Posted by Chuck Csizmar | Posted in Articles, Universal Compensation | Posted on 24-04-2016
Periodically I’ve been asked to comment on the controversial subject of raising the U.S. Federal Minimum Wage. I say controversial because it seems as though lately the subject has taken on the sensitivities normally associated with politics and religion. Everyone has a strong opinion, and few folks out there are willing to listen to viewpoints that differ from their own.
That being said, as a compensation practitioner of long standing I do have a few opinions that I’ll share with you.
Close your eyes and picture for a moment the type of employee that your mind conjures up when you think, minimum wage employee. In my view there are two possible images:
- Bobbie, the High School Kid: Not that long ago Bobbie’s image stood by itself, the high school age youngster holding down his first job. His motivation was money for gas and Saturday night dates. The job was part time and the work didn’t require skills or even more than a day of training. Anyone could do it.
Now Bobbie doesn’t really care about the business, about customer service, or even whether he consistently made it to work on time. Company loyalty was a foreign concept, not even thought about, as he probably planned to stay on this particular job for only a short period of time. He had better things to do, and just needed a few bucks to do it. Turnover rates for the Bobbies of the world is very high.
And he doesn’t need a “living wage.”
- Robert, the Head of Household: This image is what may be considered the new face of the minimum wage issue, or at least as the media portrays it. We’re looking at a much older worker who needs a full time job and has a family to support. What remains though, is the same low or minimum skilled individual, who for some reason cannot obtain employment more complex or valuable than that of an entry level position that offers the lowest wage out there.
How it is that Robert is working at the same job next to Bobbie is never explained; bad luck, high school dropout, having a questionable background that discourages other employers – we don’t know. Perhaps it’s a part time second job to help out at home. But Robert is doing the same work as Bobbie. Paying different rates could be considered discriminatory.
The Minimum Wage Job
So what jobs warrant a mandated minimum wage these days, providing only the lowest of the low pay levels? Chances are the answer is that low or no skills are required. What employees don’t know can be quickly learned through short term training. These are the proverbial “anyone can do this” jobs.
But you say, what about construction workers? Not the electricians, plumbers or carpenters, but the ditch diggers (is that even a category these days?) and generic laborers. Or what about low skill jobs that are highly physical, very messy or even dangerous? Here the competitive marketplace pushes pay rates up to attract workers. Anyone can do it, perhaps, but those who want to are limited – so supply and demand push up the pay rates.
The Survey Says . . . .
For most jobs employers are not able to attract employees when they pay below market rates. While that may be obvious for skilled positions that’s also why the ditch diggers, garbage handlers and other less desirable jobs are often paid more than what the government mandates.
Minimum wage jobs represent the floor of the labor market, where the only reason certain jobs are paid what they are is because the government (federal or state) mandates a certain pay level that supersedes competitive practice. Without being artificially propped up these jobs would have their pay levels gravitate to what it would take to attract the right caliber of employee.
The Employer Viewpoint
Most compensation experts will tell you that a proper pay level(and you can certainly debate the exact amount) is the least amount necessary to attract, motivate a retain the right caliber of employee. Because anything more, according to Herzberg’s Motivation Theory, will not increase your return on investment (performance, productivity, etc.). And anything less won’t allow you to have a competent staff who is willing to remain with you.
If it was your money, and your jobs required little or no skills to perform, and the profit margin of your small business was razor thin, what would you do? Likely you’d keep your staff as small as possible, use technology wherever you can to replace employees but pay your staff the prevailing (competitive) wage – unless you’re artificially required to pay more than the marketplace would otherwise suggest.
McDonalds has already introduced internal ordering kiosks that replace employees.
When you’re facing the loss of your business because your pay levels have become a social issue, you either fold up your tent or you cut; you cut staff, you cut hours, or even products and services, but you do whatever it takes to stay afloat. And chances are the prospect of only staying afloat was not why you went into business in the first place.
Meanwhile, all Bobbie still cares about is getting enough gas money for Saturday night, a new video game and a couple of burgers. A raised minimum wage will not affect either his motivation, his customer service or his willingness to stay with you. He wins, you lose.
On the other hand Robert is out on the picket line demanding a “living wage” to support a family that Bobbie doesn’t have – all for doing the same job. But of course Bobbie will gladly accept whatever handout the government requires. It’s all good news for him.
Should you pay the same rates to Bobbie and Robert for performing the same, low or no skilled job? That really is the social issue on the table, isn’t it? Perhaps it’s not a compensation issue at all.
And finally, where does the $15 rate come from? Economic or competitive survey analysis? Compensation professionals? Or perhaps only from politicians and social activists.