Saturday, July 26, 2014

Higher wages are amoral

Too many people mistake self-interested business decisions for moral action.

NPR did a piece on IKEA of America raising its starting wage by 17 percent to an average of $10.76, depending on the area.

"By taking better care of our coworkers," says Rob Olson, the acting president of Ikea U.S., "They will take better care of our customers, who will take better care of IKEA. We see it as a win-win-win opportunity."

He said the money will come out of profits, as they won't reduce staff or raise profits, but feels it will pay off in the long run with increased sales. 

Proprs to NPR for bringing in economist David Neumark, who said they may attract better workers who will increase sales, but that same strategy wouldn't work at a fast food restaurant with inelastic sales.

Olson of IKEA said this is the right thing to do for the employees, and I got the sense that NPR liked that they were paying unskilled workers more money, but I want people to refrain from looking at wage increases as a moral decision and think of it instead as a business decision for most companies.

Liberals love to cite Apple retail stores for keeping a large pool of staff on the clock at any given time and Costco for paying high wages. I don't see them praising engineering firms for paying high wages to their workers. Why is that? I think they want to see companies agree to treat wages as a form of charity to workers and set wages above the market-clearing rate for labor. That is to say, they want employers to ignore the invisible hand and just give money and jobs to people.

Of course, they always coach that in terms of how it will be good for business by improving worker performance, but as Neumark said, if employers believe raising wages will bring up their profits they will do it on their own.

Wages and compensation packages such as health insurance are not gifts employers share to be nice. They are payments used to attract the finite pool of workers. Wages are set by supply and demand, not empathy and charity.

If you're not convinced, look at this Walmart recruitment poster from oil-rich North Dakota that was shared by the American Enterprise Institute last month:

Does anyone believe Walmart is paying these high wages because of compassion or kindness?

1 comment:

  1. Wish I still had Facebook. More people need to see this one.