Is Starbucks’s Wage Increase a Shortsighted Strategy? What Experts Say
MIT SMR Strategy Forum
Unionization is on the rise in the United States as workers have successfully established unions and organized for change across a range of companies and industries. From pilots and flight attendants to retail workers at Amazon and Target, labor is demanding more from corporate management.
To date, employees at more than 250 Starbucks stores have filed petitions for union elections, with nearly every day bringing news of both newly unionized stores and fierce pushback from corporate leadership. Starbucks has fired more than 20 union leaders, and CEO Howard Schultz remains firmly opposed to unionization, introducing higher wages only at nonunionized stores. This move is the inspiration for this month’s prompt to the MIT Sloan Management Review Strategy Forum: Starbucks’s plans to increase wages for nonunionized workers is a shortsighted strategy.
Strongly Agree and Agree
About 40% of our panelists agreed that yes, Starbucks’s strategy is indeed shortsighted. “Starbucks has ended up in the worst of both worlds; it has not been ambitious enough to deter unionization, and its half-hearted efforts have likely only fueled further commitment to the labor movement,” notes Scott Stern of MIT Sloan School of Management.
A number of panelists echoed Maryann Feldman of the University of North Carolina, who states that “Wages are not the only issue for the Starbucks workers.” As University of Toronto’s Anita McGahan says, “The firm’s future depends on regaining the trust of workers by paying fairly and equitably, and then investing to create new opportunities for worker development and career progress.”
The policy poses the threat of deteriorating engagement and pitting employee groups against one another. As Alfonso Gambardella of Bocconi University writes, “Unionized employees will feel discriminated against and become less attached. Employees in stores that are considering unionization will be in the difficult position of choosing between free choice to unionize and a raise.”
Beyond these internal tensions, Starbucks’s hardline stance may also diminish consumer trust. “It may hurt them not only in hiring people but also dissuade customers. Fancy coffee is not like oil or gas. If people doubt the ethics of the purveyor of their spiced latte, they may just go somewhere else or forgo it entirely,” notes Petra Moser of New York University.
New York University
“Howard Schultz is trying to have his Mocha Cookie Crumble Frappuccino and drink it too. He feels the need to save money on wages and benefits, but he also doesn’t want to leave a bad taste in the mouth of his left-leaning clientele.”
London Business School
Neither Agree nor Disagree
A handful of panelists were undecided on the strategic impact of Starbucks’s decision. Jin Li of Hong Kong University explained that public perception can’t be predicted: “Even if it stops the unionization movement, the plan will have an important impact on its future culture. The effect of the plan depends on how it is interpreted, either as pro-customer or anti-worker.”
Boston University’s Tim Simcoe, similarly, had questions on how this decision would play out in the long term but expected that Starbucks had good reasons for it: “I don’t think you can call it shortsighted, since they must have some expectations about how this move changes the behavior of workers who would otherwise unionize.”
Neither agree nor disagree
“It breeds animosity and hurts collaboration when two types of workers do similar work but are paid differently.”
Hong Kong University
Disagree and Strongly Disagree
Most of the panelists (45%) disagreed that Starbucks’s pay decision was shortsighted, many highlighting trends in wages. John Van Reenen, from the London School of Economics and Political Science, points to efficiency wage theory, suggesting that “raising wages can be beneficial for morale, retention, attracting better workers, etc.” UC Berkeley’s Steve Tadelis says, “As long as the unit economics make such a pay raise sustainable, this can help retain employees in an economy where turnover has become the norm rather than the exception.”
“Most firms prefer not to deal with a union. (Whether this is a good idea is debatable!) But if this is their preference, then raising wages would seem to be a good idea.”
Economist Preston McAfee notes, “With the current inflation and the shortage of workers, a wage increase is going to be necessary soon anyway.” But while acknowledging some strategy to the decision, McAfee also disapproves of the company’s actions, adding, “It was a mistake to engage in reported dirty tricks to stop unionization as it created an adversarial relationship with the workforce that will likely harm Starbucks for years to come.”
Regardless of our panelists’ level of agreement about the shortsightedness of this particular strategy to curb unionization and appeal to workers in a difficult hiring period, Starbucks’s latest move may leave many employees and customers with a bitter aftertaste.
“Well, it’s definitely not going to earn them ‘employer of the year.’ While what they are doing may be legal, it may be hugely damaging to their reputation as an employer.”