Employees: cost or asset?

Companies pay a range of wages for what are essentially the same jobs.  For instance Costco pays higher rates than Walmart, and other retailers fall in between (with no doubt some even higher than Costco and others even lower than Walmart).  This violates the infamous "law of one price" in economics, so there must be something else going on.

I recently came across the research of Sloan MIT professor Zeynep Ton in a NYT column by Joe Nocera that addresses this issue.  Professor Ton has focused on supply chain management practices in retail.  She found that companies do a great job of getting product from China (or wherever else it is made) to the store.  But once the product hits the loading dock, things often went haywire.  The product needs to be in stock in the right place of the store, and apparently that is easier said than done.

Ton compared execution success to HR practices and found that companies that paid bottom dollar and provided little to no training were the ones that were having the most difficulty; the results were published in Harvard Business Review.  Her conclusion: "investing in employees can boost customer experience and decrease costs."

With more retail companies raising wages, it will be very interesting to see how the remaining low wage employers in retail react.

Do low wage employers get subsidized?

So claims a study from UC-Berkeley that was summarized recently by NYT.  It is true that many employees of companies such as McDonalds and Walmart receive some form of public assistance.  But when economists think of subsidies, we usually think of payments designed to encourage production of certain activities, such as higher education and corn.  In other words the more the company produces the more the government pays them!

The situation with low wage employers (large and small) is fundamentally different.  Public assistance programs are designed so that as people work more hours their assistance levels go down.  A low wage worker at McDonalds does not make enough money to be off public assistance, but the public assistance payments are LOWER than if he or she were not employed at all.  How this gets translated into a subsidy is beyond my comprehension.

Nonetheless I find the picture painted in this story very disturbing.  In a well functioning labor market, single mothers in their 30s should have better options than working in fast food or greeting shoppers at Walmart.  Part of the problem is that globalization and technological change have eliminated a lot of jobs.  Another part is that these workers do not have enough skills to qualify for whatever better paying jobs might be available.

How can we devise a way to get these workers the education or applied skill training that would open more opportunities?  I expect more creative use of online learning opportunities could make a difference.  But that does not seem to fit into the platform of either major political party; one seems to want to turn back the clock while the other is under the illusion that markets solve all ills.