To retain and recruit workers in a tightening labor market, a parade of companies in recent weeks vowed to raise their minimum wage.
CEO Brian Moynihan told my colleague Poppy Harlow it will cost the company “a few hundred million dollars a year” when it happens in 2025. He called it an “investment” in the “standard of living for our teammates.”
The bank can easily afford it. It earned $8.1 billion in the first quarter and gave $5 billion back to shareholders in dividends and stock buybacks. That’s 5,000 million dollars to shareholders in three months, compared with an extra few hundred million for workers four years from now.
Before you applaud…
Hold off on the good citizenship awards. This is good business.
“The recent wage hikes — from McDonald’s to Bank of America — were not necessarily because these companies have suddenly gone soft,” says Greg Valliere, chief US policy strategist at AGF Investments. “It’s because they need to retain labor and inoculate themselves from criticism from the populist left.”
That’s why Bank of America’s wage hike is a “smart public relations move,” says Valliere. “Major companies also may be worrying about an assault on their huge profits and astonishingly generous compensation packages for their top executives.”
There’s obviously a difference between those deep-pocketed major corporations and small proprietors.
Millions of small business owners run with ultra-thin margins. For them, rising food and labor costs coming out of the pandemic are especially critical. Many employers say they face competition from enhanced jobless benefits. Those benefits are scheduled to run out in September. More than 20 Republican-led states have moved to end those federal benefits early to entice those workers back into the jobs market.
The big companies raising wages “were also on the winning side of the pandemic,” said Diane Swonk, chief economist at Grant Thornton.
That could exacerbate the divide between the haves and the have-nots as we exit the pandemic.
“Sadly, they are competing away workers from smaller businesses that were barely able to stay afloat during the crisis,” Swonk said. “I worry about what that means for dynamism in the economy.”