Wal-Mart wage hike hides deeper problem for US economy

Wal-Mart won wide praise for raising employee wages. But many employees remain underemployed, working less than a full workweek. It's a problem across the US.

Starting in April, Wal-Mart will be giving Lisa Pietro a raise, thanks to the retailer's decision last month to increase minimum wages for 500,000 employees to $9 per hour – $1.75 more than the federal minimum wage.

It was a much-lauded move coming after protests and pressure. But for Ms. Pietro, it won't mean much.

That's partly because her $8.95-an-hour salary will go up only 5 cents. But there's another, perhaps bigger reason, too: She simply doesn't work enough hours. What's more, the hours she does work are so erratic that she can't plan around them.

Some days she leaves the Winter Haven, Fla., Wal-Mart at 10 p.m., walks 1-1/2 miles home and catches a few hours of sleep before turning around to work the 5 a.m. shift. She doesn't have a car because she never knows how many hours a week she will work, so she can’t guarantee to any car dealer that she can make regular payments.

Pietro is one of the nation’s 6.6 million involuntary part-time workers, people who want full-time employment but work fewer than 35 hours per week due to slack business conditions. Some piece together second and third jobs to make ends meet. Others, like Pietro, just make do.

Pietro’s plight is emblematic of a problem felt by many low-wage workers in the United States. They want full-time work, but have to settle for 25 to 28 hours per week. While the pay increases instituted by Wal-Mart and immediately copied by TJX, which owns T.J. Maxx, Marshalls, and Home Goods, are a welcome and an overdue sign of the economy's improvement, employees need to work 40 hours per week or they will not see meaningful improvement for themselves or their families, economists and the workers themselves say.

That's important, because an increasing number of typically middle-income workers have settled for hourly positions to escape the ranks of the long-term unemployed. That’s the less-told side of the nation’s celebrated reduction in unemployment in recent months.

Companies like Wal-Mart once employed people at "the margins of the labor force" – those seeking part-time employment to supplement a spouse’s income or reentering the labor force after many years, Gary Chaison, an industrial relations professor at Clark University in Worcester, Mass., told The New York Times.

“What you’re increasingly finding is that it’s the primary wage earners who work at Wal-Mart, because a lot of workers have more or less given up on getting middle-class jobs,” said Professor Chaison.

The number of workers who involuntarily work part time ballooned following the Great Recession, as workers, desperate for any work they could get, took on positions with fewer hours rather than hold out for full-time employment.

By November 2009, the number of involuntary part-time workers – or part-time for economic reasons as the Bureau of Labor Statistics refers to them – swelled to more than 9 million, double the number seen in years leading up to the recession. That figure has declined considerably in recent years, but in February 2015 remained 54 percent higher than the pre-recession average.

While hourly positions that offer less than 40 hours a week save people from the street and unemployment, they leave many workers like Pietro struggling to make ends meet.

For its part, Wal-Mart views hourly positions as entry level steppingstones to management positions. 

“We have different roles at different times in our career, and every one of them is important. Today’s cashiers will be tomorrow’s store or club managers," Doug McMillon, Wal-Mart's chief executive officer, wrote in a letter announcing the wage increase to employees. 

“In fact, our statistics show that about 75% of our US management teams began in an hourly role,” added Mr. McMillion, who started at the company as an hourly summer associate himself.

The company plans to roll out a new six-month training program dubbed Pathways, beginning this summer and to be fully deployed by next February, company spokesman Kory Lundburg said in a statement. The goal is to offer employees more-targeted training that will allow them to move more easily into higher paying jobs within the company.

Pietro herself may qualify for another boost to $10 per hour in February if she qualifies for and completes the additional training.

The company's decision to boost the wages of its lowest-paid employees has garnered considerable praise from fair-wage advocates. President Obama reportedly called McMillion following the announcement to applaud the increase. And the move was seen by many economists as precedent-setting, likely leading to increased wages for low-income earners throughout the industry.

But advocates for low-wage workers, while supporting the wage boost, say the pay increases will have minimal effect on workers' lives without a full workweek.

Companies like Wal-Mart have turned the scheduling of part-time workers into a science, says Tsedeye Gebreselassie, senior staff attorney with the National Employment Law Project. Computer programs used by Wal-Mart and other large retail outlets piece together employee schedules and are frequently programmed to keep employees' hours below the threshold where benefits kick in, she says.

“These are super-sophisticated programs that work in real time calculating to the minute based on customer traffic, calling people in to work and sending them home accordingly,” she says. “Working there makes it nearly impossible to plan a stable budget, have another job, or go to schools.”

The use of computer scheduling programs is standard practice across the industry, says Susan Lambert, a professor at the University of Chicago School of Social Service Administration.

She also mentions that these programs can be set to produce the most optimal work schedules for workers as well – such as avoiding early morning shifts directly after a late night shift.

Finding ways to better serve employees can translate to increased profits for a company, Ms. Gebreselassie and others say.

A 2006 study of Costco and Wal-Mart-owned Sam’s Club showed that what’s good for employees can be good for the business in the long run.

“In return for its generous wages and benefits, Costco gets one of the most loyal and productive workforces in all of retailing, and, probably not coincidentally, the lowest shrinkage (employee theft) figures in the industry,” study author Wayne Cascio, professor of management at the University of Colorado, Denver, wrote in the Harvard Business Review.

What’s more, the study found that Costco generated $10,000 more in profit per hourly employee than Sam’s Club, leading Professor Cascio to conclude, “Costco’s stable, productive workforce more than offset its higher costs.”

That business model has served other retailers well, from national chains such as Trader Joe's and Whole Foods to local stores such as New England’s Market Basket, where devoted employees went on a six-week strike in support of a management team that held out for worker-friendly practices during a bitter feud between owners last summer.

Monitor staff writer Gloria Goodale contributed reporting to this report.