8 Things to Consider Regarding Minimum Wage

2020 was a very difficult year for the majority of Americans. The COVID pandemic has impacted the lives of every American, through financial hardship, disruption of normal activity, and loss of loved ones. 2020 was also an election year and a common political campaign talking point resurfaced. This talking point is the idea of raising the federal minimum wage from $7.25 to $15 an hour. This idea may seem great to those working minimum wage jobs, but there are some things to consider prior to legislation passing. Whether or not legislation around the minimum wage is passed, MorganHR can help your business have the compensation planning answers before the questions are asked. Your employee compensation planning committee will love you.

1. People look at paying a person when, in fact, it is paying for a position or job
   • Those working in minimum wage jobs are likely salivating at the idea of a ~100% raise in their wage, as most of us would, too. However, something to consider is the devastating impact a move like that would make to small businesses and even their own employment opportunities.
   • With a 6.3% unemployment rate, there are more people than jobs available. To a business, a job taking orders or bagging groceries is not worth $15.00; it doesn’t matter who is doing the job.  
   • Some business owners would not pay $10/hr for a job that another completely qualified person is willing to do for $9/hr.
2. Minimum wage jobs are meant to be a great stepping stone to gain experience and make some money as teenagers or young adults. They were never meant to sustain a family of four.
   • After working a minimum wage job, workers should obtain skills to apply and qualify for higher-paying jobs.
   • Most people working in these jobs for more than a year or two with strong performance records should be applying for higher-paying jobs or even salaried positions. As a compensation professional, I keep hearing that recruiters cannot find the perfect talent for a job.
3. Perhaps companies need to loosen their hiring requirements or direct their recruiters to hire capable applicants as opposed to only perfect candidates. That is what the salary range is for.
   • If the applicant doesn’t quite meet the requirements for a job but is otherwise a hard worker with a strong work ethic, start them at the 40th percentile and provide them the chance to succeed.
4. Businesses will have to choose between two options: raising prices or reducing payroll expenses. Furthermore:
   • In this case, the best outcome for the business and workers would be to raise prices. However, this would have significant negative effects on the economy and start a vicious cycle of raising prices and raising wages.
   • If a business chooses to raise their prices and their competitor chooses to reduce staff instead, they will lose business to the cheaper costs. It is reminiscent of game theory.
   • However, if one company raises prices and the other lowers payroll expenses, the second company will make more money. If they both reduce payroll expenses, the worker loses.
5. Low-skill workers will experience the worst impact. Businesses will be forced to hire employees with more skills to be worth the $15 or they will resort to automation, robots, or outsourcing to other countries.
   • Large corporations, like shoe companies, already use extremely low-paid workers in China to make their products which are sold here at a premium.
   • Large companies will spend a lot of money on R&D to automate processes needed for their jobs.
   • The pandemic has shown that cashiers at restaurants are becoming obsolete, as we can order from our phones or touch screens at the location. Many low-skill jobs will disappear and the unemployment rate will skyrocket.
6. The financial impact of raising the minimum wage for a company does not end with the lowest level employees.
   • When a company is forced to double the pay rates of their lowest level employees, a domino effect will happen which will see pay increases (at least a demand for it) for most, if not all employee levels.
   • Many companies with employees earning minimum wage, have a large comparative employee population earning wages between $7.25 and $15.
   • Workers will all need to see a proportional increase to maintain the appropriate differential between levels which makes promotions and merit increases worth it.
7. In the United States, the cost of living is drastically different when you compare places like downtown San Francisco to the rural villages of the Great Plains. The minimum wage should not be a federal government decision due to this discrepancy.
   • It should be left up to the states, so that differences in cost of living can be appropriately accounted for.
   • When every state is forced to have at least a $15 minimum wage, it will either lead those cities already at that level or close to it to increase their state/local minimum wage higher, or it will incentivize people to leave cities and migrate to other areas causing a significant change to the local area.
8. Perhaps one of the motivations to raise the federal minimum wage so drastically is that higher average income comes more taxes.

When considering a serious increase to minimum wage, politicians, voters, workers, and business owners should consider and determine all effects, both positive and negative, and weigh them to make a fully informed decision. MorganHR’s services can help your business with compensation planning, Job Descriptions, and Title Alignment. They are there to help you have the compensation planning answers you need before the questions are asked.