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How to Raise the Wages of Workers

October 20, 2016
Plain English Version


Experts call it an “efficient” wage. It is the wage workers need to earn if they are to help the company reach its goals.

The usual idea is to pay workers as little as possible. If you can find someone to take a job for $7 an hour, why pay $8? Well, one reason might be that you want the worker to do a good job and not just show up.

That is the challenge faced by even well-meaning companies. If you pay a worker more than you have to, your costs go up. Profits might go down. People who have invested in your company are stockholders. For the most part, they only care about the returns they get on their investments. They call that ‘shareholder value.’

Take Walmart, it is a good example. There were reports that customers were not happy with the stores. The shelves were either too crowded or too empty. Service was not prompt and polite. Stores were not clean. Walmart wanted to do something about it.

The company decided to do the following:

  • Increase wages
  • Develop better training programs
  • Provide a path to management positions
  • Do a better job of scheduling shifts

They did these things and now are expanding the programs to more of their stores. The results are good. Customer satisfaction is up. Worker satisfaction is up. Revenue is up. And the employees are spending more of their wages in the store. The new effort is reducing worker turnover. That is good for workers, customers, and the company.

Experts should call it the “smart” wage. There are two challenges ahead. First, will the Walmart board of directors and the investors support these management efforts? The answer is not clear at this point. Second, advocates remain skeptical. They never think wages are high enough. They ask if these changes are real or just cosmetic.

In the end, the new spending will have to be good for Walmart’s financial “bottom line.”  You can compare the challenge to that of a soccer team. If the team spends more money on players and stadiums, the owners and fans want to see improvements. If those improvements do not occur, some heads will roll.

Walmart is betting the money they are spending is well-spent.

Source: The New York Times October 15, 2016

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