ChrisWeigant.com

Worker Shortages Disappear When Wages Are Raised

[ Posted Thursday, June 10th, 2021 – 16:09 UTC ]

Progressives such as Senator Bernie Sanders have been pushing for a national $15-an-hour minimum wage for quite some time now. So far, they have been unsuccessful, due both to the Senate filibuster and to corporatist Democrats like Senator Joe Manchin (who, the last time the subject came up, would only even consider raising the minimum wage to $11 per hour). But the natural forces of the marketplace seem to be forcing employers towards this goal anyway, now that they're finding it so tough to hire workers. This shouldn't be all that surprising, because it is basic supply and demand. When the demand (for workers) is high and the supply is low (fewer people returning to work), then the marketplace will do what it always does when the formula is applied to merchandise: prices will rise. Or, in this case, "wages," not prices.

Having a tough time recruiting workers? Offer to pay them more, and you will get a lot more of them interested in working for you. It's such a basic and obvious calculation you have to wonder why the media hasn't paid a little more attention to it.

Or maybe you don't have to wonder this. After all, employers have an entire lobbying industry built up around getting their point of view in front of the public. This is why the only suggested answer to the worker shortage you've heard in the news so far has been to end the unemployment help the federal government has been providing during the pandemic. "They're making more sitting at home than they would working -- so the only answer, obviously, is to cut off that money!" say the employers. This, of course, misses another possible (and also obvious) answer: if you pay them more than even the enhanced unemployment they are currently getting (which really isn't all that hard to do, even the enhanced unemployment benefits aren't that great), then it will entice them back to work a lot faster. You don't hear this viewpoint much, because it is the exact opposite of what the business owners want you to think.

Which is why it was heartening to see a deep dive into the phenomenon in today's Washington Post. The article's title pretty much says it all: "These Businesses Found A Way Around The Worker Shortage: Raising Wages To $15 An Hour Or More." It starts with a rather dramatic anecdote:

The owners of Klavon's Ice Cream Parlor had hit a wall.

For months, the 98-year-old confectionary in Pittsburgh couldn't find applicants for the open positions it needed to fill ahead of warmer weather and, hopefully, sunnier times for the business after a rough year.

The job posting for scoopers -- $7.25 an hour plus tips -- did not produce a single application between January and March.

So owner Jacob Hanchar decided to more than double the starting wage to $15 an hour, plus tips, "just to see what would happen."

The shop was suddenly flooded with applications. More than 1,000 piled in over the course of a week.

"It was like a dam broke," Hanchar said. Media coverage that followed his decision soon pushed other candidates his way.

To paraphrase Field Of Dreams, if you offer a living wage, they will come (and they will gladly work for you). A dozen business owners who had raised their wages were interviewed for the article, but I can attest that this phenomenon is indeed much wider than that. A few weeks ago, I went into a local McDonald's (I was craving a burger since I hadn't had one in months). Walking in, I saw a very prominent sign in the window: "Now Hiring -- Starting Wages $15 An Hour!" Not only are they paying it, they are advertising it as well, to get potential workers' attention. Coincidentally, I went back to that same McDonald's for some breakfast today (before I had even read the Post article), and the sign was gone -- meaning, one would assume, that they had successfully hired enough staff for the summer season.

Here's another example from the article which proves this even further:

For Patrick Whalen, co-owner of the 5th Street Group, comprising five restaurants in Charleston and Charlotte, the breaking point came in late March. The restaurants were getting busier as more people started venturing out to eat. But applicants for the dozens of positions the company was trying to hire for were scarce. Understaffed and busy, the company was starting to get shredded with negative reviews online.

After one of his managers told him that a line cook needed to borrow money to get groceries, Whalen was moved to reconsider wages at the company.

"It was just one of those moments where you just kind of stop and you say, 'Is there a real problem in our industry?'" he said. "We always kind of knew it was there, but we didn't really know what to do with it."

The company raised the starting wage for all of its staff to $15 an hour, up from $12 to $13. And it created a "tip the kitchen" program, adding a second line to table checks for gratuity for the back-of-the-house staff, which the restaurant matches up to $500 per night. That move has increased wages for non-tipped employees such as line cooks and dishwashers to an average of $23.80 an hour, Whalen said.

Applicants began pouring in nearly overnight, Whalen said. A manager at one of his restaurants, Tempest, told him that 10 people walked in to drop off résumés over the course of one week after the policy change, compared with just 15 people over the four previous months.

Within three weeks, the restaurant group went from about 50 to 60 percent staffed to nearly fully staffed.

