9/18/2015
WillYourCurrentorFuture
EmployeebeHeadingto
McDonaldsorWalmartfor
BetterPay?
Unemployment Rate: Labor Market is Tightening Putting Upward Pressure on Wages
Jeff Waddoups, Professor and Chair Department of Economics
University of Nevada, Las Vegas
Employment‐Population Ratio of Prime Age Workers (Ages 25‐ 54):
Many Workers Remain on the Sidelines in Spite of Falling Unemployment QuotefromanArticleintheARCSI
Newsletter
“Cleaning companies hire entry level workers, but generally for a couple of dollars more an hour to start than minimum wage because the work is more difficult, requires more independence and requires more skill than a typical min. wage job ( like fast food). If all entry level jobs have to pay $1.75 more per hour than now, then cleaning companies may have to jump up their own wages or else they will be paying the same as lower skilled, easier entry level jobs, and may find it difficult to find quality workers.”
Renee O’Brien, “The $9 Minimum Wage: What Does it Mean to You.” ARCSI Newsletter, Vol 4, Issue 5, 2013.
http://www.arcsi.org/?page=Vol4Iss5
Employment‐Population Ratio of Female Workers:
Many Female Workers are Still not Working HowtoDeterminetheEntry‐LevelWage
• Important to get right to keep your workforce in tact.
• Changes in labor market conditions are making this task more complicated
• States are breaking away from the federal minimum wage
• Local areas are breaking away from states and the federally established minimum
• Large employers are raising entry‐level wages in response to political pressure. 1
9/18/2015
MinimumWageasa“KeyWageRate”
• Key Wage Rate: Pace‐setting wage upon which other wages are patterned.
• Key rate is set by market forces and power relationships. Once it is established, other rates are patterned after it • According to Renee O’Brien a typical entry‐level wage in cleaning is about 25% higher than the minimum: Minimum Wage + $1.75 => 7.25 +1.75 = $9.00
OR
Minimum Wage X 1.25 => 7.25 X 1.25 = $9.00
AnIncreaseintheMinimumWage….
• According to this theory an increase in the minimum wage to $9.00 will lead to an increase in wages of entry‐level cleaners to: WhynotJustPaytheMinimum?
CompensatingWageDifferentials
• Wages Levels for a given occupation are based on many factors:
• Every thing else equal, wages are higher if • Working conditions are more arduous • Workers must work more independently
• Workers need more skill
• If money wages are the same, but one of the above conditions holds, workers will gravitate toward the easier job –
the non‐cleaning job!
SoWhathasChanged?
• Much more variation in minimum wages today than in the past
New Min Wage X 1.25 = $9.00 X 1.25 = $11.25
Assuming that the same pattern holds.
A new minimum wage may also disrupt the pattern, so instead of 25% above minimum, now is only 15%. StatesWhereFederalMinimumWageof
$7.25Applies
Alabama, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, New Hampshire, North Carolina, North Dakota, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Wisconsin, and Wyoming
StateswhoseMinimumWageisGreater
Than$7.25
Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Jersey, New Mexico, New York, Ohio, Oregon, Rhode Island, South Dakota, Vermont, Washington, Washington D.C., and West Virginia
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StateswheretheMinimumWageis
IndexedforInflation
Alaska, Arizona, Colorado, Florida, Michigan, Minnesota, Missouri, Montana, Nevada, New Jersey, Ohio, Oregon, South Dakota, Vermont, Washington, and Washington D.C.
Real Value of the Federal Minimum Wage has Declined
Background:WhytheIncreased
VariationinMinimumWages?
• Lack of political resolve (or perhaps political gridlock) at the federal level impedes changes at the national level. • The popularity of the minimum wage among voters stimulates change at state and local levels, where there isn’t the political gridlock.
What if the minimum wage had increased at the same pace as overall productivity in the economy?
