Nicole Aschoff on the “Alt-Labor” movement, such as the Walmart and fast food strikes:
University of Colorado-Denver management professor Wayne Cascio has shown, through a comparison of Walmart/Sam’s Club and Costco, that low wages are not necessary for high profits and productivity. Costco employees average roughly $35, 000 per year ($17 per hour), while Sam’s Club workers average roughly $21, 000 per year ($10 per hour) and Walmart workers earn an average of less than $9 an hour. Costco also provides it workers predictable, full-time work and health benefits. However, contrary to popular assumptions, Costco actually scores higher in relative financial and operating performance than Walmart. Its stores are more profitable and more productive, and its customers and employees are happier.
Costco is not exceptional. Zeynep Ton, of MIT’s Sloan School of Management, has studied retail operations for a decade and argues that “the presumed trade-off between investment in employees and low prices can be broken.” “High-road” employers like Trader Joe’s, Wegmans, and the Container Store have all found ways to make high profits and provide decent jobs. Catherine Ruetschlin’s research shows that a modest wage increase—bumping up the average annual salary of Walmart or Target workers to $25,000—would barely make a dent in big retailers’ bottom line, costing them the equivalent of about 1% of total sales. Even if a company like Walmart passed on half the cost of the increase to customers, the average customer would pay roughly $17 more per year, or about 15 cents per shopping visit. And, considering most low-wage workers spend nearly their entire paycheck on necessities, the industry would see a boost in sales ($4 billion to $5 billion more per year) to its own workers. Fast-food companies are highly profitable. McDonald’s alone saw profits more than double between 2007 and 2011. They could easily send some of these profits downstream to franchise owners and workers.
So why do most big retailers and fast-food chains insist on a bad-jobs or “low road” model? There are a few reasons. MIT’s Ton argues that labor costs are a large, controllable expense, and retailers generally view them as a “cost-driver” rather than a “sales-driver.” Store-level managers are pressured by higher-ups to control labor costs as a percentage of weekly or monthly sales. And because store managers have no control over sales (or merchandise mix, store layout, prices, etc.) they respond to pressure from above by cutting employment or forcing workers to work off-the-clock when sales dip. Another factor is financialization—the increasing dominance of finance in the economy. Firms feel a lot of pressure from Wall Street to be a Walmart and not a Costco. As Gerald Davis has argued, the rise of finance and the dominance of “shareholder value” rhetoric have resulted in an emphasis on short-term profits that register in increased share prices and big CEO bonuses.
This is encouraging, but the possibility of fast food companies switching to “less-costly, automated alternatives like touch-screen ordering and payment devices” is not an idle threat. I’ve seen something like this setup in the food court at the JFK airport. But as I wrote earlier, cultural issues could stop this from becoming widespread — it’s not clear that customers will settle for robots and touch screens over human beings. But I sure wouldn’t rule it out.