"There is no one in Charleston or Charlotte that can compete with what my guys are making," Whalen said.

Aaron Dearing, a sous chef at Whalen's 5Church Charlotte, said the tipping initiative had raised his pay by about $1,000 a month -- the biggest raise he has received in 20 years in the industry.

"It puts everybody in a better position in their home life, so they come to work a lot happier," he said.

Which, incidentally, is what people like Bernie Sanders have been saying all along. If you pay people a living wage, then they will be happier with both their work and the rest of their lives, they will be loyal employees, and they will be better (not just happier) workers all around. It's a pretty simple idea, after all: pay people enough to live on, and they will appreciate it and reward you by working hard.

This is also the part that the corporate lobbyists really don't want to admit, even though the evidence is pretty plain to see:

Many of the business operators interviewed said that the decision to raise their employees' starting wage was not motivated primarily by altruism or a desire to do right: It just made good business sense.

They said wage increases would help attract stronger candidates, reduce turnover and elevate company morale and culture -- important for customer-facing businesses such as restaurants.

"We're going to see savings in retention and turnover, which is so expensive," said Nicole Marquis, the founder and chief executive of HipCityVeg, a group of fast-casual vegan eateries with locations in Philadelphia and D.C. that recently announced a $15 starting wage. "And this is going to help with recruiting, which will help with our culture -- and is really what drives profit at the end of the day and creates a long-lasting brand."

Other business owners said that they had raised wages to out-compete other companies for the best workers.

Again, this is really a natural function of the free market at work -- supply of workers goes down, demand for them goes up, so their services are more valuable to those who hire them -- not just at the point of hire, but going forward (because employers don't have to be continually training so many new workers to replace those who have left). In exchange, the happier and more-productive workers add value to the business. It a cold dollars-and-cents matter of the bottom line, not some touchy-feely pop psychology.

But what about the inevitable pushback from big business? "We'd have to raise prices!" Well, the article briefly takes a look at this claim:

The Midwest-based clothing and design store Raygun increased prices by about 1 percent after raising wages to an average of $15 last year, owner Mike Draper said.

Marquis said that HipCityVeg had not raised prices but that she thought customers would be willing to pay a bit more -- 25 cents extra for a burger, for example -- knowing employees were paid better.

One percent. A single quarter more per burger. That is not exactly runaway inflation, folks.

To be sure, if these anecdotes are representative of a larger movement out there among business owners, then the effects will wind up being inflationary. Prices will go up -- but the flip side to that coin that the doomsayers never want to admit is that wages go up too. So you may have to pay a few percent more for things, but you're also making $1,000 more per month. Most low-wage workers would find that an acceptable tradeoff.

For once, due to the pandemic and the resulting economic downturn (as well as other factors, most likely), the workers seem to be in a position of real power. If business owners can't hire anyone at the rock-bottom wages they used to pay, then there's really only one way out of the problem: raise starting wages.

Unlike traditional "trickle-down" conservative economic theory, this instead has the "rising tide" effect, because if a starting worker makes $15 an hour, then the supervisors and managers of those workers are going to want a raise, too (so they are making more than the people they supervise). This moves up the wage chain, and all boats are lifted by the rising tide. This benefits far more people than the orthodox Republican "let's give the business owner big tax breaks" theory, obviously, so the effects will be a lot more widespread in the economy as a whole, one would think.

This sort of competition for workers has always happened, but it has tended to happen at the upper end of the pay scale. Highly skilled workers will go where the pay (and perks) are best, so companies try to outbid each other in their hiring practices. Now that low-skilled and medium-skilled workers are also the target of employer competition, the same thing will happen with them, as well. The phenomenon isn't a new one, it will just be much more widely applied, that's all. As the article even points out, in the words of one of those business owners:

"There's a shaming that's happening to working-class people," said [Gina] Schaefer, the owner of the D.C.-area [A Few Cool Hardware Stores]. "Nobody talks about the fact that the economy is going to fall apart when a tech guy gets a $195,000-a-year salary with a 5 percent raise every year, or when lawyers are making $300,000. This conversation only happens when you're talking about the people who make the lowest wages. And I think as a society, that's just really insulting."

Which, like I said, is what progressives like Bernie Sanders have been saying all along. And no matter how hard the big corporations lobby, they will not be able to hide this basic economic equation from the public forever. When workers are scarce, the way to entice them to your business is to outbid everyone else who is hiring. Works like a charm!

-- Chris Weigant

 

Follow Chris on Twitter: @ChrisWeigant

 

14 Comments on “Worker Shortages Disappear When Wages Are Raised”

  1. [1] 
    John M from Ct. wrote:

    Fun stuff to read about. Your conclusion, that the business class is going to have to learn to accept and like this new order of things, where paying the working class a living wage helps the economy and everyone in it, did not convince me.

