Gap, Inc. will increase the minimum hourly rate it pays American employees from $9 per hour in 2014 to $10 per hour in 2015. The 45-year-old company with six brands has 90,000 employees in the U.S. and operates in more than 50 countries with 137,000 employees worldwide. The company stated in a press release that increasing the minimum wage it pays employees is “not a political issue.” Instead, the decision to increase its minimum wage “will directly support our business, and is one that we expect to deliver a return many times over.”
A day before Gap’s announcement, the Congressional Budget Office (CBO) released a report on the effects of raising the federal minimum wage. The report concluded that raising it would increase the pay and family income for most minimum wage workers. The CBO estimated that increased earnings for minimum wage workers would be $31 billion, and move about 900,000 people above the poverty line. However, the CBO analysis pointed out that families whose income increases “tend to raise their consumption.” Clearly, that is something which Gap understands.
Other studies also find that the benefits of raising the minimum wage outweigh the costs. A 2013 study for Center for Economic and Policy Research by John Schmitt found that the the “relatively small cost to employers of modest increases in the minimum wages” is offset by “adjustment mechanisms…even for employers with a large share of low-wage workers.” Schmitt found that there are 11 possible adjustment mechanisms to minimum wage increases which “appear to be more than sufficient to avoid employment losses.”
Costco also pays a higher minimum wage
Other companies pay higher minimum wages, including Costco, which pays a minimum hourly wage of more than $11. Last year, Costco CEO and President Craig Jelinek spoke out in favor of a bill that would raise the federal minimum wage to $11.50 an hour. “At Costco, we know that paying employees good wages makes good sense for business,” CEO Craig Jelinek said in a statement. He added that an “important reason for the success of Costco’s business model is the attraction and retention of great employees.” The company chooses to “minimize employee turnover and maximize employee productivity, commitment and loyalty” by offering higher wages.
Jelinek is not the only one at Costco speaking out in favor of increasing the minimum wage. Costco founder, Jim Sinegal, spoke out in favor of increasing the minimum wage back in 2007. “The more people make, the better lives they’re going to have and the better consumers they’re going to be,” Sinegal told the Washington Post. “It’s going to provide better jobs and better wages.”
Costco’s commitment to paying employees higher wages gained the attention of President Barack Obama. During his State of the Union address, Obama called out Costco, stating: “Profitable corporations like Costco see higher wages as the smart way to boost productivity and reduce turnover.”
Perhaps Costco’s success with paying higher wages has influenced Gap to do the same. Given Gap’s size, it just might influence other companies to do the same in turn.
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