Obama, The Minimum Wage, The GAP Stores, and Circuit City

Recently, Obama went to a GAP store to make another pitch for raising the minimum wage to $10.10. The reason he chose the GAP as his prop is because they recently announced that they are voluntarily raising their entry level wage to $9 this year and $10 in 2015. Citing that there were no politics behind the wage increase, it must be that the GAP feels that this increase will ultimately benefit their company by attracting a better class of worker and will result in less employee turnover.  A fact that has been borne out by hundreds of companies that have paid their employees more than the minimum wage.

What isn't clear is whether or not the GAP will raise their entry level wages again by another 41%, if the Federally mandated $10.10 minimum wage becomes effective.  You know, to keep a better class of worker and all that by paying them more. After all, they said the current 41% increase in wages had nothing to do with politics.  This from a company that is headquartered in the most politically liberal town in America, San Francisco, and, more than likely, are supportive of Barack and his liberal agenda. But, what is even more remarkable is how "employee caring" the company has suddenly become.  I say this because, in the past, they have been criticized and even sued over the sweat shop  conditions they've maintained in manufacturing locations like Bangladesh, Saipan, and India.

While it's true that paying more than the minimum wage has advantages in employee loyalty, that same loyalty can kill a business. That's exactly what happened to Circuit City when, in late 2008, it went bankrupt; with thousands losing their jobs.  Just like the GAP, they too thought it was smart to pay much higher than the minimum wage.  But, when the competition, like Wal-Mart and Best Buy, were able to price products lower because of lower wages, they were stuck with a very loyal but extremely expensive workforce.  In 2007, a year before going belly up, they blamed their financial problems on "wage management" issues.  At they same time, they announced a lower entry level wage and that they would lay off 3400 higher paid employees who would ultimately be replaced with lower paid workers.  But, their fate was already sealed long ago.

I just hope the GAP knows this, because our President will never understand why many companies will die if the minimum wage is raised another 41%.

References:

GAP to Raise Minimum Hourly Pay: http://www.nytimes.com/2014/02/20/business/gap-to-raise-minimum-hourly-pay.html

President Obama makes shopping stop at New York Gap as part of minimum wage campaign: http://www.nydailynews.com/new-york/obama-unscheduled-trip-gap-part-min-wage-campaign-article-1.1718211

GAP Labor Practices: http://en.wikipedia.org/wiki/Gap_Inc.

Circuit City: http://en.wikipedia.org/wiki/Circuit_City

Gap admits to child labour violations in outsource factories: http://www.theguardian.com/business/2004/may/13/7

Two Different State of the Union Addresses...Two Different Minimum Wages

In the 2013 State of the Union address, Obama called for a $9/hour minimum wage:

In this year's address, he's calling for a $10.10 minimum wage; a 12% increase over last year:

It's hard to believe that a 12% increase in the President's targeted minimum wage is warranted when inflation in the last year was only 1.5%.  Also, is $10.10 realistic when he couldn't get $9 passed through Congress?  One smells another political, wedge issue being served up by Obama for this year's election!

Now, while the President cited Costco as an employer that currently pays above minimum, that might not be the case in the future.  Let's not forget that, in 2007, Circuit City had an entry level pay of $8.75 when, at the time, the minimum wage was just $6.55.  They, too, thought paying a higher wage would reduce turnover and attract a higher level of employee.  A year later, they went bankrupt; citing wage management issues in the lead up to that bankruptcy.

By the way, $10.10 is another 41% increase since 2009, and the 2009 increase was 41% over the 2007 wages at the beginning of that year.  Has any other hourly wage group seen their salary almost double in just 7 years? Have you?

Reference: Circuit City: http://en.wikipedia.org/wiki/Circuit_City