What Could Gap Stores Be Hiding About Their
Minimum Wage Stunt?

gap2Gap stores made a surprise move this week and has informed its employees that over the next year their minimum wage would move up to $10/Hour. The company said that this would raise pay for 65,000 of their 90,000 U.S. employees, including those at Banana Republic and Old Navy.

How can they do this?

It seems like businesses are fighting Washington tooth and nail to keep wages as low as possible then these guys at Gap come in and voluntarily raise wages.

Are they just being nice guys?

No… They are being shrewd business people.

Lets compare your neighborhood  Gap Store to your neighborhood Walmart store… You go into Walmart and fill your cart with stuff them check out at one of the cash register. When you go to a Gap Store (or Old Navy or Banana Republic) and pick out a pair of slacks you can bet you will not get out of the store without at least one salesperson suggesting a shirt (or sweater or socks) to go along with those slacks.

Could you ever imagine checking out at the Walmart and the cashier asks, “would you like a flashlight to go along with those batteries?”  It will never happen.

And that is a fundamental difference between stores like Gap and stores like Walmart. If Gap can attract higher skilled and more motivated store employees they will sell more product.

Yes… More skills and talent will mean higher wages for those Gap employees. And… more revenues for the company. And… if the Gap computers show an employee is not generating more add-on sales for a store you can bet it will automatically print out a pink slip and that employees will be out on the street again.

This higher skilled employee resulting in increased revenues model just doesn’t work for retailers and fast food businesses like Walmart, McDonald’s, or your local grocery store.

But how will Gap pay for what could be hundreds of millions more in wages?

gap1That’s easy…

Not only is Gap counting on more revenue from a whole army of higher skilled and motivated workers but, for Gap, every dollar that hits their cash registers results in more profits going to the bottom line. That’s what is called “Operating Margin”. And what drives the CEO’s annual bonus.

When you look at Walmart’s and Gap’s operating margin you will see that Gap makes 131% more profit for every dollar of revenue compared to Walmart. That means Gap has more than enough cash floating around to pay these higher wages as long as revenues rise. If revenues and the bottom line don’t go up you can be assured that the next story you will hear out of Gap will be about mass layoffs.

Unless…  Gap’s CEO decides to take a cut in his own pay package. But I don’t think that will happen in our lifetimes.

 

Will Raising The Minimum Wage Help or Hurt
Income Inequality?

Accountantf

I learned a long time ago that it can be a big mistake not to listen to your accountant. Sure, accountants may not be the coolest guys in the room but rest assured they know their numbers. Ignore what they say and you will certainly hear an “I told you so…” at some point in the future.

A report in the New York Times details how the smart accountants at Congressional Budget Office determined that raining the minimum wage from $7.25 and hour to $10.10 and hour will most liking push 500,000 workers into unemployment.

cbo - seal

That increase from $7.25 to $10.10 represents a 39.13% raise. When was that last time a business could pass out a 39.13% wage increase (not to mention all the other tacked on tax increases) without something else being affected. And I can guarantee you that if the cost of a Big Mac increases by almost 40% more people may take up the gentle art of cooking at home. Or eating a bowl of cold cereal for dinner.
To hold price increases to a more rational level you will see a significant drop in the number of employees behind the counter and in the working at the grills.

MESC UNEMPLOYMENT2#67134

The good news from the Congressional Budget office is that at the $10.10 per hour minimum wage 900,000 families would be lifted out of poverty and increase incomes for 16.5 million low-wage workers.

500,000 people lose their jobs while millions see higher wages. Seems like more  Income Inequality to me.  And it’s all sponsored by our fine people in Washington D.C. I thought they wanted to fight income inequality.

And… There are surely two other serious unintended consequences from a 39.13% minimum wage increase…

U.S. Fast Food Worker... "What-a-ya-have?"

U.S. Fast Food Worker… “What-a-ya-have?”

1) Expect that at this higher wage rate a whole new crop of job applicants will be knocking on the doors of your neighborhood fast food restaurant. At this higher wage I would bet  some of those low skilled college graduates now living in mom and dad’s basement could learn to love flipping burgers. All those hard working people with only a high school diploma who may be rough around the edges may be the first of the unfortunate 500,000 to go. And if these newly motivated college educated minimum wage workers can get more done faster expect that 500,000 number to go up. If yo don’t believe this then take a look at who works behind the coffee or burger counter in places like Belgium or Ireland. Higher minimum wage higher quality workers. Where else can you get solid insights on 18th Century French literature along with your morning caffeine fix? It could happen here!

Belgian barista - "Would you like some Poetry with that Latte?"

Belgian barista – “Would you like some Poetry with that Latte, kind sir?”

2) At a lower $7.25 hourly wage an employer can take a chance on someone who with less than stellar experience.  At $10.10 an hour and more qualified people knocking on the door the days of a first job at McDonald’s are gone. Where will people get on that first rung of the employment ladder?

For years we have been hearing about the perils of huge minimum wage increases. When even the accountants at the Congressional Budget Office sound a warning may we should listen.

Or… Get ready for a big “I told you so…”

Income Inequality Is One Thing…
But What’s With This Bus Inequality?

googlebusThe recent New York Times article about the San Francisco shuttle bus service offered to Google, Facebook, and Yahoo employees was an eye opener.

But I guess this is California and things are very different out there…

So… These tech companies with offices a good drive from San Francisco were looking for a way to reduce traffic, lower emissions, and probably improve safety for their employees who might be a little beat at the end of a join us bustwelve hour day coding the next great thing.

But… All there good intentions have sparked a little conflict with some of the fine people who live in San Francisco. They are picketing, protesting, breaking windows and even targeting certain mild mannered employees with nasty banners out in front of their houses. And just in case you don’t see the banner these concerned citizens are passing out leaflets in the neighborhood. “Do you know your neighbor is a coder for Google?… What dangers lurk among us?”

scum1The problem seems to be that the busses that pick up all these well paid high tech employees are using public bus stops and blocking that space for up to thirty seconds.

But there is more…

Even worse, these high tech interlopers are buying up and renting all the available housing in San Francisco.   Many restaurants, coffee shops, and boutiques are going upscale to serve these more affluent customers. And all this seems to really be pissing people off.

Bus1Let me get this straight… Some guy who was picked on back in high school because he was a “nerd” goes out and gets a Computer Science degree, lands a high-paying job with a leading tech company, moves into an expensive San Francisco apartment with his Nerdette and little Nerdlings then… out come these bullies from high school to pick on him again.

Is this the next step?

Is this the next step?

Get it… That’s all this really is. Bullies picking on people who are different. It’s not religion and not race. They are being picked on because they make more money.

I’m afraid we have not seem the last of stories like these. Stay tuned….