Why Small Businesses are Raising Their Wages

As the economy transitions into a post-pandemic era, many businesses are making big changes, or should be. The job market has entered a unique era where there is an increase in people reentering the job market and looking for work, yet many businesses are struggling to hire or even attract applicants. While there are many reasons for this, the most notable is a very tangible shift in worker’s attitudes.

Many quit during the pandemic, a period dubbed The Great Resignation, when working conditions and morale were exceptionally low. Through a prolonged period of mistreatment and a $7.25 minimum wage that has been stagnant since 2009 (the longest period since the conception of the federal minimum wage) the working class has grown frustrated. Many workers are going unappreciated for their work and can feel, even if they don’t know, that the wages they’re receiving are insufficient to their level of productivity.

From 1938 to 1968, the minimum wage increased in parallel with productivity, as one of the best ways of determining the value a worker gives to a company. After Reagan’s presidency, though, that norm fell through and has left a serious gap between what minimum wage is now and what it should be. Dean Baker, a senior economist at the Center for Economic and Policy Research, in an episode of “Pitchfork Economics”, points out that if minimum wage had continued to match productivity, it would be at least $23/hr.

Workers not only realize they deserve more compensation, but need more. With the cost of living on the rise and inflation exasperating earnings, the minimum wage has become more akin to a poverty wage. Recently a report from the National Low Income Housing Coalition came out that full-time minimum wage workers can no longer afford a two-bedroom apartment in any state in the country. This means most minimum wage workers, many who can’t land full-time gigs, have to work at least two jobs or overtime to afford housing.

If you ask anyone working in low-wage industries, though, most workers simply want to feel valued. “The more employers improve the quality of the jobs and the more they think of workers as an asset that needs to be maximized, the better they’re going to be able to find and retain workers long term,” said Enrique Lopezlira, a labor economist at the University of California at Berkeley and an expert on the low-wage workforce in a Washington Post article.

When workers feel like the company cares about them, they begin to care about their work. A lot of businesses, especially small ones, have realized that the best way to attract and retain employees is to just treat them well. It’s that simple. Already most businesses are offering at least $15/hr for a starting minimum wage and finding that it has significantly increased the amount of applicants they get. When John Puckett, one of the owners of Punch Pizza, raised their entry-level wage from $11 to $15 to fill 30-40 positions they saw a 5-time increase of interest on their website and 10 to 15 times more on Indeed.

Increasing wages attracts stronger candidates, retains them longer, and improves company culture and morale. Things that will often greatly make up for the expenses of raising wages for workers. For every employee lost, it costs about one-fifth of their annual salary to replace them, and low-wage jobs have the highest turnovers, costing businesses thousands yearly. So high retention is extremely valuable.

Many businesses, especially restaurants and other customer-facing businesses, that have raised their wages also found they got a higher profit in return when equipped with a team of well-motivated and happy workers. A raise of only $1 for a minimum wage worker translates to an additional $2,080 in consumer spending by their household over the course of a year, according to a study by the Federal Reserve Bank of Chicago. “Businesses depend on customers who make enough to buy what they are selling, from food to car repairs. Minimum wage increases will go right back into local economies, helping workers and businesses get through the pandemic and economic crisis,” said Businesses with Business for a Fair Minimum Wage in a press release.

Often raising wages for workers can seem like a risk when it can mean loss of profits or raising prices, but many businesses, even if they take a loss at first, often find it's well worth it. “Our top line is impacted dramatically because people come back and they talk about us,” Patrick Whalen, co-owner of the 5th Street Group, said. “All these restaurants that are trying to figure out how to save money? The best way to save money is to make more, just have a better top line. The way you do that is by investing in your people first.”

Businesses that are hesitant to raise wages risk falling behind in attracting the workers they want and keeping those they can get. Workers are allowed to ask for more, and they should. When a few checks during Covid temporarily lifted 18 million people out of poverty, it’s fair to ask how much a fair wage could change people's lives. It’s not asking too much to give workers the wages they fairly earn and we shouldn’t be afraid to. In the end, if you want workers to care, care for them first.

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Published by WOW (Work Onward) By Hannah Drake