    After all, that's the same logic as "The more voters there are, the more involvement there is in the results of elections, and the stronger and safer and more equitable our democratic society will be. Clearly, making it easier for everyone to vote is in the interests of the business and ruling classes."

    And that's not the conclusion about voting reform that those classes are currently drawing, from what I hear. Kind of like the apparent Republican response to the higher wage pressure in low-paying jobs that you are so upbeat about: "Quick, cut those semi-generous unemployment benefits ASAP, so we can continue to pay starvation wages."

  2. [2] 
    goode trickle wrote:

    It would be interesting to see what the percentage of people who are making $15.00 minimum wage still get food stamps vs the people who don't.

    IMO the progressives do not pound the point home in a simple yet succinct manner that not only does "trickle down" and "Producer / Job creator" tax cuts not work, the average tax paying American also further subsidizes the wealthy by providing food stamps to those who manage to work 40 hours per week probably at 2 or three jobs and yet still are below the poverty line.

    Come to think of it, while we are dialing up studies there should be one on the mental health and level of general satisfaction/happiness with life of people making a living wage compared to those who don't.

  3. [3] 
    Elizabeth Miller wrote:

    Before 2022, Biden must personally drive the stake into the heart of the Republican cult of economic failure, among other things. Ahem.

  4. [4] 
    Elizabeth Miller wrote:

    And, Biden needs to take that message right into the heart of Republican country and make the case!

  5. [5] 
    Elizabeth Miller wrote:

    After all, it ain't a hard case to make. Ahem.

  6. [6] 
    Don Harris wrote:

    "When workers are scarce."

    That will not last as workers are scarce due to temporary circumstances.

    Bernie and others have been "pushing for 15" for decades and would have to be pushing for "23" by now if they were current.

    And they don't push when it would make a difference as we just saw 15 go down without a fight.

    A BMI is a better more permanent solution that would actually bring wages down as people would not have to work to survive so they would be able to work for less as that would be to improve their station over basic survival.

    This is a blip that will disappear in the overall long term dynamic that will be used as an excuse to not do a permanent solution.

  7. [7] 
    Don Harris wrote:

    Liz (3,4,5)-
    Don't hold your breath.

    It is not "the Republican cult of economic failure".

    It is the Deathocrat and Republikiller cult of economic failure. Biden will not be changing his spots.

    It's only an easy case to make to people that do not understand what the dynamics are that both the Deathocrats and Republikillers work for the big money interests that fund their campaigns.

    Basic supply and demand.

    The big money interests supply the campaign funding and their demands are met.

    Citizens do not use supply and demand when voting for the big money candidates. They supply thier votes for promises that are never kept so there is no incentive for the big money politicians to meet the demands of ordinary citizens.

  8. [8] 
    nypoet22 wrote:

    i think a better option would be to support a pie-based economy. people would be happier about their jobs if they made pie.

  9. [9] 
    C. R. Stucki wrote:

    John M Ct [1]

    What we really need to "help the economy and everything in it" is UBI at a middle=income, middle-class level. That would obviate the need for any level/any version of unemployment insurance, and stimulate absolutely everything, right?

  10. [10] 
    John M from Ct. wrote:

    CRS on [9]
    That sounds kind of communist.

    Well, moving beyond invective, any proposal like that would need to be a lot clearer what "middle" means. Most of the country, from $30K incomes to $150K incomes, says they are part of the middle class - because it sounds so virtuous.

    Which middle income did you have in mind for your proposed UBI? And under your plan (no pressure, of course) what would the tax rates be on the UBI, unearned income, owned property, and earned income?

  11. [11] 
    BashiBazouk wrote:

    John M-

    I suspect [9] was a poor attempt at sarcasm...

  12. [12] 
    C. R. Stucki wrote:

    John Ct

    How about an even 100K for the UBI, and I'm pretty much an anti-tax guy. How about no taxes pf any sort whatsoever.

    We'd obviously have to expand a little on our current system of gov't finance by means of the creation of even more massive amounts of Fed Res money (aka 'currency inflation' in 1960's jargon), but it's working in Venezuela and Zimbabwe, why not here?

  13. [13] 
    C. R. Stucki wrote:

    BB

    Hey, what's with that "poor" thing, you really know how to hurt a guy, and surely you understand what a tender-hearted hypersensitive guy I am, right?

  14. [14] 
    BashiBazouk wrote:

    A delicate flower no doubt...

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