NEW YORK (MainStreet) — As has been widely reported, paychecks have begun to rise at the bottom. Last week McDonald’s announced that it will bump the starting pay at its restaurants to $1 more than the local minimum wage. Not long before, retailers like Walmart, T.J. Maxx and Target all gave out similar raises, improving their base pay $9 an hour.
As economic indicators go, it doesn’t get much better than rising wages to show that the economy may have finally hauled itself out of the doldrums. So why do these raises, all announced within a few weeks of each other by companies racing not to miss the moment, ring so hollow?
Because beneath the headlines there’s not much “there” there. The new wage and leave policy at McDonald's will only apply to workers at its corporate owned stores, about 1,500 compared to the 13,000 franchised locations nationwide. Meanwhile, most of Walmart’s employees won’t see an extra dime from the company’s new pay scale, since two-thirds of them work in states with minimum wage laws already at or above $9 an hour.
“Retail and service giants to give raises to a minority of employees” just doesn’t have the same ring to it, so why bother? After all, these companies aren’t in the humanitarian business. If they’re offering any amount more money, it’s because they expect something in return.
That might include a few possibilities.
First is the PR win that many of these companies, admittedly, badly need. Whether or not these raises have much substance, the retail and service industries have managed to catch some good headlines for the first time in years.
“All of the strikes that have been taking place, all of the protests, that’s had an effect on these corporations in public opinion,” said Professor Ken Jacobs, the Chair of UC Berkeley’s Center for Labor Research. “That’s one of the motivating factors behind Walmart and McDonald's making the announcement recently.”
“We saw a similar thing with Starbucks and Walmart around scheduling as the issue of workers having unpredictable schedules became an issue," he added. "Companies are responding and want to protect their brands.”
And these companies are very clearly aware of their public image and the importance it can have to socially motivated Millennial consumers. The image of striking fast food workers, masterfully orchestrated by labor unions such as the Service Employees International Union over the past few years, has led to a parade of negative press that industry executives have surely been eager to put behind them.
Still, it’s important not to overstate the importance of PR. While companies work to protect their brand, the evidence is also soft on how much consumers really care about moral issues like worker pay while making their shopping decisions.
Instead, or in addition to, the value of good press, it’s worth considering that these raises might represent substantive gains in the employment market.
McDonald's could have pulled a promotional stunt out of its hat at just about any time. The fact that companies have raised wages now, Jacobs said, could suggest good news for workers: the labor market might finally be tightening up, if only a little and not for the middle class.
“I take it as a good sign for the economy,” agreed Stanford economics professor Paul Oyer. “We’re finally seeing some competition for labor at the bottom rather than just at the top.”
“It’s been a long time since workers were in even remotely short supply,” he added. “So as the unemployment rate ticks down, we’re getting some competitive pressure on employers to maybe finally raise wages a little bit, and that affects everybody.”
Competition for employees may be heating up and driving wages, particularly for retail and service industries eager to reduce turnover. Walmart alone suffers nearly 44% attrition per year, and one estimate puts attrition in the fast food industry as high as 75%. (This number, from the National Restaurant Association, should be taken with a grain of salt.)
Reducing turnover represents enormous potential savings for companies like McDonald's, not merely in terms of saving money on hiring and training new people but also in terms of job performance. Longer serving, better paid employees, Jacobs said, are well shown to have better job performance, fewer grievances and less absenteeism. In an age where companies like McDonald's are losing ground to higher-quality competitors like Five Guys and Shake Shack, we may be seeing the opening salvos of a move towards job quality.
Like the PR angle, however, it’s also important not to invest all of our eggs in the market competition basket. While all three economists, MainStreet consulted for this article agreed that the improving labor market has played some role in the retail and service sector raises, the limited scope of the raises undermines their significance. It’s hard to infer an outright bidding war for unskilled labor based on raises that, ultimately, will exclude most workers.
Instead, companies might be fighting a preventative war against labor’s recent successes.
Although unions like the Service Employees International Union (SEIU) haven’t managed to make huge inroads in membership, their flagship successes over the past several years have been political. Highly visible protests have galvanized an unprecedented, and certainly unforeseen, amount of attention toward life at the minimum wage. It has become a national cause, even warranting mention in the State of the Union.
What’s more, it’s worked. States and cities around the country have begun raising their minimum wage laws in response to public pressure largely brought on by the images of fast food workers picketing their restaurants.
We might be seeing an effort to stem that tide, Oyer suggested. Although he doesn’t think there’s much evidence that companies are afraid of actual unionization, given the long term decline of organized labor, the statehouse successes are another story. Businesses might be giving some of their more high profile employees a bump to try and take some of the wind out of the sails of the national interest in minimum wage laws.
As to the threat of organized labor itself, maybe it’s not realistic. On the other hand, two years ago neither was the idea that many Americans would even know what the letters SEIU stand for, while now we all talk about private unions again in a way no one has for more than 20 years.
Whether those of us on the sidelines take unionization at the local Walmart seriously, it’s possible that those in charge do. It certainly might be worth a round of hollow raises in order to keep that Fight For 15 from marching into the home office.
-Written for MainStreet by Eric Reed, a freelance journalist who writes frequently on the subjects of career and travel. You can read more of his work at his website A Wandering Lawyer.