Walmart stock price and low wage workers
Why low wages haven’t really risen and what some are doing about it
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Newsletter overload? Set your 👀 s on the 4 gifs and Parting Words. You’ll get the answer to today’s focus: How good is the income for the low-wage earners and what are some doing about it?
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Opening Spiel
Walmart’s stock dropped 6% last month after announcing it would increase average hourly wage to $15. This isn’t the first time the mega retailer spooked investors by supporting quality employment. Walmart share price experienced its single biggest drop in 2015 when they made a similar announcement. (Side note - don’t worry about Walmart. The market eventually rewards Walmart with stock increases for the improved sales that come from better paid employees.)
This led me down the path of wondering about the quality of jobs we have on offer in our economy. There is a lot of talk about upskilling/reskilling workers to get them ready for new jobs. That’s the supply side of the market. What about the demand side? How good are the jobs companies are creating for employees?
Quality employment has many facets, from wage to career-growth to engagement. That’s a humongous topic to cover. We’ll get to each element of quality employment over time. Today the focus is on wages and particularly for those that earn the least in our economy.
To help me with this work, I tapped the brains of John Stapleton, a social policy expert, and Tom Zizys, a labour market analyst. I learned so much from them that I spent more time trying to figure out what to write than actually writing the post.
It’s wage growth, not just the gap, that is worrisome
Wages in Canada have steadily grown each year. The average hourly wage of full time workers has gone from $16.70 in 1997 to $31.96 in 2020. Even when you adjust for inflation, there is still a nice 26% increase. (If you want to see the analysis - message me on LinkedIn and I can share the spreadsheet I made from the Labour Force Survey data).
This growth in wages means Canadians, on average, can buy more things, even as prices increase. So we can all have better and more health care or education or designer chocolate - whatever floats your boat.
Of course, there is a catch. What seems great on the average isn’t so great when you dive deeper. The growth across wages has not been evenly spread out across jobs.
Before we dive into the differences in wages and growth, let’s understand the different types of jobs out there. Tom Zizys has a nifty way of bucketing jobs into five categories he developed for a report on how employers can provide better work.
In the service sector, we have the Knowledge Workers. You know the type. You need a university degree, usually years of experience and often comes with some sort of manager title (even if it is just “managing” yourself). On the other end of the spectrum, you have Entry Service. These have been largely our essential workers this past year: distribution and delivery of mail, nurse aides and orderlies, retail salesperson, security guards, store shelf stockers, kitchen helpers, and cleaners. Amid the two are Middle Service workers who need vocational training like nurses, IT technicians, paralegals, and retail supervisors.
In the working sector, we only have Entry Working and Middle Working with roles in manufacturing, utilities trades, construction and transportation. Anyone at the top switches over to a Knowledge Worker as they will deal more in information than in their hands.
When you group jobs into these job categories, you get a very different story in how wages have grown the past twenty or so years. The sweetest increase in hourly wages has been for the Knowledge Workers with an average of 30% a year. Entry service worker wages grew half that at 15%. Those in the entry working roles have had the worst luck with only a 10% increase (and for labourers in processing, manufacturing and utilities, real wages have actually decreased 3%).
Technology is worth more than humans
The next logical question is how can this happen? The simplest way to explain this is that the productivity gains achieved over the past thirty years have not made their way to labour wages.
A Canadian study out of the Centre for the Study of Living Standards, confirms this view that while productivity has increased, wages have not kept pace. The US-based Economic Policy Institute found the same and has a much more striking graph showing the disparity between the growth in productivity and hourly compensation.
So why haven’t the glories of productivity trickled down to the workers. First, we haven’t valued their input as much as other workers. A staple of the capitalist economy is that certain jobs are valued more. As a result, we accept a wage gap between the fast food cashier and the surgeon. What has happened is this has perpetuated year after year when raises are decided and led to a wider and wider income gap.
(Side note - If you want to really question your thinking on this ‘rule’ of our economy, listen to Michael Sandel’s socratic debate on if a banker should be paid more than a nurse. For a more targeted exploration of the CEO vs. worker compensation, you can read The Fraser Institute’s kinda weak argument (IMO) of why it actually isn’t that bad of a discrepancy.)
A second market-based reason for this discrepancy is that the gains have gone back to the owners of capital invested, not the humans. This financialization has had a significant impact on labour’s share of income.
Let’s break this down a bit... In order to achieve productivity improvements, there was capital invested alongside human effort. ATMs put into bank branches, self-checkout scanners at retail stores, interactive voice response machines in call-centres (you may not know what an IVR is, but you know the annoyance of trying to get the machine to understand you and then pressing “0” incessantly until you’re transferred to a human).
Quality and performance improvements came as a result of these investments. The market noticed this and rewarded the company with higher stock prices or company valuations when bought out. With more money in their pockets, companies invested in more assets for more improvements or paid back the investors with dividends and share buybacks. Not as much of the money went to the employees’ pockets.
Our Wealthiest Cities are also our poorest
So what happens when you have some people making lots more money than everyone else? Inequality.
Since the early nineties there has been a sharp increase in income the top 1% capture versus the rest. We haven’t seen current-day levels since the 1930s at the time of the great depression.
