a cashier more money is most probably not going to help the supermarket bring in more sales and profits.

In the end, politicians need to understand that arbitrarily implementing a wage increase may initially sit well with their constituents, it could cost jobs. Is it not better to have minimal government involvement and let individual businesses—such as Whole Foods and Costco—make the decisions that are best for them, their workers and the community as a whole?

This entry was posted in 2014 04 Article Archives, Columns and tagged , . Bookmark the permalink.

Leave a Reply

Your email address will not be published.