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Do better-paid workers equal better business?

Recently, insurance company Aetna voluntarily upped its minimum wage to $16 per hour, giving roughly 6,000 of its lowest-paid employees an average raise of 11 percent. Next year, the company also plans to offer lower-cost benefits to some workers. What’s behind the wage hike? Economics correspondent Paul Solman talks to Aetna's CEO about the investment.

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  • GWEN IFILL:

    Next: raising wages for the lowest-paid workers here in the U.S.

    Economics correspondent Paul Solman looks at why some companies use it to boost their bottom lines.

    It’s part of his ongoing reporting Making Sense, which airs every Thursday on the NewsHour.

  • KENDRICK BROWN, Aetna Customer Service Representative:

    There are necessities and then there are wants. You know what I mean?

  • PAUL SOLMAN:

    Forget his wants. Health insurance claims servicer Kendrick Brown has barely been able to afford life’s necessities, like a car, after his was totaled.

  • KENDRICK BROWN:

    I actually got in an accident. My insurance paid off what the car was worth, but, as far as what I had borrowed to actually purchase the car, I still owed. Once you get in such a hole, you’re like, OK, would it make more sense for me to actually, you know, file bankruptcy?

  • PAUL SOLMAN:

    So, when his employer, Aetna insurance, recently, voluntarily and suddenly raised its minimum wage to $16 an hour:

  • KENDRICK BROWN:

    It was a happy day. After taxes, it was like somewhere between $100 and $150 dollars every check. And that goes a long way. That goes a long way.

  • PAUL SOLMAN:

    Brown is one of the roughly 6,000 lowest-paid Aetna employees, out of a work force of 49,000, who got raises this spring, on average, 11 percent, with some as high as 33 percent.

    Call centers like this one in Fresno, California are home to many of the firm’s lowest-paid workers. We visited on the payday the raises took effect.

  • KRISTEN SARGENT, Aetna Customer Service Representative:

    Everyone went in and looked and were like, oh, it’s there. You know, this, it’s really there.

  • PAUL SOLMAN:

    Kristen Sargent among the 233 workers here whose paychecks rose.

  • KRISTEN SARGENT:

    It’s like, on paper. You know, it’s there. It went into effect.

  • PAUL SOLMAN:

    Sargent will earn over a dollar more an hour, lives some 40 miles from the office.

  • KRISTEN SARGENT:

    My husband works in construction. And, of course, that’s a seasonal job. And so we’re dependent on just me. And we’re a family of five. I have three kids. And it’s hard to tell them they can’t go hang out with the other kids and do what the other kids are doing just because you don’t have the money. Kids don’t understand that.

  • PAUL SOLMAN:

    Erica Garcia is grateful for her raise. One of her young sons is still in day care and another is coming soon.

  • ERICA GARCIA, Aetna:

    I have already delegated that money towards day care for my new baby.

  • PAUL SOLMAN:

    And next year, Aetna also plans to offer lower-cost benefits to those below a certain income threshold.

    CEO Mark Bertolini is the driving force.

  • MARK BERTOLINI, CEO, Aetna:

    It’s not just about paying them more. It’s about creating for them a higher level of personal disposable income that allows them to engage in the economy, feel part of their communities and feel good about the place they work at.

  • PAUL SOLMAN:

    The CEO does have his reasons.

  • MARK BERTOLINI:

    We now have a lot of financial capital in the system. And we can borrow money cheaply as corporations, $3.8 trillion around the world in capital sitting in — inside of companies. So let’s invest and husband our scarce resource, which is talent, a motivated, engaged, present worker. And let’s put at risk some of our capital to do it.

  • PAUL SOLMAN:

    So, after decades in which corporate America was all about maximizing shareholder value, Aetna is raising wages at the bottom unilaterally.

    Gravity Payments, a 120-person credit card payment processing firm, is going even further, raising its minimum to $70,000 a year, effectively doubling the pay of its 30 lowest-paid workers. The Gap, Starbucks, Wal-Mart and McDonald’s have also announced increases, perhaps tied to public pressure, minimum wage campaigns, picketing.

