Target shows the way on the minimum wage
Author: Michael Satlsman
Publication Date: October 2017
Newspaper: The Orange County Register
Topics: Minimum Wage
Big-box retailer Target announced last month that it will voluntarily raise its pay floor to $15 an hour by 2020. It’s the latest example of why a government wage mandate of this magnitude is unnecessary.
Supporters of the labor union-backed campaign for a $15 minimum wage took credit for the retailer’s decision, but the company’s CEO offered a more self-interested rationale: Recruiting “top-quality” help to staff its stores for the holiday season. The company is following in the footsteps of other large retailers and restaurants that have voluntarily raised their pay floor in recent years.
It’s not just corporations taking these steps; the tight labor market has caused independent operators to raise wages as well. On a recent trip to northern Michigan, I observed one local fast-food restaurant advertising for new hires at a starting wage above $11 an hour — more than $2 above the state’s minimum wage.
It’s not unusual for companies to raise employee pay above the minimum wage absent government action; in fact, it’s routine. During the years between the last two federal minimum wage increases — one in 1996-1997, and again in 2007-2009 — the number of hourly employees earning at or below the federal minimum dropped every year. By 2006, just 2 percent of the hourly workforce was paid the federal minimum wage.
Proponents of raising the minimum wage posit a world in which employees are powerless to improve their paychecks absent outside intervention. The data shows otherwise: Economists from Miami and Trinity Universities have documented that most minimum wage employees earn a raise within 1-12 months on the job. The key is making sure that starter opportunities exist so that employees can gain the experience necessary to earn that raise.
A $15 minimum wage works opposite that goal, according to recent empirical evidence from two west coast cities. San Francisco’s minimum wage experiment has accelerated the rate of restaurant closures, according to a study from economists at Harvard Business School and Mathematica Policy Research. In Seattle, the $15 wage experiment has decreased take-home pay on average for affected employees, as businesses were forced to cut employees’ work hours to offset the law’s costs.
Not surprisingly, a University of New Hampshire survey of labor economists finds that nearly three-quarters oppose a broad $15 mandate.
The debate over new labor market mandates — whether on wages, benefits or scheduling — typically pivots around anecdotes of employee hardship. But Target’s example isn’t the only one where the empirical reality doesn’t match advocates’ claims. In Seattle, for instance, a survey of employers affected by that city’s paid sick leave mandate revealed the “presenteeism” (i.e. coming to work sick) was not a serious problem prior to the law’s passage. More recently, a Gallup survey of U.S. employees found that just one in six have variable schedules that change from week to week; of those, two-thirds said their schedule variability did not cause financial hardship.
The wrong lesson to draw from Target’s voluntarily decision is that what works for one company (e.g. a $15 minimum wage) also works for everyone else. Target’s $15 pay floor was driven by its desire to recruit higher-skilled employees who can justify the higher wage. But not all job seekers have the skills to justify that higher wage — nor should they. Starter jobs such as operating a cash register, sweeping floors or clearing tables teach inexperienced employees about punctuality and customer interaction — skills they might not learn anywhere else.
Policymakers should heed the historical record, letting employees learn skills and earn higher wages — rather than creating new mandates that put many of them out of work.