On minimum wage: Mind the Gap

February 27, 2014

Just 24 hours after Senate Republican Leader Mitch McConnell (R-Ky.) warned that raising the minimum wage to $10.10 per hour from $7.25 would deal a “devastating blow to the very people that need help most,” Gap Inc. announced it would raise employees’ minimum pay to $10 per hour by next year.

In striking contrast to the alarms sounded by McConnell, Gap chief executive officer Glenn Murphy emphasized the benefits of this pay raise for the company’s lowest-paid workers. He described it as a “strategic investment to do more for our employees” — one that  will help “attract and retain a skilled, enthusiastic and engaged workforce.”

If there’s a lesson in the recent tug-of-war over the Congressional Budget Office’s report estimating the impact of a federal minimum wage increase, it’s that despite the dire predictions made by opponents of raising the minimum wage, many CEOs have already seen that higher wages are good for business.

For other major retailers have echoed Gap’s rationale. Costco, which supports Obama’s call for raising the minimum wage to $10.10 per hour, starts its entry-level employees at $11.50 per hour. This is significantly more than its closest competitor, Sam’s Club, which is owned by Wal-Mart. Costco also has almost double the sales per employee compared to Sam’s Club.

Similarly, the starting wage for full-time employees at the grocery retailer Trader Joe’s is between $40,000 and $60,000 per year — more than twice what many of its competitors pay. The sales revenue per square foot at Trader Joe’s is three times higher than the average U.S. supermarket.

Even Wal-Mart, a notoriously low-wage employer, said in an recent interview that a federal minimum wage increase would mean more money in the pockets of many of its customers. This could generate a boost in sales revenue that could “offset and maybe even exceed whatever impact you pay out to associates,” according to Wal-Mart spokesman David Tovar.

These big retailers are not the only business voices that see the value in paying higher wages. A national poll of small business owners last year found that 67 percent support raising and indexing the federal minimum wage, citing the benefits of increased consumer spending these higher wages could fuel.

It’s not only on the question of how pay raises will affect businesses that the rhetoric from minimum wage opponents tends to depart from reality. McConnell’s suggestion that a pay raise would somehow hurt low-wage workers would surprise low-income Americans themselves. According to recent polling, they support raising the minimum wage by nearly nine-to-one.

If reducing job opportunities is really a concern, it’s worth noting that the most recent and rigorous research on minimum wage finds that higher pay does not reduce employment. In fact, job seekers support raising the minimum wage as well, by a rate of seven-to-one.

Opponents of raising the minimum wage will likely continue to present themselves as advocates for U.S. businesses, or even low-paid workers, by issuing the same dire predictions of job loss they’ve repeated for the past century. But as companies like the Gap demonstrate for workers, businesses, and the economy as a whole, the only “devastating blow” that will be dealt by a long-overdue minimum wage increase will be to the credibility of these opponents.


PHOTO (TOP): Gap sales assistants make last minute preparation at Hong Kong’s first Gap Store before its opening in the financial Central district, November 25,2011. REUTERS/Tyrone Siu

PHOTO: Kelsey, a Trader Joe’s crew member, hands out the store’s signature leis to shoppers arriving at the new store in Boulder, Colorado, February 14, 2014. REUTERS/Rick Wilking


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Your comparison of a the benefit of a government mandate to pay a “minimum wage” to a company that pays its employees more than minimum wage is specious at best. We are talking two different types of jobs here. Entry level minimum wage jobs are for college students looking for less than full time employ or those with no skills. They are the type of worker that misses work because they got wasted at the party the night before, are routinely late for work etc. I have never paid any of my employees minimum wage because the jobs I offer require that the worker be past all that and that they be responsible and forthright and that they come with a certain set of skills that I need to run the company. This is not the same as saying that I am in favor of paying more to people seeking entry level jobs, for at the entry level the wage should be set by the market place – for any job for those not working is better than a government mandated wage that prevents entry level jobs being created in the first place.

Posted by zotdoc | Report as abusive

Companies at one time focused on employees first, shareholders second. Over the last decade or so, it moved to shareholders first, employees second. Good to see the focus returning to employees first.

Posted by mmcg | Report as abusive

Government shouldn’t be telling business how much to pay their employees. Market forces should dictate that. It increases how much we all pay for goods & services thus making everybodys earnings worth less.

Posted by donfievet | Report as abusive

Minimum wage must be raised by $1.50 every year automatically by law as well as income taxes. Government should force companies to LOWER wages to minimum wage level so EVERYBODY is working for the same rate.

Skills and work ethic should never matter as the government should be the one who dictates what wage is paid to workers.

No one should ever be making more than the next person. Everyone should be equal and this is a great way to get that going.

Income inequality is real and must be dealt with by the government to prevent these evil and greedy companies from making profits.

Posted by FlamingLiberal | Report as abusive

This column seems pretty wrong-headed to me. This is an apples to oranges comparison–market-based wage increases vs. compulsory wage increases. The Gap’s choice to raise wages was driven by the market considerations. Minimum wage opponents could just as easily suggest that this trend suggests that a minimum wage increase is unnecessary because the market will drive up wages without federal intervention.

Posted by DaleG | Report as abusive

Gap’s management has authorized share repurchases worth $1.1 billion in November year 2013, and the repurchased will be conducted in FY14

Posted by catherinekylie | Report as abusive