Minimum Wage - Why Do Companies Pay Low Wages?

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What Do We Think?

HubPages Question:

Why do establishments pay an unsustainable salary to their employees? I have noticed this in my city and it's everywhere. Wouldn't the establishment lose employees and gain less profit if their employees are not happy with the pay? -- Asked by sayus2884

What Is the Right Salary to Pay?

How much to pay employees is a crucial question facing employers at any time in history, but always more important in times of economic downturn and recovery. Simply put, most workers desire the highest wages possible and most employers seem to wish to pay as low a rate of wages as possible. At least that it how it seems to many workers.

At one time, an American worker could enter the workforce after high school or college graduation, secure a job, and enjoy salary raises every year on the basis of number of years worked. Each year brought a salary increase, whether a work review was conducted or not. Many employees stayed with the same company until retirement and may have received a company pension along with Social Security Retirement benefit. Unfortunately, this is not longer the case.

In the 1990s, many companies switched to a Continuous Improvement scheme of work, with merit salary increases based on worker performance and production. Employees that had enjoyed yearly raises previously saw them decline to a 2% or 3% increase per year, followed by some years of no increase as all if their work performance did not warrant a raise. Increased number of years on the job did not guarantee raises and promotions.

Temporary Employment Agencies offered a new way to hire workers without handling taxes, payroll deductions, and benefits and many companies switched to using a large percentage of temporary employees. Beginning a job as a temp is a good way to try out a position and can lead to full-time employment, but not always and some temps make no more than federal minimum wage in any position.

In the 2010s, it seems difficult for the majority of job seekers to secure long-term full-time employment at high wages. In fact, the living wage or sustainable wage necessary for a workers to support himself or herself is far above federal minimum wage.

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What Is a Living Wage?

From the Living Wage NYC website in 2013:

NYC operates on existing legislation signed by Mayor Bloomberg that defines a living wage in New York City as a minimum of $10 per hour with benefits, or $11.50 per hour without benefits.Although this does not sound like enough money to me in a city were rents are in the thousands of dollars monthly, these are the actual figures for a single person in the city.

Our current US Federal Minimum Wage as of July 24, 2009 is $7.25/hour. IN 2014, President Barack Obama raised the federal minimum for federal workers to $10.10/hour.

In certain cases, State Minimum Wages may be paid instead of the federal minimum during a training period and sometimes to youth workers. State minimums can be less than the federal minimum and to find minimum wages in each state, click on State Minimum Wages.

Living wages currently paid in different cities can be found here: Living Wage Calculator.

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What Is Entry Level Employment?

Entry level jobs for job candidates with no work experience after high school and sometimes after college are not meant to be lifelong careers. They are a first step in an overarching career that will likely include more than one job and in the 2010s, probably several jobs.

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The proverbial first job in a non-union company is in a lower pay range than jobs requiring more experience and additional skills sets, and sometimes additional college degrees. In an entry level job, a worker proves what he or she can do and from a set of accomplishments on the job, may move up a career ladder of increased responsibilities and salary as well as new job titles.

It usually would be foolish for a non-union company to pay entry level workers very high salaries or wages, because employment turnover is generally high at the entry level for reasons having nothing to do with money. In addition, entry level jobs do not require the advanced skill sets and education needed on many intermediate and higher level jobs.

For the high school graduates, an entry level job may be paying only Federal Minimum Wage.A student that has worked part-tine for a company during summers before graduation would likely start full-time with that company at a bit higher hourly wage. College grads that have worked internships may be able to receive higher wages in full-time occupations for the same company as well.

A worker will prove for all to see, which positive qualities she or he has on this job. Workers will also demonstrate a range of soft and hard job skills. Soft skills are those like following directions 100%, effective communication, time management, punctuality, problem-solving skills, mathematics and English proficiency (or bilingual skills), and several others. Hard skills are skills like being able to use Microsoft Office Suite applications, to perform data entry, to operate a multi-line telephone system, to use a FAX machine or copier, drive a forklift, and numerous others.

At the entry level, mid-career, and later career points, workers are best advised to keep advancing their skills and learning new ones. One drawback in hiring older workers, for instance, is the belief that none of them can use technologies like smartphones, laptops, desktop computers and peripherals, iPads, etc. Other skills can also help one secure and maintain employment. See Ongoing Professional Development.

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Salary Trends

Today's reality is that many high school and college graduates will not immediately receive the high salaries that they desire. One trend I noticed in Ohio in the mid-1990s was that salaries for job listings of positions requiring a Master's Degree dropped by $10,000 per year. After July, 2009, I noticed that entry level salaries in my region dropped a little again in order to help compensate for a higher Federal Minimum Wage. In fact, the higher minimum wage closed down several business in my city.

