NEW YORK – Just in time for Black Friday, when consumers rely on scores of retail workers to help them navigate the stressful holiday season, a new study released today by national public policy center Demos, Retail’s Hidden Potential: How Raising Wages Would Benefit Workers, the Industry and the Economy Overall, examines the economic benefits of a wage increase for large chain retail workers on consumer experiences, businesses, families and the economy.
According to the report, a higher wage floor equivalent to $25,000 per year for a full-time, year-round employee for retailers with more than 1000 employees (such as Walmart, Target and Best Buy) would lift 1.5 million retail workers and their families out of poverty or near poverty, add to economic growth, increase retail sales and create over 100,000 new jobs.
With $4 trillion in annual revenue, over 15 million employees and projections to be one of the largest sources of new jobs in the next decade, the retail sector plays a vital role in the economy, wielding great influence over the living standards of many Americans.
There is a flaw in the conventional thinking that profits, low prices and decent wages cannot co-exist
Retail profits have recovered from the Great Recession, yet the average pay of employees has not. The typical retail cashier makes an annual income of just $18,500—not enough to escape poverty. This type of low wage can be a drag on our economic recovery, as employees working full-time are still unable to make ends meet and contribute spending to the broader economy.
“There is a flaw in the conventional thinking that profits, low prices and decent wages cannot co-exist,” says Catherine Ruetschlin, study author and Demos Policy Analyst. “The findings in the study prove the country’s largest retailers are in an ideal position to launch a private sector stimulus, leading the way towards a new model for American prosperity.”
With low-income households more likely to channel additional income immediately back into the economy, the study shows a “multiplier effect” from their increased purchasing power would:
- Create between 100,000 and 130,000 jobs across all sectors
- Increase the next year’s retail sales by $4 to $5 billion—an amount equal to about 1/3 of the sales growth expected this holiday shopping season
- Increase the GDP between $11.8 and $15.2 billion in the next year
A More Economically Productive and Efficient Use of Company Profits
The study also compares the cost of the wage increase to the other retail priorities and indicators. As they have returned to profitability post-recession, large retailers have increasingly bought back company stock to inflate earnings-per-share. Our study finds that retailers could generate benefits that improve the US economy and industry-wide sales with a wage raise that costs 15% less than what just the top 10 retailers spend on these less-productive share buybacks.
In addition, the study calculates the impact of a wage increase on companies and on consumers, finding that the $20.8 billion wage increase amounts to just 1% of the $2.17 trillion in total annual sales by large retailers or 10% of payroll for these firms—and, if passed completely on to consumers in prices, would average between 12 and 18 cents increase per shopping trip. According to the research, employers that invested in their labor force have tracked an increased operational efficiency and worker productivity as well as a reduction in labor turnover, which all translates to lower costs and higher sales since a knowledge of inventory leads satisfied customers to spend more money.
Our study reveals that better-paid cashiers and clerks have untapped potential to be job-creators themselves if they earn a decent wage for their work
“At a time of still too-slow economic growth, American shoppers should know that big retailers can afford to give their workers a raise—and the raise would actually create jobs and boost the economy overall,” adds Ruetschlin. “Our study reveals that better-paid cashiers and clerks have untapped potential to be job-creators themselves if they earn a decent wage for their work.
“Demos’ study shows that paying poverty wages for retail work is a not a necessity but a business choice—and it’s a poor choice for the US economy. Big chain stores can invest in human capital, improve the living standards for millions of Americans, while still earning significant profits and boosting the nation’s economy—or these companies can continue to write poverty-level paychecks that the rest of us subsidize through slower economic growth and higher family insecurity.”
- Heather C. McGhee – Demos Vice President of Policy and Outreach
- Catherine Ruetschlin – Study Author and Demos Policy Analyst
- Professor Zeynep Ton – Ton teaches at the MIT Sloan School of Management, and is one of the leading experts on retail operations management. Her empirical research has demonstrated that higher wages and increased payroll investment can be associated with higher productivity and higher profitability among retail firms.
- Manuela Rosales – Manuela is a single mother and full time employee at the Pico Rivera Walmart in California. She is a full-time employee and currently earns $10.70 an hour or $19,500 per year.
Monday, November 19, 2012, at 10 a.m. ET
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The report is embargoed for release at 12:00 a.m., November 19, 2012.
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