Target Corp. carefully planned its early Monday announcement about a new $11 per hour minimum wage to get attention. The plan worked.
Some of the many headlines put the news of Target’s plan to go to $15 per hour by the end of 2020 squarely in the context of political pressure from a five-year-old “Fight for 15” campaign demanding a federal $15 per hour minimum wage. Sophisticated reports reflected the reality: Target is boosting minimum wages in a “battle for store workers” and “to counter Walmart.”
Even Target’s stated goal of paying the $15 per hour that advocates have demanded as a minimum for everybody should be seen only as an aggressive flanking maneuver in that battle for workers.
For a sense of the competitive heat for workers locally, just talk to a few local employers. They can’t imagine how Target gets attention for starting people at $11 per hour. It’s far too late in a tight labor market for just $11 an hour to be news.
Target has stores all over and not just Minnesota, of course, but here in the Twin Cities $11 per hour hasn’t been enough for a while, even for jobs that don’t seem to require much by way of formal training or experience.
No-experience-necessary jobs doing light assembly or packaging in distribution centers in the greater Minneapolis-St. Paul area seem to start at no less than $12 per hour. Based on a quick scan of local job boards, there’s an entry-level packaging job in Rosemount beginning at $13 per hour. There’s a warehouse job in Chanhassen starting at $14 an hour, so long as candidates can learn to operate a pallet jack.
Nobody in business at this point can be surprised by a tight labor market, not with a U.S. job market expansion that has been setting records for its long duration. The 500 companies in the S&P 500 now employ about 25 percent more people in the United States than the S&P 500 did in early 2009, and smaller companies have grown their U.S. payrolls even more. Meanwhile, the U.S. Department of Labor reported this summer that there have never been more job openings.
American workers seem to know that, too. In its latest update on the American workplace, the research organization Gallup found that more than half of American workers are now looking for a new job or closely watching for openings.
The labor market may not work quite as slickly as it’s drawn on the board in an economics class, with the intersection of the line labeled “demand” and one labeled “supply” revealing the market clearing price for an hour of work. But it’s obvious it’s working.
People looking for cashier jobs maybe wouldn’t want to try operating a pallet jack or packing frozen sandwiches, yet Target has plenty of competitors for workers. Many retailers have raised the low end of their wage scales and also tried to get some attention for doing so. None one seems to have gotten more attention than Target’s rival Walmart Stores.
A few years ago Walmart Stores’ CEO Doug McMillon wanted to try to reboot his company’s reputation as an employer. In one particularly telling story from 2014, Walmart’s U.S. employees were found to be so poorly paid that they still collected at least $6 billion annually in public assistance.
The company hotly disputed the conclusions of this study, but whatever the faults of the research methodology, no company spokesman could credibly claim that Walmart Stores paid everyone a middle-class wage.
In 2015 McMillon announced a new wage strategy, and last year the hourly pay was raised to at least $10 for anybody already on the payroll and a starting wage of $9 per hour that would increase to $10 upon completion of a short training program. Last year more than 1.1 million Walmart staffers got a raise on the same day, including people who had topped out at their job’s pay range but got a small bump anyway.
It didn’t take long for Walmart executives to stand in front of their shareholders and claim success for a program they routinely called “associate investment,” citing everything from lower employee turnover to much cleaner stores.
This justification for paying more seems to fit an old idea in economics called an efficiency wage, meaning paying more for an hour of labor than the going rate in the market. Paying more than what may be required to at least fill a job is not just a strategy to end up with a productive and happier workforce, explained Aaron Sojourner, labor economist at the University of Minnesota’s Carlson School of Management. A company adopting this approach should expect far lower turnover, cutting down on the costs for hiring, screening and training.
“The job becomes valuable to [workers], in a way that it does not if you just pay them the minimum they would accept,” Sojourner said. “Pay them the minimum and they don’t care if they lose that job. They can always go get another one.”
Sojourner pointed out that a $15 per hour minimum pay goal by the end of 2020 obviously can’t be attributed to careful market analysis. There’s a chance a company did a forecast of the 2020 labor market, but of course if it did it tossed the study in a file drawer and announced a Target minimum wage that matched the $15 per hour that advocates have insisted upon for a federal minimum.
Yet to call this a public relations stunt or caving to political pressure isn’t quite the right read, either. With so many hourly workers, a dollar or two an hour in additional pay would be impossible to justify for a some positive press. This $15 an hour move is clearly part of its strategy to achieve cost and productivity goals, in part because it should result in more people in a very tight labor market thinking of Target as a good place to apply.
If Target achieves that kind of reputation it won’t even have to pay more than other retailers in a given market to get enough good applicants. And Walmart, among others that are also now looking for help, will have to respond.