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Retail Industry: No. 1 Private-Sector Job Creator
May not pay as well, but 131,400 locals earn almost $2 billion annually
By TAINA ROSA
October 7, 2004
Retail jobs to the rescue
They dont pay as well as others, but are jobs in the retail industry saving the day for the local economy?
With 131,400 employees on its payrolls, the retail industry has become the No. 1 private-sector job creator in Puerto Rico.
With the exception of government (both local and federal), which currently employs 305,700 people, no industry generates more employment than retail. If the wholesale sector is added, the total number of jobs in commerce comes to 160,000, according to the local Department of Labor & Human Resources Establishment Survey.
That is head and shoulders above the 114,900 local jobs in manufacturing and the 67,300 in construction, to mention only two examples. (See Chart I.)
In fact, in Puerto Rico, where the unemployment rate has rarely dipped below 10%, retail & wholesale have become the largest-growing private economic sectors.
In the past 12 months (August 2003 to August 2004), the local economy lost 3,500 construction jobs and 500 in manufacturing, according to the local Labor & Human Resources Department. Meanwhile, the retail and wholesale industry (including supermarkets and megastores) created 3,800 jobs. During the same periodleading to a general electionthe number of government jobs grew by 9,600.
In fact, employment by the manufacturing and construction industries has been steadily declining in the past five years. In 2000, manufacturing accounted for 142,900 jobs, compared with 114,900 today. Construction, which in 2000 employed 73,500 people, has gone down to 67,300 employees today.
With 2.6% growth during the past year, retail is one of the fastest-growing economic sectors. Although smaller sectors, such as information services grew 7% last year, they employ only 22,800 people. The tourism sector, which employs 69,400, grew 2.5%, while health & education services, which employ 88,500, grew only 1.4%. Other professional, scientific, technical & administrative services, which employ 92,900 people, actually shrank 2.3% in the past 12 months.
Is retail saving the day?
But can these jobs in retail and wholesale make up for those lost in the construction and manufacturing industries? It isnt just a matter of the number of jobs but also of how much they pay and what kind of fringe benefits they offer.
In 2003, retail and wholesale trade paid an average annual compensation of $14,017.12 per worker, according to the H. Calero Consulting Group Inc. By comparison, manufacturing paid $28,250 and construction paid $14,655.42 (see Chart II). Whats more, retail and wholesale trade was the only one of the three industries to see a drop in employee compensation from 2002 to 2003.
Costco is perhaps the only retailer in Puerto Rico to depart from the norm. Roger Campbell, its senior vice president & general manager for the southeast region, said the megaretailer offers entry-level employees an astonishing $10 an hour.
Local sources say the starting hourly wage at Costco is really $8.75. Even if true, that is still above the average in retail, which is $5.15, the federal minimum wage. Megaretailer Wal-Marts starting wage in Puerto Rico is $5.40 an hour. Its local payroll adds up to about $154 million a year.
At supermarket chain Supermercados Grande, the starting hourly wage fluctuates between $5.15 and $5.50, for a total annual payroll of some $10 million. Of course, Wal-Mart has about 10,000 more local employees than Grande.
Also to be considered are the benefits offered to employees. According to industry insiders, most jobs in manufacturing (including the pharmaceutical manufacturing sector) are full-time and offer fringe benefits. Retailers also offer complete benefits packages to full-timers, but they mostly hire part-timers, and these dont normally receive benefits unless they have been employed for a certain period, usually a year.
Then there is the fact that turnover rates in retail are much higher than in construction and manufacturing, ranging from 20% to 50%, according to industry sources. The turnover rate is the rate at which employees enter and leave a company.
Pueblo Supermarkets turnover rate is 10% for full-timers and 25% for part-timers, said Chief Marketing Officer Melissa Lammers. At Grande, the rates are 15% and 10%, respectively. Costcos overall turnover rate doesnt reach 20%, said Campbell. He noted that this is lower than at the megaretailers stateside stores.
Part-time jobs as stepping stones
Having a job, even if it offers low wages and few benefits, is better than having none at all.
"Thats a no-brainer," said economist Vicente Feliciano of Advantage Business Consulting. "To see part-time opportunities as somehow destroying full-time opportunities is to have a shortsighted view of the labor market. Part-time and full-time jobs complement each other. A part-time job offers [entry-level workers] an opportunity to gain the experience and the skills that will help him or her obtain a full-time job."
