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This is the 2nd in a 3 part series called Globalization and Labor.
In this installment, we will examine what effect passage of the Universal
Living Wage will have on focusing retaining costs and business generally.
ULW Effect on Business and Tax Payers
Living wages are good for business. When workers make more money, they
also have more money to spend. In fact, minimum wage workers have spent
almost 100% of past wage increases directly into the economy.1 Increased
personal income inevitably promotes commerce and stimulates local and
nationwide economies. By protecting and stabilizing the very foundation
of enterprises, the employees themselves, we can equally protect and stabilize
businesses everywhere.
There are presently 10.1 million minimum wage workers in the United States.2
These employees comprise our nation’s pool of workers such as restaurant
workers, construction laborers, dry-clean operators, janitors and others
that, for the most part, provide support for our principal businesses.
In response to the depression of the 1930s, the federal government created
the Fair Labor Standards Act in 1938. In so doing, it established a single
national minimum wage which today rests at $5.15 per hour or about $10,700
per year. The idea came in response to the legions of unemployed, underemployed,
and low-wage workers roaming the country just as they are today. It was
decided that in order to stimulate businesses and the economy, these workers
needed to be economically stabilized. In exchange for a full day’s
work, a man needed to be guaranteed a wage sufficient to secure basic
food, clothing, and shelter. The absence of which resulted in high employee
turnover, increased absenteeism and an increase in internal employee theft.
Henry Ford, the father of the American automobile, was facing exorbitant
retraining costs due to high employee turnover. He was being forced to
replace every employee four times per year. He also found that absenteeism
was at an equally unacceptable level. His response was to almost double
the daily wage of his workers to $5.00/day.
* The immediate result was:
1) significant reduction in employee turnover,
2) significant reduction in retraining costs,
3) significant reduction in unscheduled absenteeism,
4) and almost complete stoppage of internal theft (roughly 50% of the
theft in today’s retail world is committed by its own employees).3
Furthermore,
5) he created a true economic stimulus resulting in a business boom
for his own company when his workers put discretionary funds right back
into his company as purchasing consumers.4
*All of these savings/benefits are possible today with the enactment
of the Universal Living Wage.
The ULW will dramatically reduce employee turnover. Such reduction of
turnover means a significant reduction in retraining costs. This results
in huge business savings.
ULW enactment will significantly impact unscheduled absenteeism. Again,
this will result in financial savings. This will help business avoid higher
salaried employees or even small business employers/owners from having
to temporarily step into these lesser paid positions. They can thereby
avoid wasting a valuable resource who continues to be paid at a much higher
dollar amount while performing a lesser paid job (and not doing their
own).
To illustrate these effects, examine the findings of Michael Reich of
the University of California. He reviewed a quality standards program
initiated in April 2000 in the San Francisco International Airport. The
$5.25 starting wage had been increased to $10.00/ hour plus health benefits
or to $11.25 per hour without health benefits. (The industry wage average
had been $6.00/ hour.) Turnover dropped from 110% to 25%. Additionally,
employers reported that skills, morale and performance improved while
absenteeism and grievances also dropped.5
The reduction of employee turnover by having paid higher wages has been
further demonstrated by the practices of New York worker-owned home healthcare
facility, The Cooperative Home Care Associates. They employ 450 employees
and are paying $7.65/hour which is 20% above the area average. They also
provide health benefits, training, and compensation for travel time for
employees to see clients. As a result, they experience a job turnover
rate of less than 20% as opposed to the industry level of 60%.6
Further illustrating the point, Vice President Artie Nation, Speaking
for Mirage Hotels, credits the low turn over in his casino hotels of only
70% (as opposed to an industry high of 300%) as being the result of better
wages and training.7
Enactment of the ULW means stabilized, loyal employees who feel respected
for their work contribution. This results in substantial reduction in
the (number one dollar drain in the retail industry . . . internal employee
theft.) The two largest retail employers in the world, McDonalds and WalMart,
would greatly benefit from this dynamic. Employees tend not to steal from
people who show them respect and support their economic needs by paying
them living wages.8
It is also important to note that, when employers are forced to hirer
emergency temporary workers, they must pay for the service. And any new
employee means more down time in training that new individual. The savings
here is notable. New small businesses are more likely to receive bank
loans and support from the Small Business Association (SBA) by being able
to produce solid Business Plans . . . plans that show that they are providing
adequate budgeting to support all aspects of their business in a sustainable
fashion. This includes manufacturing, advertisement, geographic considerations,
transportation, employee training, and wages.
