Major Icelandic Wholesaler Threatens To Raise Prices If Wage Rises Are Approved

With the signing of an agreement between labour leaders and management, many breathed a sigh of relief; the strikes will be over, and more importantly, the lowest paid workers will be getting a pay rise and other benefits. However, the fight isn’t over yet. Especially as a major food retailer has threatened to raise prices on their products if they are compelled to give their workers a pay rise, Fréttablaðið reports.

This response has provoked calls for a boycott of the company. This is no small undertaking in a country where one company can control vast swaths of the food market, but the conflict also reflects a common fallacy that many management types use, intentionally or otherwise, when they object to paying their workers a living wage—especially peculiar when all evidence indicates that raising wages actually boosts the economy.

Do they need to raise prices?

ÍSAM, a wholesaler and manufacturing company behind many products sold in Iceland, sent out an email to customers saying that, if workers voted in favour of the new collective agreement, they would respond by raising prices on their goods by 3.9%, with a 1.9% increase on imported goods.

As the rise that their workers will get amounts to somewhere in the ballpark of 15,000 ISK per month, it necessarily raises the question: is ÍSAM really so desperate for cash that they need to do this? The evidence suggests that they do not.

In 2017, the company boasted on their own website that they had earnings totally over 80 million ISK three years in a row. In 2018, they reported a turnover of 12 billion ISK. Although their profits were down slightly that year, in single-digit percentages, they are not exactly hurting for cash.

The boycott

The backlash to this announcement was immediate. Union leaders and consumer advocates alike called the ÍSAM’s move “tasteless” and “peculiar”. Across social media, a movement is already burgeoning to boycott ÍSAM’s products. This is easy enough to do in theory; they do list every product they sell on one convenient page of their website. In practice, it might prove more difficult, given the broad range of products they sell.

“Workers and customers are literally the same people. If you pay your workers more, then they have more money to spend, which means more money going into the economy, which means everyone benefits.”

ÍSAM’s strategy is not a unique one, at least on a global scale. Corporate management very often use this tactic to pressure workers into agreeing to lower wages, to vilify unions as greedy parasites trying to bleed hardworking capitalists dry. However, this strategy is based on a glaring logical fallacy that top business leaders are well aware of.

“Rich people don’t create jobs,” says billionaire

When the minimum wage in Seattle was raised to $15/hour, many business leaders also complained that they would be forced to raise prices and that it would hurt the economy. Although the actual effects of the wage increase are complex, the reality proved to be much different than the worst fears expressed: many workers had more free time, as they didn’t need second jobs, along with more spending money, and businesses actually boomed.

Furthermore, Rick Hanauer, a venture capitalist and billionaire, has been a vocal critic of corporate capitalism and has pointed out a number of contradictions and fallacies within free market circles. Amongst them is the notion that keeping wages down helps keep profits up. In a recent interview, Hanauer deftly points out why this idea is illogical.

In what he calls an “econo-erotic fantasy”, your typical capitalist, he says, believes that “My customers will all be rich and be paid a lot by their employers. My workers, sadly, will not be paid a lot, so my margins are very high. I’ll exist in this world where my workers need food stamps, sadly, but my customers are wealthy enough to both buy my stuff and pay the taxes that will fund the food stamps.”

The truth of the matter, Hanauer says, is quite different:

“Rich people no more create jobs than farmers create tomatoes. The economy generates jobs, not rich people. The more money consumers have, the more jobs that are created, because people buy things and people like me are required to hire people in order to meet that demand.”

In other words, workers and customers are literally the same people. If you pay your workers more, then they have more money to spend, which means more money going into the economy, which means everyone benefits.

Is this what we’ve come to?

As worker voting on the new collective agreement may have already concluded by the time you’re reading this, it is entirely possible that prices for these products are already more expensive than they were just a couple of weeks ago.

Whether or not that is the case, the fact that a company could so brazenly issue threats to the general public raises a number of troubling questions. Can management in this country operate with such impunity? Are there no protections that we can put in place for consumers and workers (who, again, are the same people)? Will we really have to resort to the messy business of boycotting in order to pressure business owners into acting in the public interest? Only time will tell.