From the TUC

Are low service sector wages inevitable?

11 Aug 2013, by in International, Labour market

Every time unions or politicians complain about low service sector wages or other poor terms and conditions, some employer, economist or right-wing politician claims that they are inevitable, that improvements would cost jobs, and that the people doing these jobs either deserve or enjoy them. Pretty much the are arguments made two hundred years ago about slavery, but let that pass. And note that whenever we argue against something that would lead to job losses, we’re told not to be dinosaurs, or that people will find other jobs, or that the job losses are … inevitable!

But of course there is absolutely nothing inevitable or even sensible about paying workers low wages as a matter of course, and the enormous profits made by companies like McDonald’s and Wal-mart demonstrate precisely that. As do some recent comparisons between wages and performance in different companies and different countries.

First, Wal-mart, which trades in the UK as ASDA, where it pays higher wages than in the USA and recognises unions (which might of course be effect and cause). The archetypal anti-union, low wage, low cost company in the USA compares poorly with fellow low-cost retailer Costco, which pays more, recognises unions, and provides better health insurance. Unions have been campaigning against Wal-mart in the USA (as well as India and South Africa) for many years for this reason. However, Costco isn’t quite as profitable as Wal-mart. Its owners are only multi-millionaires, whereas the owners of Wal-mart are billionaires. Does that suggest that the main reason for keeping wages low at Wal-mart is corporate greed?

Then take McDonald’s. As I wrote a few days ago, McDonald’s has been the epicentre of spontaneous and social network-promoted strikes and other protests in the US fast food and general retail sector recently. Workers are calling for a minimum wage of $15 an hour (£9.70), instead of current adult wage rates of about $8.25 (£5.30). UK adult wage rates at McDonald’s (according to the firm’s own website) started at £5.55 in January 2011 – above, but only marginally, the US rates. And yet in Australia, where McDonald’s is slightly more profitable than in the USA, adult wage rates are AU$15.50 – which would be $13.30 in the US and £8.60 in the UK.

My nephew worked at McDonald’s in Melbourne while he was a student ten years ago, and I was astonished at his (youth) wage are then, so this isn’t a new development, and it doesn’t merely reflect the resources-rich Australian boom (I admit the exchange rates above are all general ones, not purchasing power parity) although it may be related to the stronger Australian trade union movement and the fact that Australia weathered the Global Financial Crisis whereas the UK and US didn’t (and are now returning, slowly, to growth on the back of yet more low-wage employment.)

What these comparisons show is that low wages in the service sector – even in fast food – is neither inevitable nor good for the economy. It may be good for greedy bosses (although there is also evidence that paying decent salaries creates a more sustainable business), but it isn’t good for the workforce, and it isn’t good for the consumer, because a low-wage economy merely depresses growth generally.

One Response to Are low service sector wages inevitable?

  1. Cantab83
    Aug 12th 2013, 8:13 pm

    Low service sector wages are not inevitable – they are a deliberate policy choice. Things can be different. Just look at Switzerland.

    A waitress in Zurich or Geneva can generally earn more than a typical graduate in the UK. On top of that the median wage is more than £50k (compared to £25k in the UK). The quid pro quo is higher consumer prices, but even with these the low paid are much better off than in the UK.

    Overall Switzerland has a lower Gini coefficient than the UK despite being a “low tax” country, yet its mix of finance, services and industry as a proportion of GDP is virtually identical to the UK.

    In short, the Swiss economic model has much that we could learn from, particularly in the service sector.