Facing a tight labor market as the holiday shopping season approaches, many retail companies will undoubtedly consider following the lead of Amazon, which recently announced that it is raising its minimum hourly wage for all of its U.S. employees, including those working at Whole Foods stores, to $15 — $7.75 above the federal minimum wage.
Higher wages are good for retail and other low-wage service workers. So, we applaud Amazon’s decision and hope others will do the same. Higher wages are also necessary for many companies that are stuck in a vicious cycle of bad jobs, bad operations, bad customer service, low productivity, and high costs. But higher wages alone are not enough to break this vicious cycle. Unless accompanied by other changes, higher wages will likely reduce company profits and will not turn bad jobs into good ones.
Drawing on the concept of “efficiency wages,” some economists argue that higher pay can by itself improve performance by enabling companies to attract and retain better people and by motivating employees to work harder. But without other changes, we expect these benefits to be small. As one of us has witnessed first-hand while working at a large retailer, even highly skilled and motivated workers will not be able to be as productive as expected because the company’s operational systems got in their way, wasting rather than maximizing their skills and enthusiasm.
We see roadblocks like this all the time and, if you do any store shopping, so do you. For example:
- Constant display changes that take hours to set up and break down — hours that could have been spent on much-higher-value work like helping customers and trying out process improvements.
- Last-minute promotion or delivery changes that require managers to spend their time on last-minute schedule changes, which then disrupt employees’ lives and drive absenteeism, turnover, and understaffing, all of which increases the likelihood of errors.
- Employees who are not empowered to improve their work or solve customer problems. They need management approval for even the smallest things, such as accepting a return or making a price change. When they have an idea for improvement, they are shut down by a manager who is already overwhelmed with all the firefighting she or he has to do.
- Equipment and technology — such as scan guns, refrigerators, and training or scheduling software — that frequently breaks down, forcing employees to spend hours on the phone with help desks or just go without critical equipment for days or weeks.
- Stores overwhelmed by a daily stream of directives from headquarters, dozens of sales reports to read, and 100+ management tools to use.
Raising the minimum wage won’t make any of these obstacles go away. It just means companies are wasting their employees’ time and paying more for it. In addition, these obstacles will likely hurt motivation and increase turnover by reducing workers’ sense of achievement, pride, and meaning.
Higher wages may not even allow companies to meet workers’ basic needs if companies are not offering livable take-home pay, predictable schedules, and clear career paths.
Take-home pay. More than hourly wages, workers care about take-home pay. The U.S. Bureau of Labor Statistics cited $23,210 as the median annual wage for a retail salesperson in 2017, but that assumes a regular 40-hour week. In service industries like retail and fast-casual dining, that’s rarely the case. It is not uncommon to have more than half the employees working part-time and even so-called full-timers aren’t usually guaranteed 40 hours a week. Part-time hours might make sense for high school or college students looking to make extra money, but in 2017, the median ages of a retail salesperson and a cashier were 36 and 26. These are people who need a living wage to support themselves and their families.
Companies don’t always realize how few hours their employees work; at one organization, executives told us that they were surprised that most of their hourly employees worked fewer than 15 hours per week and earned under $10,000 a year. So for companies thinking about raising wages, setting targets for actual take-home pay and tracking progress in that regard can help ensure that their workers are earning a living wage.
Predictable schedules. Apart from the instability that comes from not knowing what your pay will be week to week, it’s challenging trying to plan childcare, transportation, and the rest of your life when you get your schedule only a few days in advance, as is the case for many service workers. It’s also expensive. Companies known for offering good jobs provide schedules three to four weeks in advance and new legislation in places including California and Seattle is prompting others to follow suit. Companies that adopt this practice will not only be better employers; studieshave shown that stable retail schedules can also drive sales and labor productivity.
Career paths. Today’s take-home is important to workers — but so is tomorrow’s. The best employers offer workers the opportunity to develop new skills, demonstrate their abilities, and move up the ranks, securing a better financial future for themselves and their families. For example, good jobs companies like Costco and QuikTrip promote almost exclusively from within for field positions, giving workers a clear path to higher pay and increased responsibility. Companies that want to attract and retain better workers will find that creating such paths is something their employees care a lot about.
Higher wages will not lead to higher performance for companies or good jobs for workers if companies do not fix their systems. If they create a system that increases the productivity, contribution, and motivation of employees, then higher wages will be one of the several forces driving high performance and good jobs. Luckily, we know a lot about the ingredients of that system.