Paying Retail Workers A Little More Could Help Spur Our Economic Recovery

As Americans across the country head out en masse to malls and shopping centers to kickoff the holiday spending season today, it's important to remember that too many of the retail workers bringing us those deals earn meager wages.

The ranks of America's retail workforce have surged to more than 4.5 million workers, making it one of the nation's largest job categories.

Their numbers swell further during the holiday crush, as stores take on additional seasonal employees.

The U.S. is expected to add another 740,000 of retail jobs by 2020.

Retail workers are among the lowest paid Americans, averaging less than $10.90 an hour or $20,990 annually, according to U.S. Bureau of Labor Statistics (BLS) figures.

One in five retail workers are the sole income earner in their families. More than half contribute 50 percent or more to their family's income.

And more than one million retail workers and their families live near the poverty level, according to a recent report by the think tank Demos.

But are there cities and metros where retail workers do better than others?

To get at this, my Martin Prosperity Institute colleague Charlotta Mellander crunched the BLS figures on hourly wages and MPI's Zara Matheson mapped the data by metro.

Map by MPI's Zara Matheson

The tables below list the top 20 large metros (over one million people), as well as the top 20 small and medium-size metros (those under one million), where retail workers make the most.

Seattle tops the first list. Retail workers there make more than $14.00 an hour, or more than $29,000 per year. Nassau-Suffolk, New York is second, followed by Oakland, California; Newark, New Jersey; and San Francisco. Santa Ana, California; the greater New York City metro area; Denver; Edison, New Jersey; and Philadelphia round out the top 10.

But it’s not just large metros that pay retail workers the best. One would expect larger metros with more affluent populations, higher rates of productivity, and higher housing costs to offer workers more, but what’s really interesting is that retail workers actually earn more in some smaller and medium sized metros, as the table below shows.

Retail workers in Lowell, Massachusetts, average more than $30,000 per year, while those in Carson City, Nevada, and Wausau, Wisconsin; Midland, Texas; Iowa City and Cedar Rapids, Iowa take home more than $29,000.

Paying retail workers more makes economic sense and could help spur and strengthen America’s economic recovery. Increasing the wages of retail workers to $25,000 per year would lift roughly 730,000 workers and their families out of poverty, according to the Demos study. It would also increase the purchasing power of retail workers by $4 to $5 billion, boosting overall GDP by between $11.8 and $15.2 billion. And in doing so, it would generate between 100,000 and 132,000 new jobs as a result of this "stimulus" and its multiplier effects, while having only a small effect on prices, the report finds.

While boosting retail wages from the their current average of $20,990 to $25,000 may seem like a substantial amount, all 40 of the large and mid-sized metros listed above already pay workers considerably more than that. In fact, there are more than 100 metros across the country where retail workers make at least $26,000. Retail workers in more than 150 metros — roughly 40 percent of the total — take home $25,000 or more annually. 

Paying retail workers better also offers substantial benefits to the companies that employ them. While this may seem counterintuitive, detailed academic research backs it up. Zeynep Ton of MIT’s Sloan School of Management argues that seeing keeping wages low as the way to achieve low prices and high profits is badly mistaken: "The problem with this very common view is that it assumes that an employee working at a low-cost retailer can't be any more productive than he or she currently is. It's mindless work so it doesn’t matter who does it. If that were true, then it really wouldn't make any sense to pay retail workers any more than the least you can get away with."

Like the leading high-tech and manufacturing companies, the best, most high-performing retail companies benefit from having better paid, more skilled and more engaged workers. In a study published in the Harvard Business Review, Ton finds that the retail companies that invest the most in their lowest paid workers "also have the lowest prices in their industries, solid financial performance, and better customer service than their competitors." Commenting on a recent New York Times article on the growth of retail work, she adds that:

Even low-cost retail work is not trivial and how you perform that work makes a big difference for the company’s bottom line. This is not just my opinion; there are successful low-cost retailers that prove it. These retailers invest in their employees and complement that investment with a particular set of operational decisions that I have identified. That way, their employees are more productive. Far from being a mere cost—a drag on profits—these well-paid employees, with all their expensive benefits and training, are seen as an asset—a generator of profits. These companies demonstrate that there is no need to choose between low prices and good jobs. It is possible (though nobody said it's easy) to provide the lowest prices to customers and much better jobs for employees and great returns for shareholders, all at the same time.

Improving retail jobs this way could help provide the kind of economic boost the economy needs.

Politicians can talk all they want about educating Americans for knowledge jobs or bringing manufacturing back to America, but that does not change the fact that more than 60 million Americans are employed in low-wage, low-skill service jobs. The only path to better jobs and a stronger economy is to upgrade these jobs. The retail companies that have benefited from higher-paid and more engaged retail workers, Ton points out, provide a model for how to do this that can be extended to other service-based jobs in everything from hospitals and restaurants to banks and hotels.

That’s something we all need to think about as we head to the malls or big box store to hunt down deals.

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