Is the Light Finally Dawning?

An article in the February 9th issue of The New Yorker reported that Aetna, a Fortune 500 company, plans to raise the pay of its lowest-paid workers, and improve employee medical coverage. The proposed increase is substantial—from twelve dollars an hour to sixteen dollars an hour in some cases.

Mark Bertolini, Aetna’s CEO, was quoted as saying it wasn’t fair for employees of a Fortune 500 company to be struggling to make ends meet.

It isn’t only Aetna.

A recent announcement from Ford Motor Company unveiled the carmaker’s plan to raise the pay of 300 to 500 of its entry-level workers by more than $19,000 a year, or nearly 50%. The announcement was heralded as another sign of the rebound of the U.S. auto industry, but its implications go well beyond that rebound. (Henry Ford would have understood; in 1914, he famously raised his workers’ pay to the then-unheard-of rate of five dollars a day. Turnover and absenteeism plummeted, and profits and productivity rose.)

Little by little, American businesses are recognizing that their own long-term interests are inextricably bound up with the welfare of their employees. That’s a lesson retailers like Costco learned long ago. I’ve previously quoted Business Week’s telling comparison between Costco and Walmart–Costco pays hourly workers an average of 20.89 an hour to Walmart’s 12.67.

Despite paying higher wages and offering more generous benefits, Costco not only nets more per square foot than Walmart, its prices are competitive with—and sometimes better than—those of Walmart.

Early last year Consumer Reports ran a very interesting chart comparing prices for the same brand of purchases like flour, coffee, tall kitchen bags, toilet paper and similar items.  Consumers compared the costs of store brands, Costco, Walmart, various regional chains and Walgreens for each item. Store brands, unsurprisingly, were cheapest overall.

Next was Costco.

As the New Yorker article noted, there are solid business reasons to pay workers more—turnover declines, and better-paid employees tend to work harder. There is also the question of fundamental fairness. American corporations pay their executives truly obscene amounts, while wringing every dime possible out of people who can least afford to work for poverty wages. When Bertolini announced Aetna’s decision, he talked about inequality and corporate responsibility, saying “For the good of the social order, these are the kind of investments we should be willing to make.”

When Charlie Wilson was President of General Motors, during the Eisenhower Administration, he supposedly said “What’s good for General Motors is good for America.” What he actually said was “What’s good for America is good for General Motors.”

Wilson was right. Reducing inequality will be good for America, and what’s good for America is good for business.

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