Focusing On Productivity Will Help Companies Adjust To Minimum Wage Increase

min-wage-2The debate over raising the minimum wage is raging from Washington DC to Washington State.

In Seattle, Mayor Ed Murray has proposed a two-tiered plan that would increase the city’s minimum wage from $9.32 to $15 an hour through a series of complex and phased-in stages.

Under the plan, employers with more than 500 workers would move on a faster track toward $15 than smaller employers. Tips and employer-paid health care benefits also would be factored in getting to the $15 level for smaller companies, at least in the earlier years of the plan.

Meanwhile, in the nation’s capital, President Obama is pushing to raise the Federal minimum wage from $7.25 to $10.10 an hour.

Many Executives Say …

Many executives say that increasing wages would either cripple their businesses or force them to raise prices on consumers; on the other hand, some companies believe that higher wages will help them attract better workers; and, finally, for others, the debate is a simple matter of economic fairness.

The numbers reflect these differing opinions. The nonpartisan Congressional Budget Office, for example, recently estimated that raising the Federal minimum wage to $10.10 would reduce U.S. employment by 500,000 while pulling 900,000 people out of poverty.

It’s hard to tell whether the Federal minimum wage will be raised in the next year or so, but it seems reasonably certain that the minimum wage will increase in Seattle. So what should local businesses be doing now to prepare for this jump?

The Most Constructive Approach …

The most constructive approach is to develop plans that improve the productivity of your business.

A higher wage structure may allow you to attract better-qualified employees, for example, potentially boosting productivity in some positions.

Another way to improve productivity is to increase sales by adding value-added services. Increasing revenue from sources that are not as labor-intensive – such as additional services or products – is also important.

Finding ways to increase the revenue-per-order will help offset a portion of the increased labor cost, too.

A Note Of Caution …

A note of caution here – Cutting hours or laying-off staff is sometimes the first reaction to a higher minimum wage, but it’s important to react in a way that does not hurt your business from a long-term perspective.

Obtaining this long-term perspective in the middle of the current minimum-wage debate means that your management should perform a comprehensive review of the business that focuses on productivity improvements.

Thinking about the issue in advance¬†provides you with a foundation, so that you can bring in more qualified or skilled employees who are capable of improving productivity. It also provide fresh insights about how you can use new technology or harness new ideas to reduce your dependence on higher priced labor. What you’re looking for here is a return-on-investment analysis that will help you justify the use of new technology over more expensive labor.

Some Unavoidable Financial Issues …

Having said all this, there are some unavoidable financial issues that accompany an increase in the minimum wage.

  • First, the cost of doing business will definitely bump up. And, as mentioned above, the prices of products and services may have to be increased to absorb additional labor costs.
  • Second, if a local minimum wage increase is enacted in Seattle, then it could put Puget Sound companies at a competitive disadvantage if their products or services are sold outside of our region – especially if marketplace competitors aren’t impacted by a local minimum wage increase.
  • Third, depending on how the minimum wage is increased in Seattle, the administrative complexity could increase human resource costs for companies as they implement the new plan.

For their part, employees will have their share of issues, assuming that the minimum wage increase is enacted.

  • First, less qualified employees could be replaced with more qualified workers at the minimum wage rate.
  • Second, there could be a negative ripple effect in terms of morale among those employees who are currently making the same hourly rate as those who will benefit from the new minimum wage increase.
  • Third, companies could be less generous with benefits.

The bottom line for CEO’s …

The bottom line for CEO’s here is that they need to emphasize new training programs to help employees become more productive.

CEO compensation will also be under a microscope as the minimum wage debate continues in Seattle and around the country.

At its heart, this debate is about the economic future of the middle class worker and the role of business in bolstering and brightening that economic future