Thesis: Americans needs to earn high wages in order to live and ultimately, save the government money.
Higher wages will lead to a higher standard of living for American citizens. This is why companies need to raise wages. I believe the way to do this is voluntary, not through government mandated actions. This will be good PR for the companies and lead to a better overall perception in the eyes of the public.
According to a recent article published by the Wall Street Journal, the majority of Americans receiving well fare already have a job. The perception many Americans have is that well fare recipients are unemployed and lazy, with the well fare checks discouraging them to go out and find a job. While this may be true to some portion of those on well fare, it is not true in the aggregate. A study by researchers at Cal Berkeley found the majority of households receiving government assistance are headed by a working adult. “The study found that 56% of federal and state dollars spent between 2009 and 2011 on welfare programs — including Medicaid, food stamps and the Earned Income Tax Credit — flowed to working families and individuals with jobs. In some industries, about half the workforce relies on welfare.” http://blogs.wsj.com/economics/2015/04/13/get-a-job-most-welfare-recipients-already-have-one/?mod=WSJ_hpp_MIDDLENexttoWhatsNewsForth. This clearly is a problem that needs to be corrected by these large companies many of these people work for. There is no way people should be able to work and hold a full time job, but yet, still need additional assistance from the government. In the fast food industry, 52% of workers receive some form of government aid. Luckily, this receives a lot of attention in the media and the problem seems to be getting better. McDondalds says it plans to raise wages for some of its lowest 90,000 workers. While this is a good idea and sounds like a good plan, it really will not change much. They will pay $1 dollar more than the minimum wage to these workers. In my opinion, this is still not enough. It also only includes 90,000 workers, which is minimal compared to how many works McDondalds employees around the globe. In addition, “The increases could reflect some payback after several years of wages barely keeping pace with inflation, or could indicate that skilled-workers who resorted to restaurant jobs in the economic downturn are now seeking better-paying work.” http://www.wsj.com/articles/mcdonalds-to-raise-hourly-pay-for-90-000-workers-1427916364. If wages are not keeping up with inflation, then the purchasing power of these people are increasing and thus, they are essentially getting poorer. This is a problem that needs to be corrected.
Finally, the low wages paid by companies around the country costs the US government, and tax payers, money. A recent report for that a single 300 person Walmart store in Wisconsin costs tax payers at least $904,542 per year, or about $5,815 per employee. This is crazy as this money could be put to such better use. As this illustrates, the system is messed up and the only way to fix it is for companies to provide higher wages. This will have so many positive externalities for the country now and in the future.
Wal-Mart recently announced that it plans on raising the wage it pays it employees further above the minimum wage. This move demonstrates how strong the economy has been lately that wages are finally starting to rise. As Paul Ziobro and Eric Morath write in their Wall Street Journal article, Wal-Mart Raising Wages as Market Gets Tighter, “Wal-Mart Stores Inc. plans to boost pay for its U.S. employees to at least $10 an hour by next year, well above the minimum wage, signaling a tightening labor market and rising competition for lower-paid workers.” This demonstrates that the market for low paid workers is increasing as there is less available workers. The unemployment rate has been decreasing which has made it harder for these companies to find and keep a workforce. Wal-Mart is making this move in hopes of retaining their current workers and luring other good workers to Wal-Mart.
This is putting pressure on other companies to match these wage gains, or fear losing their workforce. The market for lower-paid workers is becoming increasingly competitive forcing Wal-Mart to raise its wages. As Lisa Baertlein says in her article, McDonald’s pressured to hike pay as Wal-Mart raises, economy improves, “McDonald’s Corp and its franchisees may have few options but to begin raising hourly wages as an improving U.S. economy creates competition for good workers and as mega-employer Wal-Mart Stores Inc sets a higher bar on pay, according to labor experts.” In order to attract the right kind of workers, these companies must set a competitive wage rate. If McDonalds (or practically any other company) were to leave their wage rate at the minimum wage, or hypothetically speaking, pay people less than minimum wage, then they will slowly lose their current workforce as the workers start leaving to take higher paying jobs at other companies. They also will find it hard to replace them with competent workers because unless someone was truly passionate about their work as a cashier, they wouldn’t work very hard for such a paltry wage. This is why Wal-Mart is finally raising its pay that will cost an estimated $1 billion. Having unhappy workers is a recipe for losing business, so these companies have to take the necessary steps to keep their employees happy and working hard.
This also is a positive sign that the wage rate is starting to grow again as the economy is finally coming alive. While this might cost companies a lot more money, this will help the economy continue to grow as wages begin to rise. This announcement most likely confirms what Janet Yellen and the Fed already knew and reinforces their plans to start raising interest rates as the economy continually improves. Lets hope other companies make similar moves to raise their wage rates as well.
The very concept of tipping is somewhat ambiguous. Is it some sort of courtesy fee? Is it meant to incentivize better service? Is it a form of charity? Whatever an individual’s motivation is for tipping, it is a practice that has become so ingrained in American society that it is considered a repugnant act to not leave a tip, even though a person is still entirely free to do so. The history of tipping is rather dark – the practice was born out of malevolent intentions. As Steve Dublanica writes in his book “Keep the Change” (the first chapter of which is available in this article by Today), The Pullman Company, a railroad company that was the first large business to force its workers to rely on gratuity-supplemented wages, exploited a largely ex-slave workforce by paying them far below living wages, citing tipping as the reason. The company even went so far as to play to the compassion of its customers so that they, the customers, would be responsible for ensuring the employees were adequately compensated, instead of the employer. The St. Louis Republic wrote at the time, “Other corporations before now have underpaid their employees … but it remained for the Pullman Company to discover how to work the sympathies of the public in such a manner as to induce the public to make up, by gratuities, for its failure to pay its employees a living wage.” This exploitation of workers by retail and restaurant businesses was pushed to the extreme in some cases, like a restaurant in 1920s New York that paid no wages, and actually required employees to pay the restaurant $10 a week for the opportunity to earn tips. There were some movements to ban tipping, and per Wikipedia, six states successfully outlawed tipping in the early 1900s, only for the bans to be repealed.
Some might argue that the current tipping system is more well established, that it’s a concept that makes sense in a modern, polite society. I wholeheartedly disagree. The burden should be on the employer to decide on the precise compensation for their employees, not the customer, even if it means adding fixed service fees to every bill. It’s a custom that adds unnecessary friction to the server-customer relationship, and there’s evidence that it’s discriminatory. Research presented by Michael Lynn in a Freakonomics podcast (link to study available on page) suggests that factors such as race, gender, hair color, and physical appearance play a large role in determining the average tip that a server will receive. While most would have probably predicted this, it is hard evidence of discrimination at play. As the study points out, both black and white customers will, on average, tip a white server more. Another worthwhile tidbit from the study is the fact that the correlation between service quality and tip size is incredibly weak, with about 4% of the variation in tip size explained by service. Here is evidence that perhaps the best argument for tips – to incentivize and reward better service – is practically moot. As tips rise over time, there will be less pressure to increase the sub-minimum or tipped minimum wage, forcing workers to rely more and more on the tips that they earn, and allowing businesses to survive that cannot afford to pay their employees minimum wage. The New York wage board will vote Friday on a measure to increase the tipped minimum wage to $7 (or 80% of the state’s minimum wage), as reported by the Wall Street Journal, a measure that will hopefully prompt other states to re-evaluate their tipped wage as well.