Originally Published on hbr.org
By Katie Bach, Sarah Kalloch, Zeynep Ton
Facing a tight labor market as the holiday shopping season approaches, many retail companies will undoubtedly consider following the lead of Amazon, which recently announced that it is raising its minimum hourly wage for all of its U.S. employees, including those working at Whole Foods stores, to $15 — $7.75 above the federal minimum wage.
Higher wages are good for retail and other low-wage service workers. So, we applaud Amazon’s decision and hope others will do the same. Higher wages are also necessary for many companies that are stuck in a vicious cycle of bad jobs, bad operations, bad customer service, low productivity, and high costs. But higher wages alone are not enough to break this vicious cycle. Unless accompanied by other changes, higher wages will likely reduce company profits and will not turn bad jobs into good ones.
Drawing on the concept of “efficiency wages,” some economists argue that higher pay can by itself improve performance by enabling companies to attract and retain better people and by motivating employees to work harder. But without other changes, we expect these benefits to be small. As one of us has witnessed first-hand while working at a large retailer, even highly skilled and motivated workers will not be able to be as productive as expected because the company’s operational systems got in their way, wasting rather than maximizing their skills and enthusiasm.
We see roadblocks like this all the time and, if you do any store shopping, so do you. For example:
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