“As the owner, I’m looking at it big picture and long term.” Those are the words of Eric Mason, owner of a Chick-fil-A in Sacramento, CA.
Mason was talking about his employees and sales. He believes successful restaurants are an effect of happy, well-paid workers. That’s why he’s offering his employees wage increases that would boost their pay from $12-13/hr. to $17-18/hr.
That Mason is raising worker pay well beyond California’s minimum wage is a reminder that pundits on the left are flying blind when they emote about stagnant wages. They could learn a lot from Mason. Mason sees very clearly what they don’t: low-wage workers are incredibly expensive.
They are because they’re not very productive. As is frequently said, you get what you pay for. Low-wage workers don’t need to perform very well simply because they’re not being compensated for it. Mason wants his business to boom, which means he wants his employees to feel well rewarded. Quoted in the Washington Post about his decision to boost employee compensation, Mason said “[W]hat that [pay well above the minimum wage] does for the business is provide consistency, someone that has relationships with our guests, and it’s going to be building a long-term culture.”
“Long term culture” is crucial here. Mason’s point is that employee turnover is very costly. Not only is it time consuming to train workers who will soon depart, it’s also bad for the business. People patronize restaurants for all sorts of reasons. Consistency in terms of food and service, and a welcoming atmosphere plainly factor. Each quality is more likely to be found in restaurants that retain their employees for the long term.
The above speaks loudly to how expensive it is to underpay. To do so, as in to presume to exploit, is to drive away the workers who are capable of mastering the menu, creating a “long term culture,” and who will know many customers by name and order.
Mason’s insight is as old as profit is. Henry Ford understood long ago what Mason does now. Poorly paid workers are a business-sapping burden. Ford didn’t give his employees raises so that they would buy Ford cars; rather he offered them impressive raises because annual turnover of over 300% was limiting his ability to profit. Low wages were costing Ford’s eponymous company a great deal. Mason wants to avoid the high cost of short-changing his employees.
Mason’s actions belie the popular lefty belief that businesses thrive by paying their workers as little as possible. He’s a wise owner for sure, but can those who think businesses grow through exploitation really believe that Mason’s view about compensation is a minority one? More realistically, well-run corporations of varying shapes and sizes well understand that businesses succeed thanks to the people who show up for work each day. Successful owners and CEOs understand that parsimony is not the path to profits.
Profitable businesses get that way by overpaying. Does anyone remember General Electric’s nickname when it was the premiere U.S. blue chip in the late 1990s? “Generous Electric” employees were exceedingly well compensated, and then it was said about Time Warner around the same time that it retained its workers with “golden handcuffs.” So fearful was it of losing its human capital to Silicon Valley upstarts, Goldman Sachs handed out generous stock bonuses during the original internet boom. More modernly, readers need only consider Amazon. It’s one of the five most valuable companies in the world. Not surprisingly, the pay at Amazon is very impressive. Anyone who doubts this need only consider the feverish competition among North American cities for the Seattle giant’s second HQ.
Are the previous examples too large and too corporate? Too coastal, or too outlier? Too college-degree focused? If so, fine. Consider the plumbing industry. In a front page Wall Street Journal story from last week, it was reported that Ft. Collins-based Neuworks Mechanical is offering plumbers “on-site tap flows with craft beer”, roasted espresso, a smoker for brisket lunches, and next up, a yoga studio. A plumbing company in St. Paul offers arcade games and a “quiet room,” while another plumbing outfit unearthed by the Journal provides its workers with massages and spa treatments.
Which brings us to the myth about stagnant pay in the U.S. Really? If pay were stagnant, does anyone think businesses would be paying so much and offering so much in order to win and retain workers? No doubt some owners and CEOs are quite simply enlightened and realize that a happy work force means happy customers, but to some degree this bidding war for workers is the result of a scramble for talent among all businesses.
Stagnant pay presumes a lack of economic growth, and a dearth of successful businesses. Except that that U.S. has had some of the greatest growth since the early 1980s, and it houses a majority of the world’s most valuable companies. In an economy reliant on people, it’s only natural that the people staffing U.S. businesses are being paid more and more, and being compensated in ways that are more and more creative. So impressive is compensation in the U.S. that even fast food businesses must pay up to compete. Indeed, as the Chick-fil-A story reminds us, it’s not just Starbucks that is going out of its way to retain workers with pay and perks.
So while many on the left surely want the best for workers, far too many labor under the false illusion that businesses strive to minimize employee costs. Not at all. They can’t afford to. They strive to overpay because a failure to retain employees is the path to decline.
Article was originally published on Real Clear Markets