A Small Business Example

When the minimum wage increase of Summer 2009 went into effect, one fairly busy fast food restaurant cut employee hours to compensate. This is because that employee wages are the easiest cost to control in such an operation - by reducing the workforce and cutting hours, seeing to it that no one workers as much as 35 hours weekly, because this is the threshold point for Workers Compensation premiums to be assessed, ensuring that no full-time positions exist, and several other methods.

The lunchtime complement of staff needed in this restaurant included two in the grill/fryer area, two cashiers inside and one or two people in the drive thru area, along with one manager. This amounted to 6 or 7 workers. After the minimum wage increase, the staff was cut to one in back, one to handle both the inside counter and drive thru operations and one manager - three people. Eventually, the owner needed to raise food prices and add another front end person, but service was rather slow. I suspect that raises stopped for crew and assistant mangers as well.

Larger Businesses

As costs increase for any business, part of the increase is passed on to customers, but employees may also be cut. Workers that are saved are often those that show the best skills and results in their entry level positions. Either that, or companies go with temporary workers to reduce costs and/or reduce benefits for the most reliable full-time employees.

Reality is that entry level works must surpass expectations of employers on the job and continue to improve their results and skills. This likely the best way to gain additional wages and benefits within the same company. Maintain these work habits and keep your eye open to better opportunities elsewhere. See Work reviews and Transfers.

© 2012 Patty Inglish

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Comments 15 comments

Eric Newland profile image

Eric Newland 4 years ago from Dayton, Ohio

Very good points. It's also a good idea to mention the concept of a "weighted" hour, since a lot of people who are complaining about low wages don't seem to understand that. Wages are just one of the expenses associated with having an employee work. Once you add in overhead, G&A, taxes, and benefits (oh yes, and a little bit of profit) the cost per hour to have an employee work can be double or more what the employee actually gets paid.

And yes, for a new employee, you've also got the cost of training and the short-term loss you have to absorb before they actually know their job and can start producing.


aguasilver profile image

aguasilver 4 years ago from Malaga, Spain

I tend to think in percentages, because 100% will always be 100% and if you give out more than 100% you go bankrupt.

If companies based wages on percentages, equality and fairness would prevail, i.e. all companies know exactly what % cost of labour has been traditionally expended in their budgets, and with the computerisation of things, can calculate exactly how much each worker represents as a % of turnover and profitability.

We all have tasks to perform, and the ability to perform those tasks quicker or more consistently are key indicators in efficiency and profitability.

If wages are fixed to a % of turnover/gross profit, then when the company experiences growth in profitability, the salaries increase proportionately in real time, or in quarterly/annual segments, with balancing taking place yearly for profits or loss.

Each worker would be paid according to their ability, including management, and disparity in salary levels would be easily seen and corrected.

When a company did well, the wages would increase, and vice versa when a company experienced a downturn.

Workers should also be issued with shares in the company which were paid for from a pool established linked to income received. On leaving the employment, workers could either cash those shares in, or retain them, so collecting their enforced savings or holding them where the company was seen as a good investment vehicle until it was time to sell the shares back to the company, or on the open market if the company refuse the put.

Maybe I should write this as a hub! :) seems a mite long here, but our labour laws and corporate methods are in need of a complete overhaul.

Thanks for the hub!

Having always been self employed, I have little experience of salaries positions and the problems associated with them.


viking305 profile image

viking305 4 years ago from Ireland

The UK minimum wage rate for an adult is £6.05 an hour. I had no idea the US rate was so low. Working for the minimum wage is very demoralising for most people because living on such a low salary is very hard.

The trend of employment in the UK at the moment is very few full time jobs and many part time vacancies of 10 to 20 hours a week broken up into a few hours a day.

When you add the extra travelling time and expenses to the fact the company is only paying the minimum wage it some times works out that the job is not worth applying for.

Very interesting facts about working conditions and salary in the US.

Thanks for SHARING. Up and interesting


artrush73 profile image

artrush73 4 years ago

Hello Patty and thank you for interesting article. In my opinion the wages should be higher than current because it's is impossible to live for majority of population. For example in Los Angeles is $8 and rent fees are high around $1k on average. Now 40hrs x $8/hr x 4month = $1280/month How a person can survive on? Its sifficult and many people have 2 jobs...


