The highly controversial concept that the government should raise the minimum wage by law is currently a major topic on Wall Street and Main Street; some workers are striking as we speak. Here are two simple sides of the debate: a higher required minimum wage will mercilessly slash corporate profits; conversely, some workers across America are not receiving a "living wage."
As investors and basic participants in the economy, we should ponder this issue far beyond traditional economic doctrine. The dismal science's academic arguments often don't yield real-world results as they "logically" should.
The sad truth is that if big companies had designed decent strategies toward employees in the first place, no one would think the government really needed to step in to such a degree.
If shareholders hadn't concentrated so heavily on short-term profitability, managements wouldn't feel forced and even be incentivized to skimp on what should be viewed as a basic corporate expense.
Big boxes, small wages
Wal-Mart (NYSE: WMT) has been the whipping boy for its employee treatment for ages. This is probably because the retailer is so high-profile -- the company's market cap is $258 billion and in the last 12 months the discount giant raked in $475 billion in sales. Wal-Mart reveals its own impressive reach on its website: Every week, 254 million people enter a Wal-Mart. It currently has 11,000 stores in 27 countries, and regardless of how much it pays, it hands out paychecks to 2.2 million people across the globe.
It probably has a target on its back precisely because of its massive and visible footprint. It has so much power and influence -- Wal-Mart does something, everybody listens.
The truth is that Wal-Mart isn't the only offender.
Along those lines, McDonald's (MCD 0.38%) is being served a serious dish of bad PR this year. Employees are picketing. People are more commonly pondering fast-food workers' similarly abysmal pay and shoddy benefits, which rarely hit the headlines to the same degree.
Employees of companies like Mickey D's are beginning their plans for demonstrations in 100 cities. A common demand is doubling their wages from the minimum-wage floor. Like Wal-Mart, McDonald's garners more headlines -- again, it can now boast billions served.
For that reason, the spotlight is on the Golden Arches more than other fast-food offenders like Wendy's, which also happens to be in the hot seat.
The unhealthy "Suck-It-Up Syndrome"
Our economy is still being dragged down by a high level of unemployment. Many people have switched to part-time work out of necessity. The reasons that we should try to look at the big picture are more urgent than ever. Most people know that consumer spending makes up the lion's share of our economy, but few think of what the number of struggling Americans really means.
Let's ponder one segment that often includes approximately minimum-wage workers: young people. The next generation is the life's blood of future economic prosperity. The baby boomer generation isn't getting younger and increasingly has other expenses, including health care (and in some cases, their poor children).
Although many people talk about a dynamic economy, which of course, would include younger, imaginative innovators and contributors, the "Suck it up and climb that ladder!" argument actually falls incredibly short of any big-picture thinking about our economy and how companies and investors can prosper in it.
The wage web
Here are a few examples of how living wages help us all, including companies and shareholders, in the big picture. However, such scenarios require increasing numbers of consumers to have the resources to feed into the complex web of economic interrelationships.
For example:
If an individual can afford a car, he or she can:
- Purchase a car from a major car company.
- Assuming that he or she can afford gasoline (a large expense these days for a basic need for many people), greater mobility can expand opportunities so that they can easily travel for training, education, and then better employment.
- Buy more groceries (last I heard, grocery store sales do really help grocery stores), which can be more easily lugged home than on foot or through public transportation.
If an individual can afford their own housing, he or she can:
- Buy essentials such as furniture, kitchen necessities, cleaning supplies, then bigger-ticket items such as televisions. I'd venture that few young consumers run to their parents' houses to borrow a spatula, half-cup or so of dish soap, or a chair or couch.
- Set up utilities like electricity and water from, you got it, utility companies.
- Have a few parties and just generally enjoy life a little more with less stress -- and happier, less desperate people will make happier employees and generally more motivated individuals.
The slight sucking sound of welfare
The heated arguments many Americans direct toward public assistance and minimum wage laws aren't foolproof. Granted, they're not parts of a pure market-driven economy, but a shoddy economy that pretends to be "market-driven" by pushing short-term profits and long-term obtuseness actually expands the need for all kinds of interventions.
Here's a weird twist: Sometimes companies like Wal-Mart derive benefits from welfare and public assistance, since they're not shelling out more for employees. Given low wages, it relies or at least encourages government assistance itself; its employees can't do much at all with their wages. Plus in the long run, demoralized employees and increasing public distaste hurt such companies, they don't help them.
A common historical example of how to conduct positive capitalism is part of Ford's venerated past. Henry Ford had a lightbulb moment: If he paid his employees better, they could afford cars -- his company's own product.
This simple view shouldn't be rocket science. Too many corporate managers have been cheating everyone by ignoring workers' basic financial needs. Investing in employees should be considered just as important as, say, "investing in" a CEO with huge pay who often isn't even nearly linked to long-term performance.
Getting back on the right track
Near-sighted managements and shareholders and Wall Street analysts who obsess on quarter-by-quarter profits help propagate the old fist-shaking adage, "There should be a law!" It's so sad, and so true.
Yes, providing truly large boosts in wages will hurt profitability for many businesses. Here's what's at fault: They aren't already prepared for higher floors for their lowest-paid workers. Should we invest in such companies? Their profits were pinched by poor long-term planning on managements' part, and even managers and chief executives who inherited such shaky foundations from predecessors should have started making repairs.
Last but not least, we investors shouldn't encourage the corporate mind-set that has given capitalism such a bad rap. Capitalism is not a bad thing -- but it requires positive economic actors. Shareholders can lead the way to a better future, if we think more deeply about how we can all contribute and get there.
