By Catherine Ruetschlin and Jennifer Wheary
Starting this Friday and through the next month, we Americans will have something in common: We will be shopping more than usual. Most of us will go in and out of large chain stores countless times throughout the holiday season, making our purchases while likely never giving a thought to the fact that nearly half of the retail workers there are earning wages that put their families at or below the poverty line.
According to the Bureau of Labor Statistics, the typical retail salesperson earned $20,990 in 2011. The typical cashier earned less — just $18,500. Both are well below the official government poverty threshold of $22,113 for a family of four. Too many retail workers are struggling to support families on these wages. In fact, nearly one in five retail workers at our largest chains is the sole breadwinner in his or her household.
The industry employed more than 15 million Americans this year and is projected to be one of the fastest growing areas of employment over the next decade. While retail bounced back gradually after the Great Recession, the sector's profitability reached a 10-year-high in the first half of 2012. And the holiday forecast is optimistic, predicting a 4.1 percent gain in sales over 2011.
While the retail sector has recovered, retail employees are no better off. They are working harder than ever, and getting less in return. Retail workers' productivity has increased by an average of 0.8% each year since 2008, yet their compensation on average declined. In this sense employees financed the recovery of retail firms by means of increased workloads and forfeited wages.
Does It Have to Be This Way?
It is easy to assume that large retailers must pay workers low wages in order to underwrite the low prices that Americans have come to expect and in many cases depend on. Yet when we look at the economics more closely, the automatic connection between low wages and low prices is not as justifiable as it seems.
Retail's Hidden Potential, a new report by Dēmos, shows that the nation's largest retailers are in an exceptional position to change the nature of retail work and provide a boost to the economy that will pay them back in kind. By raising wages for their lowest-paid workers, retailers can put money in consumers' wallets, lift families out of poverty and contribute to a stronger economy. What's more, retailers can achieve this at a negligible cost to consumers.
The report shows that if the nation's largest retailers improved their workers' wages to $25,000 a year for a full-time employee, they could immediately move more than 1.5 million Americans away from poverty.
What's more, the raise would have the effect of a private stimulus for the economy. Calculations in the report show that a wage hike among large retailers would increase GDP between $11.8 and $15.2 billion over the next year. As a result of the economic growth from this wage increase, employers would create 100,000 to 132,000 additional jobs. What's more, with more income in their pockets, retail workers would spend an additional $4 to $5 billion at retail stores in the year following the wage increase.
Retailers could pay for the entire wage increase by redirecting profits from unproductive stock buy backs. Right now firms spend billions of dollars each year buying back shares of their own company stock. This practice consolidates ownership and boosts earnings per share for investors, but it does not contribute to the long-term health of the retail workforce or to the health of our economy.
If retailers chose to do so, they could redirect those funds dedicated to unproductive stock buy backs and instead make an investment in their workforce. According to calculations in Retail's Hidden Potential, the top 10 retail firms alone could finance raising wages for all full-time retail workers to $25,000 a year, and still have billions of dollars to spare. If these firms instead chose to pass on the cost to consumers, it would add about 15 cents to the bill for a typical trip to the store. For the average household that would amount to less than $18 per year.
Low pay at retail employers is a persistent trend that holds workers back from meeting their needs and impedes economic growth. It can and should be reversed, not by government policy but by companies stepping up to do their part. This change will benefit not only employees and their families, but retailers and the economy as a whole in the form of more productive workers, shoppers with more money in their wallets, increased GDP and new jobs. This would truly be a holiday gift that gives back.
Catherine Ruetschlin, author of Retail's Hidden Potential, is a policy analyst at Demos, a research and advocacy organization based in New York City. Catherine analyzes labor market, population, and other US survey data. She is currently completing a PhD in Economics at The New School, focusing on issues related to privatization in the criminal justice system.
Jennifer Wheary is a senior fellow at Demos where she writes about current trends in education, economic opportunity and positive public policy. She holds an undergraduate degree from Cornell University and a PhD from the University of Illinois. Her writing appears online and in newspapers around the country. You can follow her on Twitter @edteachpolicy.