The Case for Increasing Wages

Vaccines alone won’t end the pandemic. How Kevin Harrington uses Clubhouse. And should you apply for PPP Round II even if your company is doing well now?

HUMAN RESOURCES

Can increasing wages also increase profits? “Some of the best evidence for the benefits of higher pay appears in a recently released working paper by Harvard University doctoral students Natalia Emanuel and Emma Harrington that examined wages and productivity among warehouse workers at a Fortune 500 online retailer (kept anonymous in the study). The researchers looked at the effects of a 2019 pay increase that looks a lot like the ones recently announced by Chobani and Wayfair—from about $16 an hour to $18. Prior to the increase, employees moved an average of 4.92 boxes per hour. A $1 pay increase boosted this figure by a third of a box. Higher wages also led to a large drop in employee turnover: a $1 increase reduced the quit rate by 19 percent.”

  • “Given the cost savings from not having to hire and train new employees, combined with improved productivity, the raise more than paid for itself, boosting the company’s bottom line in addition to improving employees’ lives.”

  • “Of course, not all firms can raise their wages in 2021. For businesses that are struggling to stay afloat, like the many mom-and-pop shops that have been hit hard by the Covid-19 recession, pay cuts may ultimately be the only option.” READ MORE

READER FEEDBACK

On Saturday, we asked Morning Report readers to tell us about their PPP experiences, including whether they would apply for Round II even if their business has been doing well recently. Here’s what Jim Kalb of OptiFuse told us: “Although our company made a good rebound and indeed has profited in Q3 & Q4 from the pent-up demand like we thought would happen (when we added staff), we still applied for the loan because there are still plenty of good people who are still unemployed and we believe that we can still hire additional staff with new available loan program. I believe that this is one of the primary reasons for the new program—to hire (or keep) people who otherwise can't find work so I'm not feeling guilty in the least bit. We are doing exactly what the program was created to do.”

What Do You Think?

THE COVID ECONOMY

The first city devastated by the coronavirus has returned to normal life: “In Wuhan, residents savor ordinary pleasures that a year ago became forbidden hazards, like strolling along the historic Jianghan shopping street. Office workers jostle for seats on the subway, which was shut throughout the lockdown. Riverside restaurants, karaoke bars and music clubs are a hubbub of conversation and song that was unthinkable last year, and remains unthinkable for much of the world still in the grips of the pandemic.”

  • “‘Wuhan is now the safest city in the whole country,’ Mr. Song says resolutely. ‘We won’t catch this illness.’” READ MORE

Vaccines alone will not end the pandemic: “The arrival of highly effective vaccines in December lifted hopes that they would eventually slow or stop the spread of the disease through the rest of the population. But vaccines alone are not enough, the model shows. And if precautions like working remotely, limiting travel and wearing masks are relaxed too soon, it could mean millions more infections and thousands more deaths.” READ MORE

If poor countries don’t get vaccines, rich countries will suffer, too: “If people in developing countries remain out of work because of lockdowns required to choke off the spread of the virus, they will have less money to spend, reducing sales for exporters in North America, Europe and East Asia. Multinational companies in advanced nations will also struggle to secure required parts, components and commodities. At the center of the story is the reality that most international trade involves not finished wares but parts that are shipped from one country to another to be folded into products. Of the $18 trillion worth of goods that were traded last year, so-called intermediate goods represented $11 trillion, according to the Organization for Economic Cooperation and Development.”

  • “The study finds that the continued pandemic in poor countries is likely to be worst for industries that are especially dependent on suppliers around the world, among them automotive, textiles, construction and retail, where sales could decline more than 5 percent.” READ MORE

FINANCE

China has overtaken the U.S. as the leading destination for direct investment: “New investments by overseas businesses into the U.S., which for decades held the No. 1 spot, fell 49 percent in 2020, according to U.N. figures released Sunday, as the country struggled to curb the spread of the new coronavirus and economic output slumped. China, long ranked No. 2, saw direct investments by foreign companies climb 4 percent, the United Nations Conference on Trade and Development said. Beijing used strict lockdowns to largely contain Covid-19 after the disease first emerged in a central Chinese city, and China’s gross domestic product grew even as most other major economies contracted last year.”

  • “The 2020 investment numbers underline China’s move toward the center of a global economy long dominated by the U.S.—a shift accelerated during the pandemic as China has cemented its position as the world’s factory floor and expanded its share of global trade.” READ MORE

TRADE

President Biden will sign a Buy American order intended to boost American manufacturing: “The new policies will include tightening the government procurement rules to make it harder for federal agencies to purchase imported products, revising the definition of American-made products and raising local-content requirements. The executive order also ensures that small and midsize businesses will have better access to information needed to bid for government contracts.”

  • “Mr. Biden’s Buy American policy is being watched closely by America’s allies, which are hoping for friendlier trade relationships than during the Trump administration.” READ MORE

The pandemic has overwhelmed global supply lines: “The cost of shipping a container of goods has risen by 80 percent since early November and has nearly tripled over the past year, according to the Freightos Baltic Index. The increase reflects dramatic shifts in consumption during the pandemic, as consumers redirect money they once spent at restaurants or movie theaters to the purchase of record amounts of imported clothing, computers, furniture and other goods. That abrupt and unprecedented spending shift has upended long-standing trade patterns, causing bottlenecks from the gates of Chinese factories to the doorsteps of U.S. homes.”

  • “At the Port of Los Angeles one day last week, 42 ships were anchored offshore, waiting to unload their cargoes, even as every warehouse within 60 miles was already full.”

  • “A shortage of dock workers amid California’s worsening coronavirus outbreak is further complicating operations; inbound cargo volumes in December were more than 23 percent higher than one year earlier.”

  • “‘It seems to be getting worse, not better. I don’t see this ending any time soon,’ said Nate Herman, senior vice president for policy at the American Apparel and Footwear Association.” READ MORE

SOCIAL MEDIA

Think of Clubhouse as an interactive, audio-based social network: “Kevin Harrington, co-host of Shark Tank, has also been very active on the platform, and recently hosted an hours-long room with more than 3,000 visitors where he and other investors listened to pitches from entrepreneurs. By the time they finally closed, several entrepreneurs had received funding, and countless others gleaned valuable insight.” READ MORE

THE 21 HATS PODCAST

Episode 45: I Will Be Here: This week, Paul Downs and Jay Goltz talk about their New Year’s resolutions. Here’s Paul’s: “My New Year's resolution is that we will be open on December 31st, 2021. And I don't know whether I'll have the same number of employees, but we will be open. I will be here.” And here’s Jay’s: “My New Year's resolution is, I'm not gonna do anything stupid this year. So far, so good.” Paul and Jay also talk about Paul’s disappearing backlog, each of their plans for PPP Round II, Jay’s efforts to lure one of his sons into his business, and—responding to a listener question—how they handle business and personal expenses. “I think we have to stop recording right here,” says Paul.

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