Zeynep Ton, an expert on the retail sector at MIT, has shown that businesses that make an investment in their retail workforce find that well-paid, knowledgeable, and experienced employees can be a driver of sales, rather than costs. Paying for high quality workers who can answer customer requests and identify priorities meets the long term goals of the business, as opposed to simply satisfying short-term cost minimization. Ton’s findings are supported by other research on the performance of retail firms. Comparing high-wage retail employer Costco with its warehouse club rival, low-wage employer Sam’s Club, reveals a substantial payoff to paying fair wages: sales per employee at Costco are nearly double the average sales per employee at Sam’s Club.Costco notwithstanding, retail cashiers make an average of $18,500; retail sales people make $21,000 per year. Giving the lowest-paid workers at the largest retail businesses (so no Romneyesque wailing about the fate of small business here) a raise to the equivalent of $25,000 for a year of full-time work would not only lift 700,000 out of poverty, but it would reach 1.5 million people who are either below or just above the poverty line, and would affect 5 million workers total. It's something of an understatement to say that $25,000 is not an outrageous amount of money for full-time work—in fact, it's below the median wage, and it's less than Walmart claims to pay its full-time workers.
Low-wage employers and Republican politicians would share an objection to this: They'd claim it would hurt businesses, causing them to hire fewer workers or even lay people off. But that doesn't take account of the fact that poor people don't have money to spend; if retail workers at or near the poverty line get a raise, that money will go toward meeting basic needs they haven't been able to cover. That means a boost to the economy in general and the retail industry in particular.
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Increased purchasing power of low-wage workers would generate $4 to $5 billion in additional annual sales for the sector. Much of the increased consumer spending by low-wage workers after the raise will return to the very firms that offered the raise. The average American household allocates 20 percent of their total expenditures toward retail goods, but for low-income households that proportion is higher. A raise for workers at large stores would bring billions of dollars in added retail spending back to the sector. Our study finds that:Many big stores wouldn't even need to pass the costs of a pay raise along to consumers. They could just stop buying back so much of their own stock:
- Assuming that workers do not save money out of their wage income, the additional retail spending by employees and their families generated by the higher wage would result in $4 to $5 billion in additional sales across the retail sector in the year following the wage increase.
Our study suggests that this use of profits would be more economically productive than the increasingly common practice of "stock buybacks": retailers repurchasing public shares of company stock in order to boost earnings per share.9 Buybacks allow the firm to consolidate earnings; shareholders benefit by receiving higher earnings without paying taxes on dividends, and where compensation is tied to performance, executives get a hike in their paychecks. But share repurchases do not contribute to the productivity of the industry or add to economic growth, in contrast to a raise that benefits over 5 million workers and the firms where they are employed.Of course, Walmart and its ilk would never do this. What are real added sales compared to consolidated earnings? Thanks to increased sales, though, the full cost of bringing workers up to $25,000 a year wouldn't need to be fully passed through to consumers anyway: