Employers Embracing Wage Hike

A new survey reveals that 62 percent of employers believe the minimum wage should be increased, and experts say that rising wages may present HR with opportunities to restructure jobs and employee responsibilities.

Monday, October 13, 2014
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When the federal minimum wage of 25 cents an hour (roughly $3.80 today) went into effect under the Fair Labor Standards Act in 1938, many employers weren't exactly thrilled with the idea of the federal government dictating what they must pay their workers.

Since then, employer opinion has apparently tipped in the opposite direction.

According to a recent survey conducted online by Harris Poll on behalf of CareerBuilder, more employers support higher wages than not. Of the nearly 2,200 full-time hiring and HR managers who were polled, 62 percent think the minimum wage should be increased.

Among the other findings of the survey, 29 percent believe that the current wage of $7.25 an hour should increase to $8 or $9 per hour, while another 29 percent favor $10 per hour. Nineteen percent believe the wage should be set between $11 and $14 per hour, while 7 percent support $15 or more per hour and 9 percent want a minimum wage eliminated.

What's surprising is that support for minimum wage hikes by senior leaders hardly dropped off, says Rosemary Haefner, vice president of HR at CareerBuilder in Chicago.

"We expected individual hiring managers and human resource managers to show higher support than senior-level members because the former is more likely to have closer relationships with minimum wage workers and are typically not responsible for measuring the business-wide financial impacts of wage increases," she explains. "The fact that there was only a four-point difference between the groups suggests broad organizational support."

Some of the reasons behind an increased wage are that it will improve the standard of living (74 percent); positively effect employee retention (58 percent); help bolster the economy (55 percent) and increase consumer spending (53 percent); create more productive employees or higher quality work (48 percent) and, that workers can pursue more training or education (39 percent).

Despite these benefits, other employers are focusing on the flipside, believing that a wage hike will create layers of problems. They forecast that it will push employers to hire less (66 percent); cause issues for struggling, small businesses (65 percent); drive prices up on products to offset labor costs (62 percent); force layoffs (50 percent); lead to increased use of automation as a replacement for workers (32 percent), and negatively impact wages of higher-level workers and create retention issues (29 percent).

So who's right?

The Congressional Budget Office says both sides have valid points in a report titled The Effects of a Minimum-Wage Increase on Employment and Family Income.

"Most low-wage earners would receive higher pay that would increase their family's income, and some of those families would see their income rise above the federal poverty threshold," the CBO report states.

Not all of its predictions, however, are rosy.

"But some jobs for low-wage workers would probably be eliminated, the income of most workers who became jobless would fall substantially, and the share of low-wage workers who were employed would probably fall slightly."

More bad news: If wages increase to $10.10, which would be phased in between 2014 and 2016, the CBO projects that total employment would be reduced by approximately 500,000 jobs. However, an increase to $9 an hour between 2015 and 2016 would cut an estimated 100,000 jobs.

Either way, HR professionals need to be prepared for a wage increase.

"They need to have a good handle on their business model and cost structure," says Jim Stoeckmann, senior practice leader at WorldatWork in Scottsdale, Ariz.  "Understand exactly what your margins are, what the impact of increased labor costs will be."

He suggests developing 2015 strategies based on three different scenarios: if the minimum wage increases to perhaps $9 per hour; $10.10 or higher per hour; or not at all. He says this process offers a great opportunity for HR execs to introduce scenario planning into their strategic planning process.

Some of the strategies could include hiring contract workers, setting wages high enough now so that their company is practically immune from future increases, or applying for exemptions for special jobs that enable companies to hire teenagers and people with disabilities, he adds.

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Meanwhile, many retailers such as IKEA, Gap, Whole Goods and Costco aren't standing idly by, waiting for Congress to take action. They're already paying workers above the federal minimum wage, adds Alan Johnson, managing director at Johnson Associates, a New York-based consulting firm that specializes in compensation.

Minimum-wage laws have also been passed in 22 states, including Michigan, Montana and Missouri, with wages higher than the federal rate.

All things considered, that's partly why the survey's results don't surprise Johnson. Although there are people willing to work for minimum wage, he says employers realize that the savings simply aren't worth it when considering the problems that sometimes accompany low wage earners like high absenteeism.

Johnson believes an increase to between $10 and $11 per hour is "the sweet spot". Still, wages are tricky and vulnerable to snowballing, creating even more problems.

"It causes compression between entry level (employees) and supervisors and managers," he says, explaining that if staff wages are bumped to $11 per hour but supervisors' wages remain the same at $13 per hour, the latter may become disgruntled, disengaged, and quit.

Although higher wages tend to attract more skilled or experienced candidates, he says the downside is not as many young people may be hired. As wages rise, so do employer expectations of people's skill level. Most would rather hire a more mature and experienced employee than a high school freshman with no job experience.

Rising wages can also present HR with opportunities to restructure jobs and employee responsibilities. He says that HR can also create a different category of $10 per hour jobs for individuals under 21 years of age to help them gain valuable work experience. "Do high school students really need to be paid $15 per hour for mopping the floor?" he asks.

Johnson believes minimum wage is an economic issue wrapped up in politics. Even if wages exceed $11 per hour, he says this issue will never disappear.

"It's not the last bite of this apple," he says.

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