Source: Economic Policy Institute; www.epi.org, Heidi Shierholz
Indicator of Increased Inequality: The Disconnect between Productivity Increases and Real Median Family Income since 1980. 3
9/18/2015
Indicator of Increased Inequality: The Disconnect between Productivity Increases and Real Median Family Income since 1980. Indicator of Increased Inequality: The Disconnect between Productivity Increases and Real Median Family Income since 1980. Shared prosperity
Escalating Inequality
Ratio of Average CEO Pay to Pay of Typical Worker
350
296
300
250
200
150
100
50
20
0
1965
2013
Source: Mishel, Lawrence and Alyssa Davis .” CEO Pay Continues to Rise as Workers are Paid Less.: Issue Brief Paper #380, June 14, 2014. Economic Policy Institute, Washington, D.C.. PopularityofMinimumWageIncreases
Raising the Minimum Wage from $7.25 to $9.00: All Adults Gallup 2013
0.8
0.71
• Gallup polls on Obama’s call for an increase from $7.25 to $9.00 in 2013 as a case study. 0.7
0.6
0.5
0.4
0.3
0.24
0.2
0.1
0
For
Against
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Raising the Minimum Wage from $7.25 to $9.00: Liberals Gallup 2013
1
Raising the Minimum Wage from $7.25 to $9.00: Moderates Gallup 2013
0.8
0.94
0.9
0.75
0.7
0.8
0.6
0.7
0.5
0.6
0.4
0.5
0.3
0.4
0.3
0.23
0.2
0.2
0.06
0.1
0.1
0
0
For
For
Against
Source: http://www.gallup.com/poll/160913/back‐raising‐minimum‐wage.aspx
Against
Source: http://www.gallup.com/poll/160913/back‐raising‐minimum‐wage.aspx
PopularityhasledtoLocalGovernments
RaisingtheMinimumWage
0.6
Raising the Minimum Wage from $7.25 to $9.00: Conservatives, Gallup 2013
• Examples
0.54
0.5
0.44
• Seattle
0.4
• Los Angeles
0.3
0.2
• San Francisco
0.1
• New York (Fast Food)
0
For
Against
Source: http://www.gallup.com/poll/160913/back‐raising‐minimum‐wage.aspx
MinimumWageIncreaseinSeattle
Schedule 1 employers (more than 500 employees in the U.S.) with medical benefits
Schedule 1 employers that pay toward an individual employee’s medical benefits plan shall pay an hourly minimum wage of at least:
$11.00 by April 1, 2015
$12.50 by January 1, 2016
$13.50 by January 1, 2017
$15.00 by January 1, 2018
‐ See more at: http://murray.seattle.gov/minimumwage/#sthash.OXDGUYgu.dpuf
Source: http://murray.seattle.gov/minimumwage/#sthash.OXDGUYgu.dpbs
MinimumWageIncreaseinSeattle
Schedule 2 employers (500 or fewer employees in the U.S.)
Schedule 2 employers shall pay each employee an hourly minimum wage of at least:
$10.00 by April 1, 2015
$10.50 by January 1, 2016
$11.00 by January 1, 2017
$11.50 by January 1, 2018
$12.00 by January 1, 2019
$13.50 by January 1, 2020
$15.00 by January 1, 2021
$15.75 by January 1, 2022
$16.50 by January 1, 2023
$17.25 by January 1, 2024
Source: http://murray.seattle.gov/minimumwage/#sthash.OXDGUYgu.dpbs
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MinimumWageIncreaseinLosAngeles
ANewDevelopment:LargeCompanies
AnnouncingWagesIncreases
• Walmart announces a pay increase
• McDonalds announces a pay increase
• Target follows Walmart’s lead announcing a pay increase.
• TJ Maxx raises wages in response to Walmart’s increase.
Source: http://www.latimes.com/local/lanow/la‐me‐ln‐minimum‐wage‐hike‐20150518‐
story.html#page=1
New York Times: Walmart Raising Wage to at Least $9
By HIROKO TABUCHI FEB. 19, 2015 Walmart, the largest private employer in the country, said on Thursday that it would increase wages for a half‐
million employees, a move that comes amid persistent scrutiny of its labor practices and high employee turnover.
