Will recent pay increases for minimum wage workers affect those in higher earning brackets?


 

Around the nation, large corporations are taking the minimum wage issue to heart by instituting salary increases for their most underpaid workers.

Companies like McDonald’s, Wal-Mart, Target, and TJX, the parent company of TJ Maxx and Marshalls, have announced plans to raise wages by as much as $1 or more per hour, with more raises coming for the beginning of 2016. This is good news for the millions of entry-level and minimum wage workers who typically earn just above the poverty line in many U.S. states.

 

Are people for or against an increase in the federal minimum wage?

 

Based on PayScale data, users are split equally when it comes to raising minimum wage:

  • 49.4 percent are for a raise in the federal minimum wage.
  • 50.6 percent are against a raise in the minimum wage.

 

If the minimum wage is being increased, why aren’t more companies looking at wages for the rest of their workforce who have not seen raises in the last few years since the recession? How could this trend affect salary increases across the board?

 

Talking about the minimum wage debate

 

I sat down with PayScale’s Director of Professional Services, Mykkah Herner, to talk about this issue. Raising minimum wages goes a lot deeper than just managing entry-level employee wages. Mykkah sees several challenges of managing minimum wage increases, including the “Four Cs” of compensation.

 

Complexity – Timelines for business compliance vary widely, even in states that have already approved minimum wages increases. Some businesses are in cities like Seattle and San Francisco where the city-wide minimum wage supersedes the states and do not meet the requirements of the increases. Add to this the Affordable Care Act requirements, and managing the minimum wage in the proposed tier increases becomes a lot more difficult.

 

Compression – Simply raising wages of entry-level employees isn’t going to be enough. Employers must also look at mid- to high-level jobs to see how those wages need to move. In the past, a 2 to 5 percent increase in wages seemed fair, but what happens when a company must start paying its workers who previously earned $9 an hour $15 per hour? How is this fair to the employees who’ve worked at the company for years at the lower rate? Such employees could see this as a threat to their value in the company – the “isn’t MY job important”? scenario.

 

Budgets – How will businesses compete for the best talent in states that don’t have to comply yet or where the minimum wage has not increased, as compared to more aggressive regions where employers are forced to pay more? Mykkah says that “It’s a matter of getting creative with pay grade structures to accommodate both the need to pay fairly and legally as well as to differentiate jobs that are now getting paid more and more similarly.” If an employer hopes to maintain a top workforce, the focus needs to be on compensating top performers, not minimum wagers.

Communication – This is a tough one. Employees who have been typically paid lower rates (and not ALL people who earn minimum wage fit a certain demographic) are apt to be happy about this change, but others who haven’t seen a real raise in years are going to react negatively. Mykkah recommends “organizations focus on aligning the right employees with the right jobs” and to “Think about the impact on all jobs not just minimum wage jobs and compliance. What are your priorities and what people and what jobs matter the most to your organizational success?”

Best practices for dealing with minimum wage increases

Here are three last pointers as you work through minimum wage increases at your organization:

  1. Learn the laws. The most important thing to do as an employer is to stay up to date on the law as the minimum wage increases roll out.
  2. Focus on pay equity. The purpose of raising the minimum wage is to reduce poverty and help people thrive in a restored economy. Even if your business is not directly affected, you can take steps now to increase pay equity among your workers.
  3. Look at the positives. While the increase in pay for certain entry-level jobs will increase, others may not experience such a dramatic change. And while the changes are bound to contribute to labor shifts, try to look at this as “good turnover” because your organization will reduce dead weight, enabling it to hire new and better people.

Companies can stay ahead of the updates to minimum wage laws and fair salary management by taking part in our Minimum Wage Debate at PayScale. We’d like to hear from you!

24 Comments

Add yours
  1. 1
    Jonathan Glover

    I own 3 small retail stores. If the minimum wage is increased. I will have too increase my retail prices.
    I believe this is like being between a rock and a hard place.

  2. 3
    Terri

    This is NOT a good thing. Reduce poverty level, increase more people in the raised poverty level. Who are the people making these decisions…the ones who make alot more and won’t be affected. Please get real! EX: Someone who has taken 3 years to get raises up to the NEW minimum wage, and now makes the same as a new hire????? Where is the fairness in this. People please get real!!!!!!!

  3. 4
    Val

    I need someone to actually explain to me how raising the minimum wage is going to reduce poverty and help people thrive when every time the minimum wage goes up the cost of living goes up
    Plus the fact that good solid employees that have been working for a company are not getting the performance increases they deserve because everyone is having to pay more for less experienced new employees, so while the cost of living goes up due to the increase in minimum wages, those that are making more than minimum wage have less to spend because retail prices keep going up because minimum wage keeps going up….please someone explain the positive in all this.
    The increase in minimum wages is not going to give anyone any more money to spend then they already have right now because it is going to cost more to buy the same things you are buying now, and those that have money to spend are just going to have to spend more for the same things they are already buying so it’s not like there is more actual spending in the market…it’s the same spending.

  4. 5
    Donna

    Great article! Just because Mr. Obama has decided the minimum wage must increase it obviously should be done in the name of politics, right? There is no fairness in that. The cost of living will keep increasing and those minimum wage employees will, in the end, see no advantage but to spend more for the products they need and pay more in taxes.

  5. 7
    Judith

    Pay compression is a very difficult subject for everyone to not only understand, but to also apply. If the bottom is lifted, those just above it need an adjustment, as well. Then, the ripple continues, which begs the question of how much is TOO MUCH to pay for a position? This has been a very challenging concept to explain and it is difficult, particularly for entry level pay people. However, the cost of living is NOT stopping, regardless of who has gotten a minimum pay increase. So, face ALL of reality, not just the part that frustrates for the moment.