Economist Manuel Maldonado concurs. "The creation of jobs is important no matter what benefits the jobs offer or how much they pay," he said. "Job creation stimulates income, and income stimulates the economy. I dont see retail jobs as second-class jobs because [even though they pay less] they still give employees purchasing power."
"Retail jobs are a way to acquire skills and move up within the industry, perhaps in the same store, or perhaps in other industries," said Feliciano.
The experience at Costco bears out Felicianos assertion. According to Campbell, about 98% of the job openings at Costco are filled from within. "We post our job openings in all three local stores to inform our employees of opportunities available to them," he said.
At a legislative hearing concerning Wal-Marts expansion in Puerto Rico, Corporate Affairs Director Frances Rios presented some 25 employees who had started as baggers or cashiers and been promoted to middle-management positions, demonstrating there is upward mobility in retail.
This is important since retail employees (especially part-timers) are usually students or other entry-level workers with almost no skills. And since 40% of local students drop out before their senior year, they generally dont have the skills needed to qualify for a better-paying job.
"A head of household [with a minimum-wage retail job] would certainly have difficulty providing for his or her family, but the reality is that people are responsible for acquiring their own skills and developing their own capabilities," said Maldonado. He also said most retail workers are in the industry not because they cant get jobs elsewhere but because they choose to be.
In Puerto Rico, most of the employees in retail work part-time. Wal-Mart has 13,709 local employees, 60% of them part-timers working up to 33 hours a week, said Rios. This includes the workers at local Amigo supermarkets and Sams Club warehouses. When Wal-Mart was hiring for its new Supercenter in Ponce, it interviewed more than 2,000 candidates and picked some 500. Of these, 11 were veterans, 167 were previously unemployed, 35 were over 55 years of age, and 144 were between the ages of 18 and 25.
Part-timers also account for 60% of Pueblos l3,461 employees. At Pueblo, however, a part-timer works a maximum of 24 hours a week. Lammers couldnt provide exact numbers but said most of the part-timers are students. Juan Rodriguez, Grandes executive vice president, said 60% of the chains 3,000 employees work part-time (20 to 28 hours a week).
At Costco, the number of part-timers and full-timers is evenly split. "Costco has an unwritten policy that at least 50% of the companys employees should be full-timers; this is without including management employees," said Campbell, who noted that Costco has 450 local employees, including some 45 managers (15 per store).
Full-timers outnumber part-timers at Hatillo Kash n Karry, an independent supermarket chain with a staff of 178. "Of the total, 57% are full-timers and 43% part-timers. In addition, 33% of our employees are students," said Marketing & Purchasing Director Raul Velez. Part-timers at Hatillo Kash n Karry work no more than 28 hours a week and earn $5.15 an hour.
Governments generous helping hand
The wages paid by supermarkets and megaretailers dont all come out of the employers pockets. A lot of these companies receive incentives from the local and federal governments.
The Right to Employment Administration (ADT by its Spanish acronym), a division of the local Labor & Human Resources Department, administers two incentives programs: the federal Work Opportunity Tax Credit and the local "Pan y Trabajo" (Bread & Work). These incentives are available not only to retailers but also to small and midsize businesses in any industry.
According to ADT Administrator Maria del Carmen Fuentes, both programs offer tax credits on a percentage of a workers wages or pay a workers entire wages for a certain period as long as the employer promises to make the worker part of the regular staff. Another option, she said, can also cover up to 50% of a workers wages.
"Most retailers, big and small, use these incentives," said Fuentes, who cited Sams Club, Pitusa, Amigo, and Grande as beneficiaries.
The Work Opportunity Tax Credit is available to companies that pay federal income taxes. If a company employs a member of a target group for at least 120 hours, it qualifies for a credit equivalent to 25% of the salary paid up to a maximum of $6,000, which could mean a credit of $1,500. If the targeted-group member is employed for at least 400 hours, his or her employer qualifies for a tax credit of 40% on the salary paid up to the $6,000 maximum, for a possible credit of $2,400.
The targeted groups are veterans and 18- to 24-year-olds whose families are in the Nutritional Assistance Program (PAN by its Spanish acronym), ex-convicts whose families are economically disadvantaged, people with physical or mental disabilities who participate in programs of the Vocational Rehabilitation & Employment Service or the Veterans Benefits Administration, and beneficiaries of the Temporary Assistance Program for Needy Families.
