Retailers are canceling coronavirus hazard pay. That's a mistake

New York(CNN Business) In March, as coronavirus cases started to rise and governors issued stay-at-home orders, major retailers took a cue from a decades-old practice used in the military.

The companies turned to a concept known as hazard pay, which rewards workers for doing dangerous jobs. Amazon, which also owns Whole Foods, temporarily boosted its minimum wage for hourly workers to $17 an hour, up from $15, and raised overtime pay for warehouse workers. Kroger, Albertsons, Rite Aid, Stop & Shop and others also upped their minimum wage for hourly workers by $2 an hour.

Now, as coronavirus cases explode across the United States and retail employees are tasked with enforcing that customers wear masks, the risks remain high for workers.

Yet hazard pay, also commonly referred to as hero pay, has largely disappeared. Kroger (KR) and Rite Aid (RAD) ended the pay bumps in May. Amazon (AMZN) and Albertsons ended the hikes in June. Stop & Shop ended it earlier this month.

The end of the pay increases prompts a question: Companies may not have incentive to offer additional pay due to supply and demand in the job market currently. But, if the concept of hazard pay is to compensate employees for added risk, and that risk hasn't disappeared, should they do it anyway?

"The danger facing essential workers hasn't diminished. Any job where a worker is interacting closely with the public or coworkers for an extended period of time elevates the possibility of contracting coronavirus," said Indeed economist AnnElizabeth Konkel.

Susan Hernandez, a clerk at Kroger-owned Food 4 Less in Los Angeles, stopped getting an extra $2 an hour hazard pay in mid- May, but her fears of contracting the coronavirus at work didn't end then.

"We're out there every day, dealing with customers not complying with safety measures, like wearing masks," she said.

Some customers have even spit on the floors after being told they couldn't enter without facial coverings, she said.

"The way I see it, hazard pay is a small price to pay for what we're dealing with every day," Hernandez said. "We are putting our lives on the line."

A Kroger representative said the company has invested more than $830 million to reward associates in "appreciation" pay and bonuses since March.

"We continue to listen to our associates and take steps to ensure their safety and well-being. We also continue to execute dozens of safety measures and provide support to our associates" with expanded benefits such as paid emergency leave and childcare support, the spokesperson said.

Rite Aid and Albertsons didn't respond to request for comment on their decisions to end pay increases.

Amazon said that the company has given its employees nearly $800 million in extra pay in the pandemic. "With demand stabilized, we returned to our industry-leading starting wage of $15 an hour," an Amazon spokesperson said.

A spokesperson for Stop & Shop said, "the purpose of this temporary extra pay was to recognize our associates for their hard work during an unprecedented surge in demand and customer traffic. As states continue to reopen, we are returning to pre-COVID levels of traffic and demand." The company said it is continuing to take "significant steps" to keep employees safe and is offering a "flexible leave policy" and additional paid sick leave.

How hazard pay originated

Hazard pay, known as "danger pay" outside the United States, "originated in the military during WWII, when soldiers, reporters, and entertainers received additional compensation for assignments in war-torn areas," said Kate Bronfenbrenner, director of labor education research at the Cornell University School of Industrial and Labor Relations. "Employers picked up the practice sometime after the war, offering their employees additional payment to recruit and dangerous, unpleasant, or physically demanding jobs."

The coronavirus pandemic was the first time grocers implemented hazard pay, according to Bronfenbrenner.

Companies said they offered hazard pay during the early stages of the pandemic to reward workers on the frontlines. Economists and labor experts say they had additional incentive: they wanted people to keep showing up to keep operations running smoothly.

Employers "need to provide hazard pay if they are unable to hire workers who will work at the regular rate," said Nicole Hallett, associate professor of law at the University of Chicago Law School who studies immigration and labor and employment law.

There was no formula for calculating the hazard pay, said Suresh Naidu, professor of economics and international and public affairs at Columbia University. Employers made it up "based on what workers are willing to accept without quitting."

Despite the increased risks, however, the majority of essential workers who face greater risks coronavirus exposure are not being compensated at a higher rate. A survey commissioned by the Economic Policy Institute, a left-leaning think tank, released last month found that only 30% of people working outside their homes received hazard pay.

Amazon, Kroger, Albertsons, Target and others have given employees cash bonuses after the hazard pay ended. Target (TGT) also announced it was hiking its minimum wage to $15 an hour from $13, speeding up a plan that was initially scheduled for the end of the year. That essentially made permanent a $2 an hour increase it had given its workers in the pandemic.

But unions and Democrats in Congress are pressing retailers who offered hazard pay in the form of temporary wage increases to reinstitute it instead of cash bonuses.

Senators Elizabeth Warren, Sherrod Brown and top Democrats sent a letter Thursday to the leading 15 grocery chain CEOs calling on them to restore hazard pay for workers during the pandemic.

Labor advocates say there is a clear moral reason that essential workers should get additional compensation. The United Food and Commercial Workers union said at least 93 of its grocery worker members have died from coronavirus and released a poll of 4,000 members Friday that found that nearly half said they were more concerned about the coronavirus than they were two weeks ago.

"Ending hazard pay makes no sense," said UFCW president Marc Perrone. "Our members and grocery workers across the country continue to show up to work during this pandemic, risking their health in order to serve our communities."

Why hazard pay should continue

The problem is that while workers still face risks, companies don't have an incentive in the current job market to reinstate the temporary wage increases they offered. The unemployment rate in June was 11.1%, well above pre-pandemic levels.

"If employers don't have to provide hazard pay, they won't. The fact that many companies have ended their hazard pay policies tells me they feel it's no longer needed to attract workers," said Nicole Hallett, associate professor at the University of Chicago Law School who studies employment law.

Cost concerns during the pandemic may also hold back grocers from hiking pay. Companies have added staff and increased cleaning measures at stores, taking a bite out of their bottom lines.

Some employers may not be able to afford giving their workers hazard pay, said Konkel, the Indeed economist. "For businesses with thin margins, it's going to be a particularly tough call."

But some labor experts said it's in companies' interest in the long run to compensate employees for the risk they are taking on now.

Employers "may get away with that in a context of 11% unemployment," but it is "both unfair now and destructive in the medium term," Lawrence Mishel, former president of the Economic Policy Institute, said. Employees should be "compensated for risk." Eventually, "unemployment will fall and better employers will expand."

Indeed, a tight labor market before the pandemic had prompted major retailers including Walmart and Amazon to announce wage hikes.

If anything, that should be a reminder that the economy is cyclical.

"If companies end hazard pay policies now, they may be able to retain workers in the short run because workers have no choice," Hallett said. "But once the economy improves, workers may move on because of how they were treated during the pandemic. Turnover is costly for businesses, and workers will remember how they are treated now."