Guardian reporter Jana Kasperkevic tempers enthusiasm over JPMorgan Chase CEO Jamie Dimon’s announcement last week that the bank was raising wages for its lowest-paid workers, arguing that the minimum wage hike neither makes a significant difference for these workers nor is it distinctive among major financial firms:
Lawrence Mischel, president of the left-leaning Economic Policy Institute, calculated that the wage hike, which will go into effect in 2017, amounts to a 3.2% annual increase. “That’s good, but it’s not other-worldly. The fact is those wages are not all that high. For a leading sector, they should pay more,” Mischel said. Looking at the overall US economy, the average hourly earnings reached $25.61 in June, far above the minimum wage. The hourly wages have grown at the annualized rate of 2.6% over the past 12 months, an increase that Barack Obama earlier this year said was still “too slow”.
Considering all that, the 3.2% boost by JPMorgan Chase appears to be an effort to offer competitive wages. The fact is the bank is playing catch up. A report by Reuters revealed that other banks already pay wages within the range that JPMorgan Chase hopes to pay in next three years. “We started looking at our entry-level workforce a couple of years ago and have gotten already to the, call it, $12 to $16.50 range,” John Shrewsberry, Wells Fargo’s chief financial officer, told Reuters. Similarly, Citigroup’s spokeswoman said the bank’s US tellers start at a minimum of $13 an hour and overall earn an average of more than $15.50 an hour.
JPMorgan Chase is also falling behind corporate giants in other industries. In the past couple of years, companies including Gap, Walmart, Ikea, McDonald’s and Starbucks have announced that they would be willing to pay their workers more than the local minimum wage, which is set by the state or city and sometimes exceeds the federal minimum. Are those wage hikes enough? According to workers and workers’ rights organizations, the answer is usually no.
On the other side of the equation, US employers of all stripes are feeling pressure to raise wages at the lower end of their pay scales, largely due to low unemployment and a tighter labor market in which employees are increasingly steering the ship, but also due to the political pressure coming from organized labor activists agitating for an increase in the federal minimum wage. Large, highly profitable organizations can afford these increases in labor costs, but many other companies will struggle to keep up. “To go to a $10-an-hour minimum wage or a $15 minimum wage would be a huge cost to the economy and to the companies,” Craig Rowley, a senior client partner at Korn Ferry Hay Group, tells SHRM’s Stephen Miller:
He shared the results of a Korn Ferry Hay Group analysis of 140 large retail companies in the firm’s database, with annual revenues ranging from $500 million to several billion dollars. Of over 4 million incumbent salaries at these companies, 2½ million positions made less than $10 an hour. “The cost to move those people to $10 an hour would be between $4 billion and $5 billion, and that doesn’t include any compression adjustments rippling upward. And the cost for that same group to go to $15 an hour would be over $20 billion, just for the firms in our database.”
Facing that cost hurdle, “companies are trying to figure out how to stay competitive with their labor costs. On the other hand, nobody wants to be the company that’s the last to raise their rates and risk losing their good talent.”
While the country’s biggest companies will figure it out, and always have, Rowley said, “it’s the small employer that’s going to struggle with this,” he noted. Big companies, as they raise their minimum wage rates, are at the same time investing in technologies to replace many low-end jobs with machines. But “the small employer often doesn’t have the capital, or the flexibility, to do that. So small employers are going to have to be very nimble, and they’re going to have to think about how they differentiate themselves [among job candidates] when everybody else may be ahead of them in compensation.”
Rowley’s point evokes the notion of “corporate inequality“—a growing divergence in pay between employees at high-performing companies and their peers at smaller, less productive and less profitable organizations. Better wages and living standards for America’s lowest-paid workers is a positive development on its face, but if some employers can afford a higher wage floor while others can’t, this trend will only do so much to address the complicated social problem of inequality.