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  • Ikea Agrees to Pay Their Workers More than Minimum Wage


    Jeannette Wicks-Lim: There's a growing trend among the world's major corporations to voluntarily increase their workers' wages -   July 7, 14
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    Bio

    Jeannette Wicks-Lim completed her Ph.D. in economics at the University of Massachusetts Amherst in 2005. Wicks-Lim specializes in labor economics with an emphasis on the low-wage labor market and has an overlapping interest in the political economy of race. Her dissertation, Mandated wage floors and the wage structure: Analyzing the ripple effects of minimum and prevailing wage laws, is a study of the overall impact of mandated wage floors on wages. Specifically, she provides empirical estimates of the extent to which mandated wage floors cause wage changes beyond those required by law, either through wage effects that ripple across the wage distribution or spillover to workers that are not covered by mandated wage floors. Jeannette regularly publishes commentary in Dollars and Sense. 

    Transcript

    Ikea Agrees to Pay Their Workers More than Minimum WageJAISAL NOOR, TRNN PRODUCER: Welcome to The Real News Network. I'm Jaisal Noor in Baltimore. And welcome to this latest edition of The PERI Report.

    We are now joined by Jeanette Wicks-Lim. She's an assistant research professor at the PERI institute at the University of Massachusetts Amherst, and she's a regular contributor to Dollars & Sense.

    Thank you so much for joining us.

    JEANNETTE WICKS-LIM, ASSIST. RESEARCH PROF., POLITICAL ECONOMY RESEARCH INSTITUTE: Hi. Thanks for having me.

    NOOR: So the mega international furniture retailer IKEA has been in the news recently because it increased or it will increase the pay of its workers in the United States, adjusted to the cost of living, by an average of 17 percent at the start of the new year in 2015. Give us your thoughts about this move and other moves like it that we're seeing across the retail industry.

    WICKS-LIM: Yeah, and I think this is really interesting that IKEA has decided to implement this new plan of setting its minimum wage floor according to the cost of living of where its stores are at. And so when you look at what their new wage floor will be next year, they're averaging around $10.76 per hour. So that's, you know, substantially higher than the current federal minimum wage of $7.25. And this is, you know, one example. There's another example. The Gap has decided to raise its minimum wage floor. I think by next year it will be $9 an hour. Again, you know, it's above the current federal minimum wage.

    And what I think is interesting about these developments is that it suggests that what we've been finding in our own research here at PERI on minimum wage laws is that businesses can adjust to these minimum wage increases that are typically proposed, even in a industry like retail where you find a lot of low-wage workers. So, there are--basically, two observations that I draw from these recent developments is the one, that businesses do find ways to adjust to these increases, and two, that they actually find that there are benefits that come with raising their wage floor. I mean, you see in the news now that there are quotes from these different corporations saying, well, you know, when we pay our workers more, we get more productive workers, we have higher application rates, so that we have a better pool to choose from. You know, one quote I saw was a CEO saying something on the order of, you know, you get what you pay for. So it really underscores the fact that when you raise the minimum wage, it's not just a matter of businesses seeing their costs increase; they actually can benefit from these kinds of mandates as well. And so it's really a question about how can businesses adjust and what kind of benefits can help them offset the costs that they may actually find themselves facing.

    You know, when we look at the retail industry, it's really interesting. We last summer looked at this proposal to raise the federal minimum wage to $10.50, and we specifically focused on fast food restaurants, because they're, you know, one of the largest employers of low-wage workers. But, you know, when we consider what would happen to retail trade employers--you know, the Gap, IKEA, other places like that--what we find is that their cost increases are really a fraction of what fast food employers experience. And so, you know, just to give you an example, when we looked at the fast food industry, we found that a $10.50 federal minimum wage would cost on average a fast food restaurant something on the order of 3-4 percent of their total sales. For the retail trade industry, it's really kind of surprising how much smaller it is. It's on the order of 0.1 percent of the total sales. So just to give you a very concrete example, if you want to think about a clothing outlet like the Gap, if they wanted to fully pass along the cost increase of raising their minimum wage up to $10.50, then we're talking about a price increase on the art order of 0.1 percent, and that would increase the cost of, say, a Gap shirt that's $40.00 to $40.04. So, you know, this gives you a sense of the size of the cost increase that these kinds of businesses would experience. And then if you think, you know, on top of that they may benefit from these higher wage floors, you know, by getting lower turnover rates, a better pool of workers to choose from, greater productivity amongst their workforce that they have, then you can see why businesses can adjust to these higher wage floors.

    NOOR: And so, even as some of these corporate leaders are changing their mind--and even McDonald's has said, according to some reports, that, you know, the world wouldn't end if they had to raise the minimum wage to $10.10 an hour--it seems like the Republicans, at least, have not shifted their tone in Congress to agreeing to such measures.

    WICKS-LIM: Yeah. I mean, I think that this has always been a really heated political debate. But I think, you know, when we want to think about what we need to do to improve our economy, we really have to look at what kind of jobs we are adding to our economy. You know, we have this newest jobs report that just came out, and you see, while we have really robust jobs growth, you know, and this has been really good news, you still see that there are a large number of jobs that are going to low-wage sectors. So if you think about over this past month, this June, you had about 288,000 jobs added to the U.S. economy. About 40,000 of those jobs were in retail trade. So one in seven of the newly added jobs in the economy are in retail. And so we really have to think about policies that improve the quality of these jobs.

    NOOR: And finally, is a minimum wage of $10.76 or--you know, IKEA in the areas where the cost of living is the highest, you know, in some places, like, I think a city in Virginia, their minimum wage is going to get raised to, like, something like $13 an hour--is that a living wage? Can someone subsist off that income?

    WICKS-LIM: Well, it's interesting. I mean, this question about whether or not it's a living wage is a complicated one. From what I understand, you know, IKEA has set its minimum wage to this living wage calculator number that MIT has put out, and they chose the number that's for a single person without dependents. So, you know, it may be that for an adult with no dependents, they may be able to squeeze by on that minimum wage rate. And even the MIT folks have said that this is really just covering the bare minimum costs, not something where you are finding yourself being able to save for emergencies or for school and that sort of thing. So in terms of whether or not it's a living wage, I think it's starting to approach a better wage floor, but not quite what you'd call a living wage for the vast majority of workers.

    And the other thing that I think is really interesting to think about is that, you know, tying the concept of minimum wage to what you just need to, you know, make ends meet isn't the way we've always thought about the minimum wage. You know, if you look back on the history of the U.S., the federal minimum wage, and you track, you know, how it increased over time, you know, at one point in time in U.S. history we actually saw the minimum wage, federal minimum wage, increasing each year at the same pace as worker productivity. So it was kind of a way to make sure that even the lowest-paid workers were able to benefit from the economic growth that the economy was experiencing. You know, that happened during the 1950s, 1960s, and through most of the 1960s. And then, after that, you saw the split between what happened with worker productivity and wages. And this didn't happen just for the lowest-paid workers, although I think that they would be most affected; this happened to the average worker as well. And what you see now: that between 1968 and today you see this large divide between how productivity rose, which--it has, you know, more than doubled since 1968--and what you've seen happening with the minimum wage, which has dropped by 32 percent in value. So, you know, there's been this split between this idea of what the lowest-paid workers should be paid and what the economy's actually able to produce for them.

    NOOR: Thank you so much for joining us.

    WICKS-LIM: Thanks for having me.

    NOOR: You can follow us @therealnews on Twitter. Tweet me questions and comments @jaisalnoor.

    Thank you so much for joining us.

    End

    DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.


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