Alan Blinder wrote a wonderful opinion piece in the Wall Street Journal the other day. Among other things, he mentions the discrepancy between productivity and wages. Since 1978, productivity in the nonfarm business has risen by 86% while real compensation per hour is up just 37%. Is that fair, Blinder asks?
Retail, which employs about 15 million people, is an industry for which the hourly wage is way below the national average. According to BLS, in 2006 the average retail cashier made $8.62 per hour, less than half of the average of all industries, which was $20.27. So if you are a full-time cashier and lucky enough to get 40 hours a week (more on this in a later post), every week, you make about $17,900 per year. In many states this would be below poverty threshold for a family of four.
When you talk to retail executives, they often mention that they can’t pay employees more if they want to keep their low prices. So in their mind, there is a clear trade-off between how much employees earn and how much consumers pay for goods. But my research shows that this is not the case. I have recently researched a Spanish supermarket chain, Mercadona (my case about Mercadona is available through Harvard Business School Publishing). Mercadona not only pays its employees more than its competitors, but also provides lots of other benefits including job stability and internal promotion opportunities. And just today, there was new evidence that Mercadona is the Wal-Mart of Spain when it comes to prices. They have the lowest prices in Spain. Period.
For those who believe that low wages is a problem for this country, I encourage them to look into industries like retail, where companies can pay their employees higher without having to increase prices or having to decrease profits. I’ll write more about how companies do this in future posts.