It's a sad state of affairs when companies that pay some of their workers poverty-level wages are celebrated for their beneficence.
Last week, with a bit of pomp, circumstance and self-back-patting, Ikea announced it would give some of its workers a raise. The Swedish ready-to-assemble furniture retailer trumpeted that it was boosting its "average minimum hourly wage in existing U.S. stores" to $10.76, affecting about half its American workforce.
Sounds good, for the most part, especially relative to the federally mandated minimum of $7.25 an hour. But did you catch Ikea's statistical sleight of hand?
I'm referring to the slippery word "average." On average, Ikea says, its U.S. workers will make a minimum of $10.76. And averages can hide a lot. As any good statistician will tell you, if you lie with your head in the oven and your feet in the freezer, on average you'll be a comfortable temperature.
In this case, average means some places will pay above $10.76, and others well below that. At its location in Woodbridge, Va., for example, Ikea will pay $13.22 an hour, as the New York Times's Steven Greenhouse reported. But at stores in, say, Pittsburgh and West Chester, Ohio, workers will earn closer to $8.69 an hour.
Ikea touts that it is setting pay based not on what its competitors are paying but on what's considered a living wage for a given area, as determined by MIT's Living Wage Calculator. This again sounds good, although it also overstates how generous Ikea's new pay structure is. That's because Ikea has chosen to use MIT's living-wage estimate for a single person with no children, not a single person who maintains a family, as many low-wage workers today do.
Ikea isn't the only retailer wanting heaps of praise for baby steps.
The Gap has also been on a media blitz, and encouraged its workers to wear all white, to publicize the rollout of its $9-an-hour wage minimum. At a summit organized by the White House, Lynn Albright, vice president of stores for Gap Inc., bragged that employee applications have risen sharply since the announcement because workers "want to work for a company that respects their people." Also, presumably, because retail workers need more money.
Look, I'm glad to see that some companies are raising pay even a little. And it reflects well upon the American public that companies see a minimum pay hike as a good PR move, despite the fact that such announcements could stoke fears of higher prices. (Ikea has said that the pay increase will not be passed along to consumers.) And it's no wonder companies believe that paying their workers decently is good for their images; after all, about seven in 10 Americans have said they're in favor of raising the federal minimum wage, whose value has eroded over time.
Other companies have noted a similar halo effect. At the same White House summit, Makini Howell, owner of Plum Restaurants in Seattle, said that the goodwill stoked by her company's pro-worker policies such as paid sick days has led to a flood of new customers.
The problem, of course, is that $9 an hour, or even an "average" of $10.76 an hour, still isn't that much. And while firms probably know that increasing compensation can help the bottom line to a certain extent — not just through customer goodwill but also in reduced turnover and attracting more productive and skilled employees — there's likely only so much that well-meaning companies can do to improve pay and benefits unilaterally.
After all, lots of other major players such as McDonald's and Wal-Mart continue to resist strong pressure to raise worker pay. So far all the protests, strikes and public awareness campaigns have not produced a living wage, even if they have marred the firms' brands. Consumer views of McDonald's, for example, have been trending downward for the last 18 months, according to data from YouGov.
If you can't get McDonald's to cave, good luck convincing mom-and-pop companies. It's hard to compete if you're paying more than everyone else, especially if you don't benefit from the same economies of scale as your rivals. Which is why a modest minimum wage hike, like the $10.10 proposal dormant on Capitol Hill, makes sense. Without raising the federal minimum to a reasonable level, and evening the playing field for all companies that employ low-skilled workers, businesses are stuck in a race to the bottom on pay.
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