The ADT has been instrumental in helping people who have been laid off find new jobs. "Manufacturing, for example, has moved to second place in terms of job creation, which means that many of the people it has laid off have had to be retrained so they can work in other professions," said Fuentes. Some of these people, she added, might have switched to the retail industry.
Maldonado believes wage incentives are of tremendous assistance to start-ups in any industry, improving their chances of success and thereby enabling them to create more and more jobs. The problem, however, is that the local government has relied too much on tax incentives to attract large companies to Puerto Rico.
On average, retail sales per square foot in Puerto Rico are higher than those on the U.S. mainland, meaning the island is already an attractive place for them to do business. According to the Food Marketing Institute, supermarkets median weekly sales per square foot on the U.S. mainland are $9.29. In Puerto Rico, said Grandes Rodriguez, the average is about 30% higher.
Maldonado believes the local government has accustomed private enterprise to receiving these incentives. "The same way there are four generations of families living on welfare, there are four generations of companies living off various incentives. Its a kind of corporate welfare," he said.
Whats more, the incentives to retailers dont necessarily help to improve their workers lot in life, as many still qualify forand depend ongovernment programs such as the Health Reform; Women, Infants & Children; and PAN.
What about fringe benefits?
The retailers interviewed by CARIBBEAN BUSINESS said they offer benefits such as vacation and sick leave to a majority of their employees, whether they work part-time or full-time. Part-timers, however, generally receive such fringe benefits only if they have been employed for a certain period.
Campbell said Costco, where half of the local workers are full-timers, provides its employees with a core plan of benefits after six months on the job. These benefits include confidential employee assistance, participation in a stock-purchase plan and in the WorkLife Program, and access to the phone-counseling and referral service. After a year on the job, Costco employees are additionally eligible for long-term-care insurance, healthcare reimbursement, a cash-out option for health insurance, life insurance, long-term disability, dental care, healthcare, vision care, pharmacy coverage, 401(k), dependent-care reimbursement, and voluntary short-term disability.
"Pueblo offers employee discounts; Christmas bonuses; paid jury and witness duty; optional membership in the credit union; short-term disability, spousal death benefits; funeral, vacation, and sick leave; workers compensation; and health and life insurance," said Lammers, who noted that benefits account for about 30% of the total compensation paid to employees.
Wal-Marts Rios said part-timers are entitled to benefits after one year and 1,000 hours on the job, which is equivalent to working 20 hours per week. The benefits include health and dental plans, life insurance, life insurance for dependents, life insurance during business travel, short- and long-term disability, a stock-option plan, a profit-sharing plan, a 401(k), sick and funeral leave, and a discount card.
Velez of Hatillo Kash n Karry said benefits are offered only to full-time and exempt employees. Benefits include vacation and sick leave, healthcare coverage, and workers compensation.
If part-timers in retail must be employed for a year to be eligible for fringe benefits, when most dont last that long, then most wont ever receive such benefits. Nevertheless, the local law obligates most employers to provide vacation and sick leave after an employee has worked 115 hours or more in one month.
"These benefits are established by law, though employers can add to them if they like," said Marilyn Rodas, director of the local Labor & Human Resource Departments Employment Rules division. "With 115 hours or more worked in a month, an employee, whether full-time or part-time, accumulates one and 1/4 days of vacation and one day of sick leave."
Loyalty vs. turnover
Which is better: to pay attractive wages to encourage employee loyalty and reduce turnover or to pay low wages to reduce prices and increase profit margins?
BusinessWeek examined the differing approaches of megaretailers Costco and Wal-Mart in its April 12, 2004 issue. The magazine noted that Costco, which pays better-than-average wages, beat Wall Street expectations and posted a 25% profit gain and a 14% sales increase, yet the market responded by driving the companys stock down by 4%. An analyst quoted in the article said, "Costco deserves a little more credit than it has been getting lately, [since] it is one of the most productive companies in the industry."
On the other hand, said BusinessWeek, "[Wal-Mart] has taken a...pounding recently for paying poverty-level wages.... [Yet] it remains the darling of the Street, which...believes that shareholders are best served if employers...hold down costs, including the cost of labor."
According to BusinessWeek, however, the cheap-labor approach actually is costly. "It can fuel poverty and related social ills and dump costs on other companies and taxpayers...Whats more, the low-wage approach cuts into consumer spending and, potentially, economic growth," it said. Consumer spending is, after all, one of the best hopes for picking up the economy, as consumers were told after 9/11.
