The pros and cons of raising the minimum wage in 2020 [And why you should]
In most — if not all — developed countries in the world, there is a minimum wage in place to protect workers, and these protections are usually enshrined in federal industrial relations laws. Minimum wage varies from country to country, state to state, and even city to city, with local laws and federal laws sometimes out of step, and not aligning, making it a tricky operational function to navigate.
In the United States, for example, the federal minimum wage is US$7.25, but in the state of Washington DC, the minimum wage is USD15.00. If you live in Australia, the minimum wage is AUD19.49 (AUD740.80 per week); in Canada, it’s around CAD11 depending on the province; and in the United Kingdom, it’s dependent on your age, but is around EU1524.52 per month.
Workers and unions regularly lobby governments and business chambers of commerce about raising the minimum wage. It is often a contentious issue, particularly in the US, where multi-nationals McDonald’s — making billions in profit annually — have infamously offered advice to employees on how to make ends meet on the minimum wage. From a brand management perspective, the optics aren’t favourable — and the blowback was very real.
In Australia, which has one of the highest minimum wages in the world, corporations like Woolworths are being investigated for failure to pay minimum wage. This wide-ranging investigation has even brought down a Masterchef empire. It is understandable, however, that businesses want to keep costs down, and staff is one of the biggest budget items — and explains why jobs are always the first to go in difficult financial times.
Political and legal issues aside, there are pros and cons for raising the minimum wage. This article will explore some of the disadvantages of increasing wages, as well as the benefits, more from a branding or organisational development perspective. There are pros and cons from both an employer and employee perspective, and we’ll take a look at both sides, and try and answer that age old question: should the minimum wage be raised? Of course, this advice is general and informational in nature, and we urge you to seek the advice of your accountant and legal team if you are considering either raising or lowering the wages of your staff.
Firstly, the reasons why the minimum wage should NOT be raised.
Pressure on employers
One of the major cons of raising the minimum is that it places increased financial pressure on employers. If wages are raised above the minimum, it means that there may not be any wriggle room to hire more people, and there is less for the business to spend on operations like product research and development, improving infrastructure or running marketing and advertising campaigns. There is a ripple effect that could impact the long-term viability of the business. Smaller businesses are most at risk from wage pressure because budgets are mostly fixed, and prices of goods or services may have to be raised to compensate or offset higher wages. Layoffs are a risk for those businesses that are sensitive to seasonal adjustments, because of demands for higher wages.
Fewer lower level jobs
If you’re young and hungry, a minimum wage job is your open door to the workforce, especially if you are in high school or college. You can gain valuable experience, earn some cash and build up your job cred. Eventually though, you’ll move onto higher paying jobs as you earn your qualifications — and your stripes, and that’s totally fine and as it should be. Raising the minimum wage may disadvantage this particular demographic who are happy to take lower paid work for the longer term trade offs. Paying the minimum wage often means that more people can be employed at those lower levels — and as a bonus, it’s likely there are fewer people leaving high school before they have graduated.
Taking jobs offshore
With salaries taking a large slice of the budget pie, any raise in the minimum wage may force jobs offshore, where wages are lower. This may economically advantage the country where the job are offshored, but businesses are experiencing a backlash from their customers for going down this path. From a demographic perspective, and using a call centre as an example, customers want to speak to someone who sounds like them and understands their problems. It’s not racist, just human nature. With the gig economy growing, and cheap labour available from sites like UpWork, businesses have to weigh the advantages and disadvantages of paying the minimum wage — or less — against the salience of their brand.
Raise your hand if you use a self-checkout at the supermarket? Even though you swore that you would never use one, and you prefer a human? It has been argued that raising the minimum wage, will force actual people out of the workforce and lower paid jobs and replace them with machines, or doing more self-service. While technology might be expensive to install initially and may require maintenance every now and then, once it’s there, you don’t have to pay it a wage. Or annual leave. And it never phones in sick. Although, if it’s online automation, and the internet dies…
Now, the benefits of RAISING the minimum wage.
This one is kind of obvious, but employees who don’t have to worry about where their next meal is coming from or how the heck they are going to pay their rent or electricity bill are more likely to be better employees. No brainer, right? Also, money indicates value. If it’s good enough for a CEO to be paid gazillions, it’s good enough for their employees to be paid a living wage.
Stop the churn
Recruiting staff is time consuming and costly. So is training them. And when they leave with valuable corporate knowledge, so is replacing them. While poor management is often cited as one of the main reasons for leaving a job, so is pay, particularly if you are a large enterprise. It makes sense to pay the minimum wage — if not more — because it stops the human resources churn and burn.
Better for the economy
It’s a truth universally acknowledged that employees who are paid more, usually spend more. And they spend on items that are higher up on the Maslow’s Hierachy of Needs pyramid once basic needs are taken care of. This means big ticket items like education, upgrading cars and houses, purchase of branded goods, technology, travel and luxury goods are all considerations for disposable income. Spending is encouraged by governments, because it’s good for the economy.
It’s only fair
Studies repeatedly show that those who are in low paid work, earning just the minimum wage, tend to be from disadvantaged groups, and discriminated from earning more based on gender and/or colour, for example. These groups may not have the qualifications, experience or “correct” socio-economic background to be able to apply for higher paid work. Raising the minimum wages would, therefore, advantage some of the disadvantage groups in society, and it makes sense from a quality of life perspective for these groups.
Working… and still poor
Where the minimum wage is low, many workers have to work two or three jobs to make ends meet, and they are still living below the poverty line. A definite pro of raising the minimum wage is the immediate effect on those who do work more than one job: less tired and stressed, more time with their children, less stress on the health system, increased productivity and motivation — and loyalty — for the employer who does pay above the award wage.
Build your brand
Picture this. You have applied for two jobs in different companies doing identical work. You are offered both jobs. One pays the minimum wage, the other pays more. Of course you’re going to take the one that pays less… said no one ever. Offering staff wages higher than the minimum wage is an advantage for so many reasons: but attracting and retaining quality candidates should be your primary consideration if you are thinking about raising the minimum wage in your company.
So… should the minimum wage be raised?
The bottom line in terms of the pros and cons of raising the minimum wage? If you can afford to, do it — and pay more. You’ll boost your brand, and be known as a great place to work. Your employees will be happier, inclined to work for you for a longer period of time, be more productive, — and it’s better for the economy. And a stronger economy is good news for your business, because people are spending more. More spending, more profit, better quality of life. It’s a win win for everyone.
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