I’ve been asked a lot recently, what are other employers doing to cope with the minimum wage increase? In fact, some are pretty frustrated because when the minimum wage goes up, that is not the only business cost that increases.Workers compensation insurance, some liability insurance and payroll taxes all increase when wages increase.This adds at least another 20 cents for each dollar earned.
You might say that employers seem to cope with other cost increases. For example, the cost of raw materials, rent and electricity go up, too. So why make such a fuss? Perhaps, it is because market forces seem to drive up the other costs, while it is the government who raises the minimum wage….hm….Is that why some business owners are so angry about the increase? Well, we will leave that discussion to others.
Let’s take a look at 3 strategies business owners actually employ when their costs go up in other areas and see if we can apply them to a wage increase.
The first strategy businesses will look at is to raise their prices. In the current low inflationary environment, many employers in manufacturing or distribution who have minimum wage employees can’t pass on the increase. In fact, they are being asked to lower their prices, especially if they have multi-year contracts with large companies or the government.
On the other hand, many minimum wage workers are in retail or service jobs where the customer is you and me. We notice if the cost of a coffee goes up and we may move to the store down the block if the price gets too high. Retail can’t raise their prices either. Savvy businesses in all industries are picking certain products for which they raise prices, and they will leave the 2 to 3 most watched prices as is.
Secondly, many businesses cut expenses that are not absolutely required, or not immediate, to keep up their margins. See my blog on Sept. 21st.Training, or marketing at trade shows or long term Research & Development may be cut.
Thirdly, many companies increase investment in productivity improvements, so each hour worked is more efficient. This has created a big pay-off for many employers. Continuous improvement means that we are becoming once again one of the most cost effective countries for manufacturing in the world.
If I were to gather a Vistage group together, we would brainstorm many more strategies that have worked for them when their costs have gone up.
So while many employers of minimum wage employees will be struggling in the short term to overcome the cost of the wage increases, I have faith in their resilience in the face of one more obstacle they will stare down and overcome.
If you have a resourceful strategy that you would like to share, please add a comment.