A Competitive, Living Wage

In the midst of the current debate over increasing the federal minimum wage, it’s interesting to note that 2014 marks the 100th anniversary of Henry Ford’s decision to more than double his workforce’s minimum pay from $2.34 to $5 an hour. The announcement shocked many in the business community at the time since it ran counter to established ideas about business management. But Ford correctly reasoned that higher wages would attract the best talent and that increased labor costs would be offset by increased productivity and lower turnover. I think a lot of businesses today could learn a lesson from Henry Ford.prod-vs-wages

One of the reasons for the widening gap between rich and poor is that despite increased productivity, wages have remained stagnant. Opponents of the raising the minimum wage say that it would either result in layoffs or that increased labor costs would be passed onto the consumer, leading to inflation and negating any positive effect of raising the minimum wage in the first place. It’s a well-documented fact that high turnover costs businesses a lot of time and money in training new workers, so workers who are satisfied with their jobs and their paycheck are less likely to leave. Most economists agree that raising the minimum wage does tend to have a net positive impact on the economy. So what are the benefits of raising the minimum wage or paying workers above the minimum wage?

Wal-Mart is the largest private employer in the world with over two million workers. I admire the company for its incredibly efficient supply chain management but I abhor nearly everything else about how they operate. In their relentless drive to offer the lowest prices they cut costs whenever and wherever possible. While Wal-Mart does often have a lot of good deals, there are hidden costs. Part of their strategy has been to reduce their number of full-time workers to avoid having to pay benefits. You can’t make ends meet when you work part-time on the minimum wage and Wal-Mart’s underpaid workforce has become one of the largest recipients of government social services. Wal-Mart shoppers—a.k.a. U.S. taxpayers—may not realize it, but they are paying more than they think. Companies like Costco and Trader Joe’s, on the other hand, have demonstrated that paying their workers more than the minimum wage is good for business. Like Henry Ford’s auto workers, these retailers have lower turnover and their workers are more productive.

My perspective is that the process of maximizing corporate profits should not come at the expense of the welfare of the worker or society. At a certain point, cutting wages and outsourcing jobs will undercut the very consumer base your company, industry and economy depend on. It’s in the best interest of every business to shore up the foundation of the economy to ensure that everyone does well. The best way to do that is to pay your employees a fair wage. Workers who are treading water will simply not be able to give your company their best effort. If you take care of your employees, they’ll take care of you.