U.S. retailers raise minimum wage ahead of schedule

Critics' concerns include higher prices, job loss

  • Keyerra Jeter (left) and Aaron Moon fold clothes at an Old Navy store in Gambrills. Old Navy's parent company, Gap Inc., recently raised its minimum wage to $9.
Keyerra Jeter (left) and Aaron Moon fold clothes at an Old Navy… (Barbara Haddock Taylor,…)
July 05, 2014|By Michael Bodley, The Baltimore Sun

Juggling the rising cost of textbooks, tuition, food and rent is a little more manageable now for rising University of Maryland, Baltimore County senior Keyerra Jeter, thanks to a June 1 raise in starting pay to $9 per hour for Gap Inc.'s 65,000 employees.

"It was difficult, with everything being so expensive all the time, to budget for everything on a minimum-wage salary," said Jeter, an employee of the Old Navy in Waugh Chapel. "I'm just thankful the increase has let me better meet the needs that I have."

Gap Inc. brands — Gap, Old Navy, Banana Republic, Piperlime, Athleta and Intermix — are among a growing group of major U.S. retailers now paying more than the federal minimum wage of $7.25 an hour for entry-level employees. Others include Ben & Jerry's, Costco, Ikea and Whole Foods. Paying workers more reduces turnover and hiring costs, the businesses say, because it makes for happier employees who stay longer and better serve customers.

In Maryland, the companies are ahead of the gradual curve of a new law that will raise the state minimum wage to $10.10 an hour by July 1, 2018. In January, the current minimum of $7.25 — defined by state and federal law — will increase by 75 cents to $8 per hour, with periodic increases scheduled through 2018.

Companies that fought the increase said increased overhead costs would lead to shuttered storefronts and job losses. The Maryland Chamber of Commerce said businesses in a struggling economy can't afford more overhead.

"Whenever there is a nonmarket force dictating the expense side of the ledger, it's tough on businesses, tough on employers, and that requires businesses to take a look at all the other expenses, including how many people they can employ," said Brien Poffenberger, president and CEO of the Maryland Chamber of Commerce.

But, others say, higher wages can also bring some cost reductions.

Paul Villareal, manager of the Old Navy store in Waugh Chapel, said he's saved money by slowing high employee turnover rates common in the industry. According to the U.S. Bureau of Labor Statistics, monthly retail turnover reached 4.8 percent in April, up 20 percent from the previous year.

"Paying more to attract talent, it gets stability in the store," Villareal said. "In retail, there's a high turnover rate. With a better wage, you can slow down talent and keep them longer. Some employees never thought they could be worth this much to a company."

New Gap employees must undergo a six-month "apprenticeship," during which they earn less than the $9 per hour minimum. The training program, which also started in June, allows the company to gauge the fit of a new hire, Villareal said.

David Cooper, an economic analyst for the Economic Policy Institute, said companies paying more before they are required by law get to choose from the "pick of the litter" when it comes to hiring.

"What you're seeing with these companies that are choosing to get out ahead of the mandated increases is that they're recognizing that this is smart from a business perspective, because it will let them hang on to good workers, but it also allows them to attract more workers now before the wages go up," Cooper said.

Since Aaron Moon started working for Old Navy fresh out of Bowie High School in 2011, the Waugh Chapel associate said he's been waiting for the "well-deserved" pay bump.

"It shows a sense of performance value," Moon said. "The managers and the head of the company have been looking at you and deciding what your work is really worth, and now you get it."

Raising wages differentiates Gap stores from the competition, said Paula Conhain, a spokeswoman for the San Francisco-based retailer.

"We really see this as an investment like any other investment that we make. This is an investment in our people," she added.

Such investment in employees makes them happier, according to Sam Park, Whole Foods Market's Mid-Atlantic regional vice president.

Maryland employees of the grocery store chain earn a starting wage of $10 per hour. After a probationary period, employees working more than 20 hours per week are eligible for benefits, including health and dental plans.

"Whole Foods Market is proud to offer one of the most comprehensive and competitive compensation packages in the grocery industry, which is in keeping with our core value of supporting Team Member happiness and excellence," Park said in an email.

The 3,000-strong nationwide network of businesses and executives, Business for a Fair Minimum Wage, said benefits of a wage raise can be seen by looking past the increased labor cost to the "long-term savings in the big picture."

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