No Free Lunch At Whole Foods

Recently, I wrote about “other channels of adjustment” for firms facing minimum wage increases (other than reducing hiring or laying off workers). My main point was this: though a minimum wage hike need not lead to job losses at every single firm, in the absence of firms not knowing how to incentivize their workers properly to maximize profitability, other business responses are not costless.


A good example can be seen in today’s story about Whole Foods. Under pressure from campaigners, Amazon recently raised its pay for its lowest‐​paid employees to $15‐​an‐​hour. Now some workers aren’t enjoying the effects:

The Illinois‐​based worker explained that once the $15 minimum wage was enacted, part‐​time employee hours at their store were cut from an average of 30 to 21 hours a week, and full‐​time employees saw average hours reduced from 37.5 hours to 34.5 hours. The worker provided schedules from 1 November to the end of January 2019, showing hours for workers in their department significantly decreased as the department’s percentage of the entire store labor budget stayed relatively the same.


“We just have to work faster to meet the same goals in less time,” the worker said.


 …


The labor budget and schedule cuts at Whole Foods in the wake of the minimum wage increase appear to be similar to changes Amazon made after it raised the pay of warehouse workers to a minimum wage of $15 an hour. That move was widely praised but Amazon also cut stock vesting plans and bonuses that had provided extra pay to some workers.


Some Whole Foods workers say the cuts have led to understaffing issues. “Things that have made it more noticeable are the long lines, the need to call for cashier and bagging assistance, and customers not being able to find help in certain departments because not enough are scheduled, and we are a big store,” said one worker in California.

Whole Foods and Amazon therefore seem to be adjusting to higher hourly pay in several ways: cutting hours for employees and sweating them harder during those reduced hours, cutting back on stock plans and bonuses, and passing on the extra cost to consumers in the form of worse service. None of these are costless:


 — cutting hours or bonuses negates the earnings boost from hourly pay increases


 — sweating workers harder makes the work environment less pleasant, and may reduce job opportunities for workers incapable of “upping their game”


 — a worse shopping experience is a quality‐​adjusted price increase for consumers


These are exactly the types of impacts I was referring to re: high minimum wages. When statutory wage floors are increased, the fact that the firm would not have opted to undertake these changes in the absence of the wage hike suggests changes would otherwise not have been profitable, and as such are still costly (though some firms are no doubt currently not efficient – making it feasible for some that higher minimum wages could jolt them to a better business model.)


There’s a great discussion of this issue towards the end of a brilliant EconTalk podcast on the minimum wage this week.


For more on the minimum wage, read here, here, here, here, here, here and here.