  • Economist Arin Dube:

  • ARINDRAJIT DUBE, University of Massachusetts Amherst:

    There’s growing attention and public pressure to raise wages at the bottom. So I find it really interesting that these companies aren’t just simply raising wages for all their workers, but also raising specifically at the bottom.

  • PAUL SOLMAN:

    Dube has studied the effect of higher wages on worker productivity.

  • ARINDRAJIT DUBE:

    When companies raise wages, they actually do reap the benefits of increased productivity via increased effort, morale, lower turnover, better pool of applicants they can select from.

  • PAUL SOLMAN:

    Or, as Aetna’s CEO puts it:

  • MARK BERTOLINI:

    The idea was, is, if people can’t make ends meet at home with food and with benefits, health — health care in particular, how can they be present, engaged, knowledge workers in the workplace when they come to work?

  • PAUL SOLMAN:

    Especially as their jobs, servicing insurance customers, can be something of a trial.

  • KRISTEN SARGENT:

    You may have to hit the mute button and just go, OK, back in, here we go.

  • KENDRICK BROWN:

    I try to stay upbeat and just — you know, just remind them, hey, we’re on the same team. Sometimes, they don’t believe that, but I do my best to let them know that.

  • PAUL SOLMAN:

    CEO Bertolini hopes to improve customers’ satisfaction. Their feedback has not been kind to insurance companies.

  • MARK BERTOLINI:

    You guys are worse than the cable industry and you’re worse than the airlines. Not high praise. And the only thing that saves us is that we’re higher than Congress.

  • PAUL SOLMAN:

    Another goal of the wage hike, to reduce turnover costs, some $120 million a year.

  • MARK BERTOLINI:

    The higher your turnover, the more difficult it is to carry on a culture that’s focused on taking care of customers in a knowledgeable and more empathic way.

  • KENDRICK BROWN:

    No, I’m going to pay the whole amount, instead of the past due amount this time.

  • PAUL SOLMAN:

    And it wouldn’t be a shock if Kendrick Brown were now be a more productive worker.

  • KENDRICK BROWN:

    I don’t have to stress that, oh, my God, on my break, I need to call and make a payment arrangement with Comcast, or, oh, my God, on my lunch break, I need to call PG&E and figure out how I’m going to pay the rest of that bill.

  • PAUL SOLMAN:

    More money makes Erica Garcia less inclined to leave Aetna.

  • ERICA GARCIA:

    I think what it does is helps me feel comfortable in my decision that I wanted to — to stay with Aetna long-term.

  • PAUL SOLMAN:

    The pay raise and benefit program for low-wage workers will cost Aetna only $26 million, while the CEO alone made $15.6 million last year, though most of it in stock options.

    So, you’re really not talking about a huge investment here?  So, why don’t you do more?

  • MARK BERTOLINI:

    We will over time. As the company’s more successful, we will share in that success. And we will find different ways to do it.

  • PAUL SOLMAN:

    And if the company’s not more successful?

  • MARK BERTOLINI:

    Well, then everybody suffers.

  • PAUL SOLMAN:

    Including Aetna’s investors, notes economist Dube.

  • ARINDRAJIT DUBE:

    It will be interesting to see if there’s been a real change in the way investors in America react to the news of rising labor costs.

  • PAUL SOLMAN:

    For now, though, Kendrick Brown is among those thankful for the investment.

  • KENDRICK BROWN:

    That living check-to-check thing is not my goal in life, and not that I need to go out and, you know, spend money and be rich, or whatever, but, at the same time, just be comfortable and happy.

  • PAUL SOLMAN:

    Aetna is betting that comfortable and happy workers will mean less uncomfortable and unhappy customers, and, in the end, a better bottom line.

    This is economics correspondent Paul Solman reporting, happily, for the PBS NewsHour.

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