As the labor market tightens and the economy continues its longest expansion since World War II, banks have embarked on a hiring spree. To make themselves more competitive in the labor market, Bank of America announced that they’ll increase starting pay for bank employees from $15 per hour to $20 in the next two years.
This is an objectively good thing and one that demonstrates why free markets work. If a bank teller can either work at Wells Fargo or Bank of America, and the latter offers a better starting wage, Bank of America benefits by acquiring more applicants and having the opportunity to hire and retain the better ones.
Leave it to Vox to discover the seedy underbelly of the move: “It’s not out of generosity.”
“Bank of America said Tuesday that the raise was a way to thank employees for their hard work, and while this may be true, the reality is that banks need to raise wages to keep growing,” wrote Alexia Fernandez Campbell.
Yes! Precisely! This is why markets are an excellent thing. Companies aren’t motivated by generosity; they’re motivated by a duty to maximize returns to their shareholders. And that improves the bottom line of the economy for everyone.
As much as progressives demand $15 minimum wage and federal paid parental leave guarantees, the free market is already responding to tightening labor markets. Economic growth, corporate confidence, low interest rates, a steady stock market, deregulation, and the reduction of the corporate tax rate create a perfect storm for companies like Bank of America, which have large profit margins and a perennial need for human labor. For companies like these, a $20 minimum wage makes sense, because they want vast applicant pools of talented employees, and they don’t want to have to keep training new ones when the best ones leave to take higher-paying jobs elsewhere.
But to force a $15 minimum wage across the board on businesses that don’t enjoy those circumstances is merely to expedite the automation of whatever unskilled jobs are easily automated. We’re already seeing this at companies like McDonald’s, which is in the process of replacing most of its human labor with self-service kiosks.
A federal paid parental leave mandate — funded either by employers or by Social Security — will inevitably result in a hiring bias against women and a deceleration of women’s career advancement, especially at companies with thin profit margins. But plenty of companies with high profit margins requiring high-skilled labor have already adopted paid leave plans the government couldn’t even dream of. Netflix offers a full year of paid leave. Microsoft and Airbnb offer 22 weeks. Twitter and Amazon offer 20, and Alphabet, Apple, and Snapchat offer 18.
And again, these firms do so not out of the goodness of their hearts but instead to attract and keep the best talent they possibly can. If you’re an MIT graduate and you think you may have a child in the next few years, would you rather take a job offer from Netflix or Apple? Well, Netflix just upped its offer.
That markets operate through self-interest and not generosity, is a feature, not a bug. That’s exactly what makes markets work. When employers and employees alike must align their interests, everyone wins, and the economy grows.
