Is the Light Finally Dawning?

An article in the February 9th issue of The New Yorker reported that Aetna, a Fortune 500 company, plans to raise the pay of its lowest-paid workers, and improve employee medical coverage. The proposed increase is substantial—from twelve dollars an hour to sixteen dollars an hour in some cases.

Mark Bertolini, Aetna’s CEO, was quoted as saying it wasn’t fair for employees of a Fortune 500 company to be struggling to make ends meet.

It isn’t only Aetna.

A recent announcement from Ford Motor Company unveiled the carmaker’s plan to raise the pay of 300 to 500 of its entry-level workers by more than $19,000 a year, or nearly 50%. The announcement was heralded as another sign of the rebound of the U.S. auto industry, but its implications go well beyond that rebound. (Henry Ford would have understood; in 1914, he famously raised his workers’ pay to the then-unheard-of rate of five dollars a day. Turnover and absenteeism plummeted, and profits and productivity rose.)

Little by little, American businesses are recognizing that their own long-term interests are inextricably bound up with the welfare of their employees. That’s a lesson retailers like Costco learned long ago. I’ve previously quoted Business Week’s telling comparison between Costco and Walmart–Costco pays hourly workers an average of 20.89 an hour to Walmart’s 12.67.

Despite paying higher wages and offering more generous benefits, Costco not only nets more per square foot than Walmart, its prices are competitive with—and sometimes better than—those of Walmart.

Early last year Consumer Reports ran a very interesting chart comparing prices for the same brand of purchases like flour, coffee, tall kitchen bags, toilet paper and similar items.  Consumers compared the costs of store brands, Costco, Walmart, various regional chains and Walgreens for each item. Store brands, unsurprisingly, were cheapest overall.

Next was Costco.

As the New Yorker article noted, there are solid business reasons to pay workers more—turnover declines, and better-paid employees tend to work harder. There is also the question of fundamental fairness. American corporations pay their executives truly obscene amounts, while wringing every dime possible out of people who can least afford to work for poverty wages. When Bertolini announced Aetna’s decision, he talked about inequality and corporate responsibility, saying “For the good of the social order, these are the kind of investments we should be willing to make.”

When Charlie Wilson was President of General Motors, during the Eisenhower Administration, he supposedly said “What’s good for General Motors is good for America.” What he actually said was “What’s good for America is good for General Motors.”

Wilson was right. Reducing inequality will be good for America, and what’s good for America is good for business.

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Parity Would Be Nice….

A friend recently sent me some figures that put the rhetoric about the 1% and the 99% into rather stark perspective.

Big business is once again doing well. Among the nation’s top 500 companies, corporate profits in 2013 averaged $41,249 per employee. That was 38 percent higher than the profit level in 2008, so the Great Recession is evidently over–at least, for those enterprises. Those who run the companies are also doing nicely, thank you very much: CEOs at companies listed in the S&P 500 took home paychecks that were 331 times the pay of the average American worker last year — and 774 times the take-home of minimum-wage workers.

If the minimum wage had just kept pace with income gains enjoyed by the top 1% since 1968–that is, if there had simply been parity in the rate of increase–minimum-wage workers would now be making $31.45 per hour.

What was that old economic premise/promise? A rising tide lifts all boats?

Evidently, the tide has been very selective….

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The Real State of the State

A former student of mine is a researcher for Indiana’s Institute for Working Families. (I strongly encourage those of you who are interested in evidence about the status of working Hoosiers to visit and like the Institute’s Facebook page.) He was the lead researcher for the Institute’s recently released report, The Status of Working Families 2011. That report, which he shared with me, is a sobering corrective to the political hype that passes for news these days.

The punditocracy has characterized Indiana as an economic “success story,” as a state that weathered the Great Recession better than most. As the Institute’s report makes clear, that rosy evaluation ignores a number of highly inconvenient facts: the state has 231,500 fewer jobs than before the recession (Indiana is among only 17 states that have continued to experience absolute declines in the labor force since the recession began); our median wage for those with a bachelor’s degree is $0.80 lower than the national average (and a mere 14.6% of Hoosiers even have a bachelor’s degree–we rank 42d in the nation); since 2000, the state has seen a 52% increase in poverty.

These and similar statistics in the report are depressing enough, but I think the most significant analysis centers on wages. Although our political rhetoric regularly conflates job creation and wages, they are two very different indicators of economic health, and both sides of that equation are important. We need more jobs, but not just any jobs. We need jobs that pay a living wage.

So how does Indiana stack up?

  • Indiana workers earn 85% of what workers in the rest of the country earn. We rank 41st in the nation.
  • Since 2000, wages have decreased for workers in both the 50th and 10th percentiles (by 3.4% and 10.6% respectively). This cannot be explained by decreased productivity, because productivity increased by over 14% during that same period.
  • Median household income fell by 13.6%–the second largest decrease in the nation. (Michigan was first.)
  • Median family income also decreased dramatically, falling 29.6%
  • Since 2000, Indiana has experienced a 52% increase in poverty.

The current administration believes that low tax rates and decimated unions will attract jobs to our state. Evidence does not support this belief. Businesses relocate to areas offering–among other things–an educated workforce and consumers with the discretionary income to buy their goods. They relocate to environments offering a high quality of life–parks, public transportation, good schools and a reasonable social safety net. These are the very things that suffer when lawmakers care only about slashing taxes and depressing wages.

There’s a reason businesses aren’t moving in droves to Mississippi.

If we continue to starve public education and local government, if we continue to pursue policies that depress wages and make it more difficult for families to escape poverty–if we continue to emulate states like Mississippi–businesses won’t move here, either.

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