Editor’s note: The following editorial appeared Friday on Bloomberg View:
Many of the United States’s 15 million cashiers and salespeople had little choice but to report to work before the sun rose the day after Thanksgiving, the frenzied start of the holiday shopping season. It was even more painful for some: Wal-Mart Stores employees had to dash off to work in time for an 8 p.m. opening – on Thanksgiving Day.
That’s not the only reason we empathize. Take a look at the typical retail worker’s salary. As of October, average hourly wages (excluding supervisory jobs) were about $14, according to the Bureau of Labor Statistics. Annual earnings came to about $20,000 for cashiers and $21,000 for salespeople. More than 700,000 retail employees live in poverty. Health insurance, sick leave and other benefits are pretty skimpy, too.
Now take a look at retail-industry earnings. According to U.S. Census data, in this year’s second-quarter, after-tax profits of retail companies with at least $50 million in assets totaled $19.3 billion, higher than in any other second quarter since 2008. Such results could signal a strong fourth quarter, when most retailers pull down their biggest profits. Wal-Mart, the U.S.’s largest employer, with a payroll of 2.2 million, as well as its largest retailer, earned $16 billion last year.
Clearly, the retail industry is recovering from the financial crisis. It would be nice if the workers who have helped the retail chains keep prices low recovered as well. Retail productivity has improved by an average of 0.8 percent each year since 2008, yet median compensation has declined over the same period. The benefits of the recovery are not reaching those at the bottom of the income chain.
Does this mean we endorse the recommendations of labor unions and left-leaning think tanks for across-the-board raises for retail workers? Or with this week’s study by the New York-based research group Demos calling for salaries of at least $25,000 a year? Actually, no – even though we agree it’s in employers’ best interests to pay more. Studies show that managers who invest in their employees are able to retain the best-trained and hardest-working among them, which increases productivity, lowers turnover and drives down labor costs. One Wharton School of Business study concluded that every $1 increase in a retailer’s monthly payroll results in $3.94 to $28 more in monthly sales.
Most retail executives, however, are loath to voluntarily raise labor costs. And the truth is that the best way to raise wages is by lowering unemployment. With 22 million people out of work or underemployed, retailers have an enormous pool of cheap labor from which to draw, leaving existing employees with little leverage. Reducing the slack in the labor market would translate into fatter paychecks for retail workers.
Easier said than done, we know, but it’s one more reason (as if one was needed) that President Barack Obama and congressional Republicans should agree to a $4 trillion package of long-term spending cuts and tax increases that would avert the year-end fiscal cliff. Such a show of bipartisanship would raise the confidence of corporate executives to invest their cash stockpiles, totaling about $3 trillion, and renew hiring, leading to a virtuous cycle of increased consumer spending and yet more job creation. The faster economic growth would also boost retailers’ profits and make it easier for them to justify paying higher wages.
While they’re at it, the fiscal-cliff negotiators would do well to cut corporate taxes. Corporations don’t really pay taxes; they pass them on to employees (by reducing wages), consumers (through higher prices) and shareholders (in smaller dividends). And then there’s the double-taxation problem, in which profits are taxed at the corporate level and again at the individual level when dividends are paid. This further encourages companies to pass along tax expenses to consumers and employees and discourages the payment of dividends.
The amount of revenue from corporate taxes has been declining since the 1950s because loopholes and preferences keep multiplying. Most companies now pay far less than the official 35 percent top rate. Not so for many retailers, whose rates are higher because they have minimal overseas operations (where profits aren’t taxed unless they’re repatriated) and fewer ways to shelter income. If the many loopholes and exclusions that corporate lobbyists have won over the decades were closed, and corporate tax rates were lowered, U.S. retailers would no longer be at a disadvantage.
Considering that more than 95 percent of workers at large retail firms are at least 20 years old (and that 20 percent of them are the sole source of family income), retail wages should be an issue of national concern. Steering America away from the fiscal cliff and lowering corporate taxes would go a long way toward helping the economy – as well as that cashier who got up at 5 a.m. on Black Friday to be there to run your credit card through the register.