Even voluntary “minimum wage” hikes can be problematic

To be clear, the Rio Grande Foundation opposes and has ample data to illustrate the harms of government-mandated increases in the minimum wage. However, in recent years, some businesses have gotten into the act by increasing their own “minimum wage” rates.

Of course, the media naturally applauds such efforts, but increasingly, employers who enact arbitrary (as opposed to merit-based) wage hikes, are seeing unintended consequences. Take Wal-Mart for example which is in the midst of increasing all company wages to $10/hour by February.

According to a new article on the company’s wage hike, “Wal-Mart employees are calling the move unfair to senior workers who got no increase and now make the same or close to what newer, less experienced colleagues earn.”

“It is pitting people against each other,” said Charmaine Givens-Thomas, a 10-year veteran who makes $12 an hour at a store near Chicago and belongs to OUR Walmart, a union-backed group that has lobbied for better working conditions. “It hurts morale when people feel like they aren’t being appreciated. I hear people every day talking about looking for other jobs and wanting to remove themselves from Wal-Mart and a job that will make them feel like that.”

“Some workers also said they suspect their hours are being cut and annual raises reduced to cover the cost of the wage increase for newer workers.”

No surprise that an arbitrary, “across-the-board” wage hike isn’t pleasing workers who feel like they are harder working and better, more experienced workers than their peers.

An even more extreme example of a “minimum wage gone bad” is from a company called “Gravity,” the CEO of which slashed his own pay to $70,000 and raised all workers at the company to $70,000 annually. Immediately, according to the New York Times, “Two of Mr. Price’s most valued employees quit, spurred in part by their view that it was unfair to double the pay of some new hires while the longest-serving staff members got small or no raises.”

This only makes sense. If you are a highly-skilled employee working 60 hours a week, should you make the same as someone who works less than 40 hours a week or sweeps the floors? Wages are prices. As such they are powerful signals of supply and demand in our economy. A car dealer wouldn’t charge a “maximum price” in “fairness” to their customers that resulted in a 2015 BMW being sold for the same price as a 2000 Hyundai. That would be stupid, but for some reason wages are “different.”

I guess businesses will have to learn the hard way. Hopefully these mistakes can persuade economically-ignorant policymakers that government minimum wage policies are equally misguided.