Is a Living Wage on the Horizon?

At least some American businesses are realizing that a fairer economy makes eminent business sense.

Americans will be watching to see how many major corporations follow Aetna’s lead on hiking wages.

Aetna insurance, a Fortune 500 company, is planning to raise the pay of its lowest-paid workers and improve employee medical coverage. The company’s recently announced increase will be substantial — from $12 an hour to $16 in some cases.

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

It isn’t only Aetna.

Ford Motor Company recently unveiled a plan to raise the pay of 300 to 500 entry-level workers by more than $19,000 a year, or nearly 50 percent.

Observers have heralded this Ford announcement as another sign of a rebounding U.S. auto industry, but the wage hike’s implications go well beyond that rebound, as Henry Ford would have understood. In 1914, Ford 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.[pullquote]Costco understands that a happier work environment will pay off in higher earnings.[/pullquote]

A Business Week story during the Great Recession included a telling comparison between Costco and Walmart. Amid a sagging economy, that analysis pointed out, Costco was paying its hourly workers an average $20.89 an hour, not including overtime, almost triple the $7.25 minimum wage.

Walmart, by contrast, was claiming to pay an average $12.67 an hour for full-time employees.

Costco, concluded Business Week, “treats its employees well in the belief that a happier work environment will result in a more profitable company.”

Despite paying higher wages and offering more generous benefits, Costco nets more per square foot than Walmart and competes quite effectively with Walmart on the price front.

Early last year Consumer Reports compared prices by brand across the grocery industry, on flour, coffee, tall kitchen bags, toilet paper, and a variety of other basic items. The analysis covered store brands, Costco, Walmart, various regional chains, and Walgreens. Store brands, unsurprisingly, came out cheapest overall.[pullquote]Turnover declines when workers make more.[/pullquote]

Next was Costco.

Paying workers more, as the New Yorker has noted, makes solid business sense. 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 the workers who can least afford to work for poverty wages.

Aetna CEO Bertolini appeared to acknowledge the dangers of this unfairness when he announced Aetna’s new wage hikes,

“For the good of the social order,” he noted, “these are the kind of investments we should be willing to make.”

Back in the 1950s, General Motors President Charlie Wilson supposedly opined that “what’s good for General Motors is good for America.” Wilson actually said: “What’s good for America is good for General Motors.” He was right.

Reducing inequality will be good for America, and what’s good for America will be good for business.

Sheila Suess Kennedy teaches law and public policy in the School of Public and Environmental Affairs at Indiana University Purdue University at Indianapolis. Her scholarly publications include eight books and numerous law review and journal articles. Kennedy, a frequent lecturer, public speaker, and contributor to popular periodicals, also writes a column for the Indianapolis Business Journal. She blogs at www.sheilakennedy.net.