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Posted by on Oct 21, 2015 in Economy, Government | 90 comments

Raising the Minimum Wage: Good for Your Business, Good for the Economy

American history is defined, in part, by the tug-of-war between the world of business and the world of politics. Issues like workers’ rights and collective bargaining, along with the debate over what constitutes a “living wage” all rank among our most divisive issues, and have for quite some time.

I titled this article deliberately; we’re here to talk about the minimum wage. But first we need to understand that the call for a living wage in America is only the tip of a very large iceberg called “corporate responsibility.” The truth is, while the Fight for Fifteen movement seems to have taken the country by storm, their agenda is a very old one; they’re speaking to issues that have hounded political and corporate America for dozens, if not hundreds, of years.

But at the end of the day, we’re here to answer a simple question: Will paying your workers a fair living wage (whether or not it’s demanded by law) help your business thrive in the long run? I do have an answer for you today, but first we need some context.

The Current State of Things

As I said, the question of a higher minimum wage is tied closely to corporate responsibility. And to be clear, corporate responsibility is what’s supposed to happen even when the government and its big bad “regulations” aren’t pulling the strings. So let’s take a look at how some of the largest corporations are—or are not—acting responsibly with Congress’ hands tied by inaction.

First: Walmart. The world grudgingly applauded the retail giant’s rare show of charity earlier this year when they announced higher wages for their employees. Their decision was obviously well-timed; the campaign for a $15/hour “living wage” is reaching a fever pitch all across America, and it’s clear Walmart wanted to capitalize on that kind of publicity.

But we live in a world where political savviness is essential for businesses large and small, which makes Walmart’s motives suspect. The truth is that Walmart, under the stewardship of the Walton family (which owns more wealth than 42% of American families combined), was operating not with charitability in mind, but rather their bottom line. As pointed out by a number of authoritative voices, Walmart has been experiencing high employee turnover and worsening productivity for some time now, due in no small part to wages that border on starvation-level. Many Walmart workers have had to take second or third jobs just to make ends meet. In short, Walmart’s was an unsustainable business model.

For another example of questionable motivations, we need look no further than Shell, which recently signaled its intentions to cease exploratory drilling in the Arctic. As with Walmart, it would be tempting to attribute this move to corporate responsibility, but the truth is a little different. The truth is that Shell pulled out not because of some concern for the natural world, or because they want to focus their considerable resources on renewable energy, but instead because there didn’t appear to be any profit in the venture.

Walmart’s and Shell’s recent headlines should serve as a reminder that there was a time in our history when big business did the right thing simply as a matter of course.

Figures from History

Indeed; the call for a $15/hour minimum wage is not some utopian daydream. It is, in fact, the sum paid by Henry Ford to his factory workers, adjusted for inflation, some 100 years ago. But corporations today would have us believe a living wage is beyond us. That we can’t afford it.

They also tell us that unions are a relic from the pages of history with no role to play in modern America. But the truth is, unions, even today, are our last line of defense when it comes to corporate abuses of the average worker. We’re seeing our right to engage in class-action lawsuits slowly but surely eroded by ever-more-aggressive Terms of Use. Even worker’s compensation, which has long been an American ideal enshrined in law, is now under attack: ranking Democrats on Senate and House committees are calling for expanded federal oversight for workers’ compensation. This is in response to what they’re calling a “pattern of detrimental changes in state workers’ compensation laws.”

Want another example? I’ll point you to my hometown of Johnson City in upstate New York. Bridges and highways throughout the area still bear the name George F. Johnson, who back in the early 1900’s was the co-owner of Endicott-Johnson shoes. Even today, Johnson City is known as the “Home of the Square Deal,” which refers to Johnson’s particular brand of “welfare capitalism.” Under this social contract, EJ workers had access to affordable, high-quality housing, profit-sharing programs, worker recreation facilities, parks, and libraries. And EJ workers weren’t the only ones who benefited; the area as a whole was uplifted by the Johnson family’s generosity and fair-mindedness.

A Fringe Issue Becomes a National One

History lessons are one thing. To really see how this argument is playing out in the real world, we need to dive in to some case studies. So what’s going on in the world today?

While Congress continues the immortal debate about raising the minimum wage, there are those in the business world that have chosen to lead by example instead of waiting for Washington to do the right thing.

One such example takes us to Ivar’s Salmon House, in Seattle, where the purported cost of higher wages—namely, fewer jobs—is being put to the test. This summer, Ivar’s took the unusual step of adopting Seattle’s new $15/hour wage a full two years early. In practical terms, this means the restaurant’s menu prices have risen by 21 percent, but here’s the important part: customers are no longer expected to tip their servers.

Instead, Ivar’s chooses to pay its staff a living wage; for some workers, the bump to $11 constitutes a 60 percent raise over their previous earnings. As you may or may not be aware, servers are exempt from the national minimum wage, which means their livelihood is effectively subsidized by the kindness of perfect strangers. And so we’re clear, America’s fixation on tipping makes us fairly unique in the modern world.

So how’s it working out? Has this been the job-killing death knell that those on the Political Right have long foretold? The short answer is no. The slightly longer answer is We don’t have a lot of data, but the signs so far are very encouraging. Ivar’s is experiencing soaring revenue, while their workers are seeing their annual pay rise by (in some cases) several thousands of dollars. And if you can believe it, some of their more enthusiastic and supportive customers are still leaving tips, even though it’s no longer expected of them.

And Ivar’s is hardly alone. The lightbulb is coming on for small business owners all across America, as it did for Zazie in San Francisco, and William Street Common in Philadelphia. By eliminating tipping and providing workers with decent wages and other benefits, both the local and national economies can reap significant benefits. And best of all, the individual businesses making these bold choices are experiencing growth and prosperity—a far cry from the economic Armageddon we’ve been promised by opponents of a living wage.

I’ll speak as plainly as I know how: this is the shape of things to come, and it’s going to mean an almost complete rewrite of a significant chapter of the Social Contract. It’s true that the intersection between business and government will always be tricky to navigate, but it gets a lot less complicated when we stop listening to politicians and answer instead to our consciences.

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