Employee Turnover/Retraining Costs
Currently, employers faced with employee turnover have begun to rely
on the Work Opportunity Tax Credit. Employers in the fast food industry
can receive $2,400 for each minimum wage worker retrained. This can be
repeated every 400 hours.9
In 1997, the subsidy was $385 million. Potential savings are significant:
2,080 (yearly work hours) ) 400 hours (minimum work hours necessary
to be eligible for the subsidy) = 5.2 potential turnover rate (Henry
Ford was facing a turnover rate of 4.) In Modern times this is the same
turnover rate experienced at the Greely Beef Slaughter House supplying
ConAgra.10
5.2 x $2,400 retraining subsidy = $12,480 per employee per year
$17,680 x 4.5 million minimum wage workers in the fast food industry
(which includes 1,000,000 agricultural workers)11
Potential Savings of: $79,560,000,000.
The Universal Living Wage
In the United States, the Universal Living Wage will relate to the local
cost of housing and ensure that anyone working a 40-hour week will be
able to eat, be clothed and afford the most basic level of housing. This
will ensure that a worker can store his belongings, get rest, wake in
the morning refreshed, take a shower, and go to work. He can provide stable
labor for the industry, become part of the nation’s tax base, remove
himself from being part of the tax drain, and advance himself generally
at the same time. At present, this is not happening. In fact, millions
of people are falling out of the U.S. work force and forming the ranks
of homelessness. Three and a half million people will experience homelessness
this year in the United States.12 At the same time, the U.S. federal government
says that 42% of these homeless minimum wage workers are still working
on some level. But according to the last several US Conferences of Mayors’
reports, no one can get into and keep housing at the current minimum wage.
One Size Doesn’t Fit All
It has been suggested that a single uniform increase would address the
problem. However, due to uneven localized inflation, to select a minimum
wage level sufficient to afford even an efficiency apartment for someone
in Washington, D.C. would mean the destruction of small businesses in
rural America. Congress cannot set an appropriate single base wage using
its current "one size fits all" approach. As a result, the Universal
Living Wage, using existing government guidelines, establishes a wage
that relates to the local cost of housing throughout the U.S. The ULW
formula uses the same computations that the federal government has used
to subsidize business under the US Department of Housing and Urban Development
for its Section 8 program. Under this program, the federal government
has devised its own sophisticated formula to determine how much one can
reasonably expect to pay for housing in areas throughout the entire United
States. These areas, called Fair Market Rent (FMR) regions, are usually
about the size of a county. The federal government has used these figures
to subsidize business for years and pay business the difference between
what people can afford to pay and what business says it wants to be paid
for housing in each of the Fair Market Rent (FMR) regions.13 It is being
suggested here that this standard that has supported business for decades
should now be applied similarly to unhoused minimum wage workers. In other
countries, housing may indeed be an appropriate measure. However, food
may be most appropriate and something like the U.S. Federal Poverty Guideline
might make the most amount of sense. Clearly each standard should be identified
by each individual nation.
Transition
For over a decade, the gap has increased between the Federal Minimum
Wage and what it costs to afford basic rental housing in urban America.
During this time, business has used this economic windfall to its benefit.
Often this has meant either accelerated expansion of individual businesses
or an increase in personal wealth for their owners. Accordingly, many
businesses will require an adjustment period to normalize budgets before
enactment of the ULW. All businesses will be permitted a two-year transitional
period before paying any current employees (relative to the date of enactment)
by the ULW Standard. New hires (post passage) would immediately fall under
the standard.
In our 3rd and final installment, we will continue to explore the effects
of the Universal Living Wage on business and tax payers focusing on tax
savings and finally how it all relates to today’s global picture.
Please click here for part 3.
NOTE: Endnotes coming soon.
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