The retail giant, which for years has been the target of widespread criticism over its low pay structure and increasing reliance on part‐time workers, said that all of its United States workers would earn at least $9 an hour by April and at least $10 by next February. New York Times: McDonald’s to Raise Pay at Outlets It Operates
By STEPHANIE STROM APRIL 1, 2015
The company will increase wages to at least $1 over the local legal minimum wage for workers in restaurants under corporate control to an average of $9.90 an hour by July 1. That average will increase to more than $10 in 2016.
Employees who have worked in company restaurants more than a year will also be eligible for paid time off, whether they work full or part time. An employee who works an average of 20 hours a week might accrue as much as 20 hours of paid time off a year, the company said.
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9/18/2015
Bloomberg: Target to Raise Hourly Wages to at Least $9 Next Month by Matthew Townsend
March 18, 2015 — 1:43 PM PDT Updated on March 18, 2015 — 3:20 PM PDT (Bloomberg) ‐‐ Target Corp., the second‐largest discount retail chain, will raise employee pay to at least $9 an hour this year, following in the footsteps of Wal‐Mart Stores Inc. and TJX Cos., a person with knowledge of the matter said. Target will make the change next month, though there won’t be a formal announcement, said the person, who asked not to be identified because the move isn’t public. Wal‐Mart, Target’s biggest rival, revealed plans in February to boost hourly pay to at least $9 by April and then to $10 by next February. Fortune: TJ Maxx raises wages, following Wal‐Mart's lead
by Reuters February 25, 2015, 7:15 PM EDT
The company will raise its minimum wage to $9 an hour in June and to $10 next year.
It didn’t take long for a big retailer to follow the lead of Wal‐Mart Stores in raising minimum pay for workers.
TJX, owner of the T.J. Maxx and Marshalls discount chains, said on Wednesday it would raise its minimum wage to $9 an hour in June and to $10 next year.
Consequences
• Federal minimum wage as a key wage rate is becoming irrelevant in many areas, instead look to • State minimum wages
Simulations:
• Suppose the wage premium of front‐line cleaners remains at approximately +25% Predicted Wage in 2018 and 2020 if Ratio Persists • Local minimum wages
• Company specific policies
• Becoming increasingly difficult to establish the wage necessary to compete for workers and maintain a labor force.
Seattle 1 Seattle 2 Los Angeles NYC (FF)
2018
Min Wage
Min Wage X 1.25
$15.00
$18.75
$11.50
$14.38
$12.00
$15.00
$15.00
$18.75
2020
Min Wage Min Wage X 1.25
$15.00
$18.75
$13.50
$16.88
$15.00
$18.75
$15.00
$18.75
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Simulations:
Simulations:
• Suppose the wage premium of front‐line cleaners falls to approximately +15% Predicted Wage in 2018 and 2020 if Ratio Falls to 1.15 • Predicted wages of front‐line cleaners in light of major companies’ stated plans for wage increases
Predicted Wage in 2016 Based on Companies' State Wage Increases
Seattle 1 Seattle 2 Los Angeles NYC (FF)
TJ Maxx
McDon.
$15.00
$17.25
$11.50
$13.23
$12.00
$13.80
$15.00
$17.25
Wal Mart
2016
Comp. Wage
$10.00
Comp. Wage X 1.25 $12.50
Target
2018
Min Wage
Min Wage X 1.15
$10.00
$12.50
$10.00
$12.50
$15.00
$18.75
2020
Min Wage Min Wage X 1.15
$15.00
$17.25
$13.50
$15.53
$15.00
$17.25
$15.00
$17.25
2016
Comp. Wage
$10.00
Comp. Wage X 1.25 $11.50
$10.00
$11.50
$10.00
$10.00
$15.00
$17.25
Conclusions:
• The labor market is tightening (although a lower E‐P ratio suggests that it may not be as tight as the UR suggests)
• Stagnating Federal minimum wage has led to a proliferation of state and local minimum wages
• Large companies are responding to pressure to raise their wages
• To maintain a reasonable premium above minimum wages and wages of large companies, cleaning companies will need to raise wages, maybe significantly in the next several years.
8