Campbell explained why Costco likes to pay wages that are higher than usual for the industry: "Our strategy is to get the best people. If we do this, we will see good things happen," he said Costcos turnover rate in Puerto Rico is lower than in the States.
Campbell noted that in Puerto Rico, a full-time wage employee who has been with Costco for about three and a half years can earn about $40,000 a year. "In fact, meat cutters make $40,000 or more," he said. "In addition, we offer bonuses based on years of service." These bonuses can be as much as $3,000.
Maldonado said paying high wages doesnt guarantee loyalty. "If an employee is going to be loyal to a company, he will be so regardless of whether he gets $5 an hour or $20. Higher wages dont ensure loyalty, higher morale, or more productivity," he said.
Fellow economist Feliciano, however, believes employee loyalty is an important factor in a companys success, particularly in those where the jobs are more complex and require more skills. "Hiring and training are very expensive, as employees productivity is usually low during the first month of work because theyre still learning the ropes."
Number of Local Employees in Selected Industries
Average Fiscal Years 2000-2004*
Industry: 2000 / 2001 / 2002 / 2003 / 2004*
Government (federal & local): 286.1 / 282.7 / 288.7 / 298.4 / 305.7
Retail & wholesale trade: N/A / N/A / 159.6 / 156.3 / 160.0
Manufacturing: 142.9 / 138.5 / 121.5 / 118.4 / 114.9
Construction : 73.5 / 73.7 / 69.3 / 65.6 / 67.3
*2004 figures are only for the month of August
N/A = Not available due to change from the Standard Industrial Classification system to the North American Industry Classification system after 2002
Source: Puerto Rico Department of Labor & Human Resources Establishment Survey
Average Annual Compensation Per Local Worker in Selected Industries
Fiscal Years 2002-2003
Industry: 2002 / 2003*
Government: $24,148.66 / $26,083.21
Retail & wholesale trade: $14,898.75 / $14,017.12
Manufacturing: $27,656.12 / $28,250.00
Construction: $14,626.74 / $14,655.42
Source: H. Calero Consulting Group Inc. Data based on the Puerto Rico Planning Boards Statistical Appendix in its report to the governor.
Raises hard to come by in retail?
CARIBBEAN BUSINESS conducted an informal random survey of part-time and full-time employees at various local supermarkets to hear about their experiences on the job, particularly with regard to raises.
Most full-timers who agreed to participate in the anonymous interviews have been at their respective jobs for years. One supervisor at Amigo, for example, said she has worked at the same supermarket for five years. "I work an average of 48 hours a week," said the woman, who added that she now earns $6.70 an hour.
A dairy manager at a Grande supermarket said he has been with the chain for about 15 years, during which time he has received six raises, each of 30 cents per hour. "Right now, Im making $10.30 per hour," he said.
Most of the employees who agreed to be interviewed are part-timers. At Amigo, most of the part-timers said they have been with the company for years. Such loyalty is unusual in the retail industry.
Most part-timers at Amigo, however, also said they have never got a raise. "Ive worked here for 10 years," said one, who noted he works five days a week from 8 a.m. to 5 p.m. and earns $5.15 an hour, the federal minimum wage. This would mean he is working 40 hours a week, though he claims to be classified as a part-timer.
Another employee has been with Amigo for four years. "I work more than 20 hours a week and make $5.15 an hour," he said.
One man who was a part-timer at Amigo when the chain was being acquired by Wal-Mart said there were evaluations to determine which employees would get raises. "They say they will increase your wage by 30 cents per hour if you pass the evaluation with a perfect score. The truth is no one ever passes with a perfect score, so no one gets the full raise," said the man, who had been working for the supermarket for little under a year.
A bagger in a Grande supermarket said he has been on the job for seven years and makes $5.15 and hour plus tips. He said he has never received a raise.
A bagger at a Pueblo supermarket said he makes $2.13 an hour plus tips. A source at the local Labor & Human Resources Department said this is an acceptable practice. "If the persons salary doesnt add up to $5.15 an hour [including tips], the company must pay the difference, and Im aware Pueblo does comply," said the source, who knew Pueblo was the employer in question though CARIBBEAN BUSINESS hadnt revealed its name.
A part-timer at Costco said he earns $8.75 an hour, which he said he would never get anywhere else in retail. "The problem is they make you work in every part of the store, so you have fewer employees doing more work," he said. Such cross-training of employees, however, is an industrywide practice.
This Caribbean Business article appears courtesy of Casiano Communications.