Patty Inglish, MS profile image

Patty Inglish, MS 4 years ago from North America Author

All these comments make very good points for use to think about.

artrush73 - Only raising the wage won't work, because businesses will make everything more expensive to make up for it, so you'll be in the same boat. It's still better than parts of Russia, where 2-3 families still live in one small apartment together and hang sheets up between beds for privacy. 4 of my single friends live in a medium-sized house in California - San Diego - and split expenses. That works.

For more money without causing increases in the costs of everything, workers must earn promotions and higher raises through good work results and more education.


KoffeeKlatch Gals profile image

KoffeeKlatch Gals 4 years ago from Sunny Florida

Patty, I understand about overhead and company expenses but still wish the salaries could be higher. I realize as salaries go up so will prices. In many of our companies now it seems there are less job, more closings of departments and stores making it harder to work for a promotion. Even with more education down here it is harder to get a decent salary than it was just a few years ago. You have made some very good points. I do agre even though it is tough here it is certainly better than some of the other countries.


Patty Inglish, MS profile image

Patty Inglish, MS 4 years ago from North America Author

I'm surprised at how much higher the UK salary is! If we could only start the US pricing cycle over with minimum wage at $10-$12 so that the increase would not be passed on to the public, it would be much better.

New kinds of jobs are going to need to be developed that can offer higher wages without price increases all around. I hear Florida's economy is declining somewhat.

The fast-food place I used in my examples finally opened only its drive thru all-night with minimum staff and found they could make a greater amount of profits in those hours and add another person or to two to the daytime schedule. The few nights they can't find anyone to work, they just close down the drive thru with the rest of the store for the night. Things change if a business wants to stay open.


homesteadbound profile image

homesteadbound 4 years ago from Texas

A very interesting article. You have brought up some very good points. The economy has made things very difficult especially for the small business owner.


Patty Inglish, MS profile image

Patty Inglish, MS 4 years ago from North America Author

Exactly so. The fast food shop could have gone out of business, but they overworked their employees after the wage increase and lost business that way. Some better planning would help, but not all small businesses can stay open 24/7 like WalMart.


LeanMan profile image

LeanMan 4 years ago from At the Gemba

More often than not wages are no longer the largest part of a businesses budget, but often the easiest to cut. Most businesses need to harness the creativity of their workers to improve their business and make savings not just cut their numbers or wages.

Paying a minimum wage or overworking your employees by not employing sufficient will not help you to gain their loyalty and cooperation in making improvements to your business. It is better to have a well paid motivated work force who will be more likely to actually contribute to your business and help you find ways to improve and expand.

Which fast food restaurant would you go to on a regular basis, the one where they were slow and miserable or the one where the staff were happy and went out of their way to make your visit pleasant? Paying more does not always mean that you have to charge more as the improvements generated and the extra business more often than not far exceeds any wage increases.


Patty Inglish, MS profile image

Patty Inglish, MS 4 years ago from North America Author

Unfortunately, fast food restaurants are among the last to consider paying higher wages over lower wages. Ray Kroc/McD in the 1950s taught his organization to hire people at minimum wage, work them as hard as possible with no raises, and let them go when they became tired or less productive or in some other way "not fresh." Unfortunately again, this concept spread to other industry sectors.


breakfastpop profile image

breakfastpop 4 years ago

In a perfect world all employers would pay their employees well. But since we don't live in a perfect world there are things we can do on our own. If a company is offering very very low wages don't work there. Eventually things will have to turn around if the employer wants to stay in business. When it comes to other types of jobs there are experts out there who study and calculate what is the proper salary for thousands of positions.


Patty Inglish, MS profile image

Patty Inglish, MS 4 years ago from North America Author

A good book on low wages and survival is one called "Nickel and Dimed" in which a reporter attempted to live on minimum wage jobs for a year and wrote about her experiences. They were ghastly, but people trying to support children on minimum wage had it worse.

If an entire town refused to work for a big box store until wages were raised, the store might move or bus people in to work. It would be interesting to watch the results.


Flora Breen Robison 4 years ago

Minimum wage jobs where I live are below the poverty level, and not everyone who has them live with other people to pool their resources. Even a disability pension where I live is below the poverty level if you live alone-and there are plenty of single adults here.


Patty Inglish, MS profile image

Patty Inglish, MS 4 years ago from North America Author

A full-time minimum wage job in our country is about $2000 above federal poverty level, and these workers are fortunate to be able to qualify for FoodStamps to help. A good number of them are still homeless, though working. Our disability payments are usually pretty low, except for full disability under the Veterans Administration - one such couple I knew well received a total of over $70,000/year (USD) until one died.

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