It's Time Employers Showed Workers the Money
For the first time in decades, it's a worker's market
There is an unspoken agreement between Williams Sonoma and its store-level employees. In exchange for wages well below the poverty line, workers get discounts on the company’s upscale kitchen supplies. My wife’s employment there a few years ago is a case study on wage inequality.
Shortly after we relocated to North Carolina in 2012, my wife worked as the assistant manager at a local Williams Sonoma. Like many of the company’s employees, she was there primarily for the discounts. The employee discounts were as much as 40% off. Given the company’s high-end inventory, the deals can make a huge difference in an item’s price tag.
Although she had the keys to the store, her pay was only $11.50 an hour. That’s above the current minimum wage of $7.25, yet it only amounts to about $23,920 annually. Once, she mentioned the particulars of her assistant manager position to her mother. Then, after a pause, my mother-in-law explained that she’d earned more money working the Clinique counter a Little Rock department store — over twenty years earlier.
But not everyone at the company receives cookware in place of decent wages. Take Laura J. Alber, the company’s CEO. In 2019, she made $17,028,444 in total compensation. But Alder is hardly an outlier in the world of CEOs.
According to the Bloomberg Pay Index, her compensation for that year doesn’t even crack the top ten. Not even close. Just this month, a survey commissioned by The New York Times found that 2020 was a blowout compensation year — for CEOs. Despite the pandemic, the gap between CEO pay and that of their workers expanded. According to the survey, CEOs received 274 times the median employee's pay at their companies, with CEO pay jumping 14% over the prior year. During the same timeframe, the median worker got a paltry 1.9 percent raise.
It seems not a day goes by without CNBC or some other cable news outlet pushing the “businesses just can’t find workers” narrative. Now I’m not an economist, but I think there’s a strong argument that what we have isn’t a labor issue; it’s a wage issue.
From what I can tell, the most common reason employers “can’t find” workers is that the wages they offer aren’t high enough to attract them. However, Heidi Shierholz, economist and director of policy at the Economic Policy Institute, a non-profit think tank, puts an even finer point on the current labor dynamic:
“Employers post their too-low wages, can’t find workers to fill jobs at that pay level, and claim they’re facing a labor shortage. Given the ubiquity of this dynamic, I often suggest that whenever anyone says, ‘I can’t find the workers I need,’ she should really add, ‘at the wages I want to pay.’”
And therein lies the rub.
A common refrain regarding the so-called labor shortage, mainly on the right, is that unemployment insurance (UI) benefits are the problem. Those with this point of view hold the theory that millions of layabouts decided to ride the government gravy train rather than seek gainful employment, shirking their responsibility to work until their enhanced UI benefits run out in September.
With little in the way of actual evidence, Governors across the country have responded to this perceived labor crisis by cutting off Federal job benefits well ahead of their September expiration date, again with little in the way of actual evidence to support their actions. So far, 25 Republican governors and one Democratic governor have canceled UI benefits.
The discontinuation of Federal assistance doesn’t make economic sense. You don’t have to be an economist to recognize that removing billions from the pockets of the unemployed also takes billions in potential spending from their respective state economies. The money from federal benefits circulates back into local economies, generating another $1.61 in economic activity for every dollar spent.
As with any government program, there are probably folks that try to game the system. But there’s no compelling evidence to support the labor shortage narrative. On the contrary, several different studies conducted over the last year found a limited effect of the $600 in UI benefits (included in the CARES Act) on the labor supply. So if $600 didn’t cause people to avoid work, then why would they stay at home just to receive half as much? I think several other reasons make a lot more sense.
For one thing, we still have 7.6 million fewer jobs available than before the pandemic, compared to about 15 million unemployed. Last year, the University of Chicago’s Becker Friedman Institute predicted that 42% of all jobs lost through April 25, 2020, due to the pandemic would never return.
Also, if there were an actual shortage of labor, the market for potential employees would respond with rising wages. In April, Federal Reserve Chairman Jerome Powell, noted that there are several factors at play in the labor markets, but rising wages ain’t one of them:
“They’re workers who don’t actually have the specific skills that the employers are looking for. There may be geographical differences. It may also be that, for example, one big factor would be schools aren’t open yet, so there’s still people who are at home taking care of their children, and would like to be back in the workforce, but can’t be yet…clearly there’s something going on out there, as many companies are reporting labor shortages. We don’t see wages moving up yet. And presumably we would see that in a really tight labor market”
Cutting off UI benefits to solve a non-existent problem makes no economic sense, but it’s true to form politically. Politicians, especially those on the right, almost always respond to situations like this by squeezing workers into accepting starvation wages. Why? Because whether we want to admit it or not, the American economy runs on low-wage work. Put another way; our country’s business model depends on impoverished workers.
Here’s a thought. Perhaps workers, many of whom got their first taste of life above the poverty line thanks to UI benefits, have no interest in returning to a job under the same pre-pandemic conditions. Maybe they’ve decided that the unhealthy work environments, the lack of benefits, not to mention the disrespectful customers aren’t worth it for only seven or eight bucks an hour. Before the pandemic, they were probably too busy just trying to survive to recognize that working for $7.50 an hour may be great for a 15-year-old, but not for an adult with a family. And to be honest, who can blame them?
After all, in nearly every region of the country, a childless, single adult must earn at least $31,200 — full-time employment at about $15 an hour — just to maintain a modest standard of living. And that’s not just on the coasts. According to the Economic Policy Institute, by 2025, a single adult in rural Missouri with no children will need to earn $39,800 to cover rent, food, and other essentials. That’s more than $19/hour for a full-time employee.
So I’m pulling for low-wage workers who can negotiate better wages for themselves. Isn’t that how the free market works? I’m certainly not a wealthy person, but I don’t mind paying an extra 40 or 50 cents more at Chipotle if it means the adult making my burrito gets paid a living wage. Alternatively, instead of raising its prices, maybe Chipotle could pay its CEO a few million less than the $38 million he made in the middle of the pandemic.
Maybe there is hope on the horizon for low-wage workers. Since my wife left Williams Sonoma, assistant manager pay has jumped to around $19 an hour, or about $40k a year, so things are moving in the right direction.
