Minimum Wage vs. Living Wage - Why Do Companies Pay Low Rates?
What Do We Think?
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?
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 benefits. Unfortunately, this is not longer the case.
As of 12/31/2019 several U.S. states and many more local communities had raised their minimum wage to $10.00 or more per hour. For instance, Columbus, Ohio government workers now earn at least $15.00/hour when they are first hired.
During President Bill Clinton's Welfare Reform years, many companies instituted a "continuous improvement" (CI) scheme of work, with salary increases based mostly on worker performance and production. If performance and production did not increase throughout the year, then no raise was given. In fact, one local construction company I know instituted a 2% wage cut each year after any employee becomes 50 years old.
Increased number of years (seniority and tenure) on the job do not guarantee raises and promotions under CI. In fact, older workers can be reduced to near-minimum wage.
Cost Cutting Measures
Temporary employment agencies have offered a new way to hire workers without handling taxes, payroll deductions, and benefits. 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 that can lead to full-time employment, but not always; and some temps make no more than federal minimum wage in any position.
In the decade of the 2020s, it may become increasingly difficult for the majority of job seekers to secure long-term full-time employment at high wages. In fact, the living wage or a sustainable wage necessary for a worker to support himself or herself is far above federal minimum wage even in 2019.
Wall Street bonus season may coincide with an uptick in luxury goods sales, but a raise in the minimum wage would give America’s economy a much greater boost. To meet basic needs, low-wage workers tend to spend nearly every dollar they make.— Institute for Policy Studies (2015); 1301 Connecticut Avenue NW, Washington DC 20036
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 in a city were rents are in the thousands of dollars monthly, these are the actual figures for a single person in the city.
The 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.
Fox Hosts FREAK OUT After Learning AOC Pays Her Staff A Living Wage
Congresswoman Katie Porter asked Billionaire CEO Banker Jamie Dimon to explain why he can’t find the money to pay his employees an actual livable wage.
What is Entry Level Employment?
Entry level jobs for wannabe workers with no job experience after high school and sometimes even after college are not meant to be lifelong careers.
These first jobs are an initial step in a a long-term career that will likely include more than one job. In these modern times, one's career will probably span several jobs. For some, the working years will cover more than one career!
The podcast "Entry Level with Brooks Wheelan" presents interviews with actors about their pre-acting entry level jobs (entrylevelwithbrookswheelan.libsyn.com/).
The Entry Level Job and Low Pay
The proverbial first job in a non-union company almost always pass less than jobs requiring more experience and additional skills sets, and sometimes additional academic degrees.
At the entry level, 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.
Leaders of companies often feel that it would be foolish to pay entry level workers very high wages, because employment turnover is generally high at this level. In addition, these positions 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. However, that wage may not be high enough to sustain life.
A student that has worked during summers may start full-time with the same company at better pay rate and college grads that have worked internships may be able to receive higher wages.
At the entry level, mid-career, and advanced career points, workers are all best advised to keep advancing their skills and learning new ones. Even today, some companies take the stance that older workers cannot understand new technologies like smartphones, laptops, tablets, and peripherals; so learn everything you can to stay ahead.
Salary Trends: Equality or No Equality?
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.
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.
- CISION PR Newswire. Workers in Majority of U.S. States to See an Increase in Minimum Wage in 2020.
- Living Wage Campaign at the University of Virginia
Paycor.com. Minimum Wage By State 2019 & 2020 Changes.
- Ravenscraft, E. What a 'Living Wage' Actually Means. The New York Times; 2019.
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.
© 2012 Patty Inglish MS