This week, economist and former U.S. Secretary of Labor Dr. Robert Reich made what seemed to me to be a common sense statement:
“Corporations don’t create jobs. Customers do. So when all the economic gains go to the top, as they’re doing now, the vast majority of Americans don’t have enough purchasing power to buy the things corporations want to sell – which means businesses stop creating jobs.”
That seems very basic. No matter how nice items may be, if you can’t afford to purchase them, you can’t buy them. If people are not buying items, the workers that produce them are no longer needed. The so called “job creators” at the top of the corporation then react by cutting wages, hours, and employees.
That seems simple enough, but his remarks raised the ire of those at the top and their friends who do not like having their status questioned.
Yet as some companies have chosen to keep wages low, others have realized investment in employees helps produce positive outcomes.
A former college roommate shared an article with me from the Wilson Quarterly which reported “Investment in employees allows for excellent operational execution.”
It points out the average earnings of a cashier in 2010 was $20,000. According to the Department of Health and Human Services, this is below the poverty level for a family of four, often below the level that would allow them to purchase the goods they are selling.
The Wilson article notes that some retailers have found it possible to significantly increase wages while maintaining impressive financial returns along with low prices and excellent customer service. It cites a study from MIT’s Sloan School of Management, which studied four highly successful retail businesses including Costco, Trader Joe’s, the convenience store line QuikTrip, and a Spanish supermarket chain.
The study reported a “virtuous cycle” of success. They said this success “begins when a store opens with adequate numbers of decently paid staff. Starting wages at Trader Joe’s amount to $40,000 a year, and Costco pays about 40 percent more than its leading rival, Sam’s Club. Coupled with generous pay are training and promotion opportunities that give employees a way to see a future for themselves. Not surprisingly, these chains’ stores boast some of the lowest turnover rates in the industry.”
That seems good for the employees, but what about the employer? The article goes on to note, “Investment in employees allows for excellent operational execution, which boosts sales and profits, which allows for a larger labor budget, which results in even more investment in store employees.”
Better opportunities and compensation for employees, coupled with reduced costs in other areas and increased efficiency, have created a successful, profitable environment.
The author also notes this approach is not just applicable to retail. “Hospitals, restaurants, and banks could all benefit from a similar approach. Bad jobs are not a cost-driven necessity but a choice,” the author writes.
Better wages and increased job security can enable the employees to be purchasers of other goods and services. As Dr. Reich points out, this is necessary for the creation of jobs and expansion of the economy.
For more information about the MIT study, see “Why ‘Good Jobs’ Are Good for Retailers” by Zeynep Ton, Harvard Business Review, Jan.–Feb. 2012.