A few months back we posted a review about the documentary Wal-Mart: The High Cost of Low Price. The film mostly slammed Wal-Mart’s business practices, even designating an entire section to the mistreatment and poor compensation of Wal-Mart employees. While the movie focused almost entirely on the negative impact of a mega-corporation like Wal-Mart, the company is actually taking steps to amend some of their major issues. Just this past week Wal-Mart announced that their stores had never been cleaner and more efficient. How were they able to accomplish this? By raising the salaries for all their low-level employees.
What lies at the center of Wal-Mart’s wage hike experiment is this idea that “Efficiency Wages”, getting paid well above the average, will lead to cleaner stores and more motivated employees. So far the experiment has shown a huge increase in customer satisfaction. Many customers are noticing cleaner stores and more helpful employees as a result of the change. Neil Irwin’s New York Times article argues these results show efficiency wages are the next evolution in business practices.
Yet despite the positive customer survey results, some analysts aren’t too sold on whether efficiency wages should become the norm. Bloomberg columnist Megan McArdle posted a direct response to Irwin’s NYT’s article. She argues that while cleanliness and worker efficiency have indeed increased, profitability has not followed suit. McArdle believes that if profits do not reflect the wage increase, that Wal-Mart will be forced to run their stores with less employees.
With another take on this topic is Forbes’ contributor Adam Ozimek, who isn’t quite sold on whether or not efficiency wages are making any difference for the lowest level employees. He argues that efficiency wages are not necessarily increasing current employees’ work ethic, but rather the stores are just hiring higher quality employees. Ozimek doesn’t believe efficiency wages will be as beneficial as Irwin does, but believes they have a better chance of profitability than McArdle does. Overall the jury is still out on whether or not efficiency wages will become the norm. As small business owners, this is certainly something to keep an eye out for over the coming days and months.