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Target announced higher hourly wages then cut hours

In September 2017, Target announced that it would raise its minimum wage from $10 to $11 an hour by October and boost it again to $15 hourly by 2020. At the time, I wrote that this illustrated how market forces – a ‘tight’ labor market in this case – could drive wages up.

But labor is like anything: if its price rises employers will try to buy less of it. That goes whether wages rise because of government decree (as with minimum wage hikes) or rising demand relative to supply. This latter may be happening at Target.

This week, CNN reported that

…some store workers say the wage increases are not helping because their hours are falling, making it difficult to keep their health insurance and in some cases to pay their bills.

CNN Business interviewed 23 current and former Target employees in recent months, including department managers, who say hours have been scaled back even as Target has increased starting wages. Many of these workers say the cuts, which come as Target’s business is in its strongest position in more than a decade, have hurt them financially. CNN Business agreed to withhold the last names of several of the current employees and the city where their store is located so they could speak freely.

“I got that dollar raise but I’m getting $200 less in my paycheck,” said one, Heather, who started in November at a Florida store working around 40 hours a week. She’s now below 20 some weeks, she said. “I have no idea how I’m going to pay rent or buy food.”

So far the effects of a ‘tight’ labor market look like the effects of a minimum wage hike. But there is a crucial difference. Where labor supply is scarce relative to demand which drives wages up, employers will have an incentive to find substitutes to labor, such as machines. If technological advances make a self checkout machine cheaper and relative shortage of labor makes wages rise, then, at some point, it will pay the employer to switch to the machine. Two things will happen.

One, the remaining workers will be able to serve more customers. Think of those people who stand around at Target watching a dozen people scan their own stuff. Once, there would have been a dozen employees sat scanning their stuff for them. Now there is just one, coming over when the machine can’t read the barcode. As each worker can serve more customers they become more productive and, in time, their wages will rise to reflect this.

Second, because this is a ‘tight’ labor market, those dozen people displaced by the self scanning machines can get new jobs elsewhere. No doubt this is a pain for them. But compare it to what happens when the wage increase is simply decreed by government, as with a minimum wage hike. The machines come in. A dozen workers go, or their hours are cut. One employee now stands watching the shoppers self scan, doing the work of the dozen. And there aren’t other jobs to go to.

John Phelan is an economist at the Center of the American Experiment. 

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