A rare managerial mandate: Raise wages

by Jordan Green

In the fall of 2006 a finding by the Washington-based Economic Policy Institute made national headlines: Productivity had rapidly risen across the nation since 2001, but in an historical anomaly wages remained flat or in some cases declined. Those dismal findings have been magnified locally in a recent report commissioned by the Greensboro Partnership that found that wages in Greensboro lagged behind those in similarly sized Southern cities in almost every sector. The brightest spot in Greensboro’s economic checkup was retail, where workers earn an annual salary of $25,037 – still placing the city behind its more populous rivals, Charlotte and Raleigh. So when Deep Roots Market, a member-owned organic grocery on Spring Garden Street, hired a new manager last October, the store’s decision to drive up wages could be considered novel. “During the interview process I looked at the books,” General Manager Joel Landau recalls. “One of my comments is that if I was hired I’d want to raise wages. ‘This is too low,’ I said. ‘We’re paying starting employees $6.15 an hour.’ That is one of the conditions of my contract, that we raise wages while maintaining profitability. It’s very different from the usual corporate mentality of trying to slash wages.” As a cooperative, Deep Roots Market is free of the structural obligation to maximize profits that constrains most corporations. Surplus is typically plowed back into the store through capital improvements, and the cooperative’s bylaws state that profits can be redirected to member-owners in the form of “patronage dividends” – a goal Landau says has never been realized but that he hopes to soon accomplish for the first time in the store’s 21-year history. Rewarding members and employees is one of many social goods that could be accomplished with the store’s modest surplus. Others might be more community oriented. As an example, Landau notes that the Weaver Street cooperative in Carrboro has started a community garden. “We’ve talked about doing some kind of health clinic here,” he says. “It would probably be a break-even proposition. That’s just a vision at this point. It would be great to have a whole combination of enterprises that were interconnected and working cooperatively.” Five years ago, the store’s board of directors couldn’t have contemplated any of those laudable goals. The store almost went out of business in 2001 due to what Landau calls “a botched relocation” resulting in a “financial crisis” and a wage freeze. A lease was signed for a new location on West Market Street before financing was arranged. What wasn’t considered is that funds had been committed to improving the existing store. “Projected expenses were grossly understated,” Landau says. “It was a drain. All the debt is just about paid off.” With the cooperative back in the black, Landau’s first priority has been to address wages for the store’s 25 some employees, of whom the lowest paid are concentrated in part-time jobs. The 55-year-old manager rises from a swivel chair in a cluttered trailer office to the side of the store and grabs a copy of the September 2005 issue of Cooperative Grocery, which is folded open to a page with a chart of median national wages for workers in stores with annual revenues of $1.5 to $2.99 million. Entry-level workers earn an average of $7 an hour, employees who have survived a trial period make $7.50 and those who have completed a full year pull down $8. In January Landau implemented an across-the-board 20 percent raise for the store’s lowest paid employees and set a new bottom wage at $7.50 an hour. Deep Roots Market’s wages compare favorably then to national medians, especially considering the relatively low cost of living in the Southeast. “That’s just the first step,” the store manager says. “My intention is to increase the wages one more time this year, probably in the fall. I’m reluctant to put a number out because my employees will be reading this. If it’s lower than what I say, they’ll be disappointed.” An at-large candidate for Greensboro City Council, Landau says he supports a citizen initiative to increase the city’s minimum wage to $9.36 an hour. He says he has some reservations about the specific denomination chosen by the Greensboro Minimum Wage Campaign because the wage differential between Greensboro and the surrounding area – subject to the state minimum wage of $6.15 – might cause some franchise stores to leave the city or write it off as a market. What he has no ambivalence about is that the city should mandate a wage increase of some kind. “If it were my personal choice I think it would be ideal to shoot for $7.95, but if I had to choose between $9.36 and $6.15, I would choose $9.36,” he says. “We just don’t know what we’re getting into. There’s great room for unintended consequences. I don’t want to hurt the $9.36 movement.” Landau’s concerns are more centered on the potential disruption such a dramatic increase might have on the city than his own enterprise’s bottom line. The store is running with energetic hum on a recent Monday afternoon in June, with about seven employees on duty. Two cashiers, including Marketing Manager Emily Clancy, chat pleasantly with customers. Another strides purposefully through the trailer office. And still others prepare orders, price merchandise and make signs to draw customers’ attention to new products. A small produce section is well stocked with freshly sprayed burdock root, leeks, cilantro and other greens. Bins of dried beans, oats, flour, and granola are full. A nutraceutical section is neatly arranged with bottles of natural pills and tinctures. Sales revenue – currently about $2 million – is increasing at a rate of about 10 percent, Landau says, and he expects continued growth to pay for the series of pay raises. Based on the estimation that Deep Roots employees whose earnings fall below the proposed $9.36 make an average wage of $8.25 and work a combined 195 hours a week, a city-mandated raise is likely to cost the cooperative $9,449 a year, including the cost of workers compensation insurance, Social Security taxes and state and federal unemployment taxes. Landau points to an additional cost: increasing pay for veteran employees in the top tier of the store’s pay scale. An employee who currently earns $10 an hour would need to receive a raise roughly commensurate with those who were brought up to $9.36, reflecting their greater experience and efficiency, he says. “If the new wage is approved by the voters or the council, it will go into effect on January 1, 2008,” Landau says. “I expect that we would be halfway there anyhow. It would not have a major impact to me. It would just be the cost of doing business. $9.36 is not a huge wage, so it would be getting us there a little quicker.” There are unknowns in this campaign. For instance, would businesses less altruistic or more financially unstable than Deep Roots pull out or reduce their workforce in response to a mandated citywide wage increase? Landau has mulled these possibilities like every other employer who has given the initiative serious consideration. And yet after weighing all the evidence, he says he believes it’s the right move. “I support a higher local minimum wage for Greensboro,” he says. “I think it would improve overall quality of life. When you give lower-income people more money they spend it. They have necessities to buy. “In studies that I’ve seen states that have minimum wages higher than the national average have shown less unemployment and better economies,” he continues. “There’s some question about which comes first. But there is that correlation.”

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