In our wealthiest cities, like Toronto, there has been a huge rise in the number of knowledge worker jobs the past thirty years. To support those new jobs, there has been a correlated increase in the service class. Uber Eats for lunch because you didn’t have time to make a sandwich? Housekeeping because you work weekends? Amazon order delivered to you because you don’t have time to go shopping? Essentially, low-wage jobs have been created to do the unpaid work people used to do before like shopping, making food, cleaning, caregiving and more.
As a result, BC and Ontario have the worst GINI coefficient within Canada shown in a Conference Board of Canada report. But when you read further, it is the taxes and transfers system that closes the gap in the rest of the provinces. Quebec only lands at one of the most equal provinces after using government money to address the disparity caused by the market.
That means employers Canada-wide are neglecting to close the income gap in their employee base. Instead, the government is coming in with tax benefits for people who make less than a certain amount, subsidized housing, child benefit programs, EI programs, food programs and more. If you really want to geek out, there is a detailed study on how the different transfer and tax measures have impacted income inequality in Canada by two income statisticians.
The end result is a whole sales and service workforce who have to live outside of the areas they serve, further causing a society of inequality. John Stapleton has done illuminating research on this and has a tongue-in-cheek way of describing this situation:
“What’s the difference between the employers at Downton Abbey and Downtown Toronto?
In Downton Abbey the help can live where they work.”
Feel Good About Shopping At Costco
This inequality of wage and the whole unlivable low-wages thing hasn’t gone unnoticed.
The most high-profile efforts I’ve seen are coming out of the The Good Jobs Institute, headed by Zaynep Ton, an MIT Operations Management professor.
Ton wrote the book on quality jobs and the title says it all: The Good Jobs Strategy: How the Smartest Companies Invest in Employees to Lower Costs and Boost Profits. She argues that if you pay a better wage then employees do better work and companies then do better as a result.
Among their many resources, the Good Jobs Institute provides a pay analysis tool for companies to see whether their full-time hourly employees earn enough to support their family. This is an active way companies can start shifting their ways.
Finally, they have teamed up with JUST Capital and PayPal to launch The Worker Financial Wellness Initiative - making workers’ financial security and health a C-Suite priority. JUST Capital chairman, Paul Tudor Jones is getting on the bull horn about their research, which found that 50% of workers at Russell 1000 companies (i.e., the biggest companies in the US) weren’t making enough to support a family of three, even with a partner working part-time. PayPal CEO Dan Shulman is backing him up by sharing the story of how he raised wages for their hourly and entry-level workers. In addition to talking to CEOs, they are targeting investors with their message to get them to understand that raising wages doesn’t destroy value. A nod to the opening of this post and how Walmart - and every other company - stock goes down the minute they put more into worker income.
Costco is one of the shining examples of the Good Jobs Institute. The average pay for hourly workers is $24 in the states and in Canada it is $26 (as of March 10, 2021, they are hiring big time in Ontario if you know of anyone looking...).
One of Costco’s secrets to success goes back to Ton’s thesis: Costco has simplified operations so they can focus on customers and improve employee productivity and motivation. Costco only has about 4,000 SKUs versus a traditional grocer which would carry over 30,000. This makes stocking shelves easier and thereby increases the time store workers spend helping customers. Employees can also be cross-trained because of the simplified operations, making them more valuable as needs change within their shift. They can go from cleanup in aisle 6 to locating ketchup to checking customers out as needed. All this helps Costco’s bottom line which then enables them to afford more in wages. It’s a positive virtuous circle that keeps on going up and up.
In addition to Costco, there are other companies that have made hourly wage commitments on the Good Jobs Institute. Amazon, Wayfair, Cleveland Clinic, Bank of America, Ben & Jerry’s, Chobani, Aetna, and Disney are all on the list. They are all aiming to follow Ton’s playbook to help their employees and companies thrive.
If you’re curious about what is happening in Canada, Living Wage Canada is an effort to promote the idea of raising wages. Of the 377 living wage employers, SunLife Financial is the only one located in Toronto’s downtown core. Looks like we’ve got more work to do here north of the border to raise the profile of this issue.
Parting words
We just went deep into what a headline says in 25 words: Yes, the rich got richer: Top 1% saw their wages soar by 160% since 1979, six times the increase of the bottom 90% of workers.
Low-wage earners have been hit the hardest by the pandemic. Now it is up to companies, not just the government, to make changes to support these workers long-term.
Here’s a concrete next step: Download the template from Good Jobs Institute to assess whether full-time employees make enough to support their household at your company.
If you’re an employer - see where your employees land.
If you’re an investor - use this to make deal decisions.
If you’re an employee - send this to HR and encourage them to do it.
For extra credit, read You’re Paid What You’re Worth: And Other Myths of the Modern Economy where Jake Rosenfeld debunks the notion that we are paid based on our individual performance. (Coles Notes can be found in this interview)
And before you go rest on the rationale that it is skills that matter and we just need to better educate our workforce to enable more people to earn quality wages, here is research that shows a post-secondary degree is not the solution to wage inequality. It’s US based, but applicable to Canada too in that many recent grads work in jobs not requiring a degree.
I have HUGE thanks to Tom and John for their insight. Their knowledge is wide and deep and their generosity with their time is tremendous. 🙏💕
Did you find this post mind expanding? Spreading the word would be an amazing gift for me in return. 🎁
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Till next time, Rule Breakers. Keep well and keep questioning the status quo.
🦩
Jess