  6. 8
    Tess

    Thank you all for your great comments, suggestions, and concerns. I agree wholeheartedly that raising the minimum wage is not the ultimate solution, but that it’s a sign that things need to change in terms of fair wages for many hard working people. It will be difficult for businesses of all sizes, but in the long run I believe it will help to support a better economy because it encourages consumerism (when people have access to extra funds). Using PayScale salary surveys and tools help employers to pay living wages based on actual job types and real-time data.

  7. 9
    Herman f.

    in the state of California minimum wage will increase $10 an hour does the employer have to pay salaried employees double the amount of minimum wage

  8. 12
    Matt

    I have the same issue as Ken from 07 Dec. This is something I fear. As I am a temporary employee. But changed position which gave me a $1 raise. I wouldn’t feel comfortable with my position if entry level employees are getting almost as much as I.

  9. 13
    ruth e

    it wont make a difference in a year because as prices go up minimum wage stays the same and we will be back at where we were before increase within a year or two and if nothing is done to compinsate earners already earning above minimum wage we will slowly undermine the goal here because there is no caps on anything we buy or need no laws that say or have limits to what they can charge this is the problem

  10. 14
    Rob W

    The minimum wage going up will devastate this country. It will raise prices because of increased demand for goods. Now people who had buying power will have less, much less, buying power. This pushes prices even higher. People stop buying. When people stop buying, businesses stop ordering goods. When no goods are ordered manufacturing is cut back. That means job losses across the board. With the job losses we get deeper in debt as a country. The great depression has nothing on what the increase in minimum wage will do to this country in the weeks, months, and years following that increase.

  11. 15
    Jesse

    Typical neoliberal talking points out in force look silly in the historical context. i.e. A raise in the minimum wage would destroy the economy just like it did when we raised it on:

    October 1938 (FDR): $0.25/hr ($4.15/hr in 2014 dollars)
    October 1939 (FDR): $0.30/hr ($5.05/hr)
    October 1945 (Truman): $0.40/hr ($5.20/hr)
    January 1950 (Truman): $0.75/hr ($7.29/hr)
    March 1956 (Eisenhower): $1/hr ($8.61/hr)
    September 1961 (Kennedy): $1.16/hr ($8.97/hr)
    September 1963 (Kennedy): $1.25/hr ($9.56/hr)
    February 1967 (Johnson): $1.40/hr ($9.80/hr)
    February 1968 (Johnson): $1.60/hr ($10.75/hr)
    May 1974 (Nixon): $2/hr ($9.49/hr)
    January 1975 (Ford): $2.10/hr ($9.13/hr)
    January 1976 (Ford): $2.30/hr ($9.47/hr)
    January 1978 (Carter): $2.65 ($9.51/hr)
    January 1979 (Carter): $2.90/hr ($9.34/hr)
    January 1980 (Carter): $3.10/hr ($8.80/hr)
    January 1981 (Carter): $3.35/hr ($8.62/hr)
    April 1990 (Bush): $3.80/hr ($6.82/hr)
    April 1991 (Bush): $4.25/hr ($7.30/hr)
    October 1996 (Clinton): $4.75/hr ($7.08/hr)
    September 1997 (Clinton): $5.15/hr ($7.51/hr)
    July 2007 (GW Bush): $5.85/hr ($6.61/hr)
    July 2008 (GW Bush): $6.55/hr ($7.12/hr)
    July 2009 (Obama): $7.25/hr ($7.80/hr)

  12. 16
    Chris

    For ease of computation, let’s set the current minimum wage at 8/hr for this comment.
    This is my take on the minimum wage increase. The raise would be a $7 increase to the minimum. This would be a substantial impact on company payroll as it is without having to reward workers already making more than the minimum. That being said, I am pretty sure that any raise given to that worker would not equal the $7 jump to the minimum. The man that’s worked hard all his life to achieve the $18/hr he currently makes gets the shaft. Let’s say he gets 3 bucks. Even though he got a $3/hr raise, once the price of goods catches up with the minimum wage increase, the guy now making $21/hr has had his spending power reduced by $4/hr.

    Is this right ? Wrong ? Both ?

  13. 17
    jeremy

    If you want to fix the economy basic rule don’t spend you money in one place lot of you have heard that saying before. Spread Your Money Out. why you ask because it balances everthang out. For example Bob’s grocery store is a small business walmart is a big business how many people in your community go to Walmart instead of going to Bob’s grocery store. 75% go to Walmart 25% go to Bob’s grocery store so you feed the big companies money like walmart instead helping your community small grocery store so if you have $300 to spend 100 one place spend 100 then another 100 some where else if we keep going to one place buying everthang we need from big company’s thay will not have no competition so starve big companies from your money and give it to your smaller companies because this big company will not stop being greed and start helping there employees

  14. 18
    jeremy

    If you want to fix the economy basic rule don’t spend you money in one place lot of you have heard that saying before. Spread Your Money Out. why you ask because it balances everthang out. For example Bob’s grocery store is a small business walmart is a big business how many people in your community go to Walmart instead of going to Bob’s grocery store. 75% go to Walmart 25% go to Bob’s grocery store so you feed the big companies money like walmart instead helping your community small grocery store so if you have $300 to spend 100 one place spend 100 then another 100 some where else if we keep going to one place buying everthang we need from big company’s thay will not have no competition so starve big companies from your money and give it to your smaller companies because this big company will not stop being greed and start helping there employees

  15. 19
    Cori

    Here is my issue with this “living wage” of $15.00 an hour. Many people that are making minimum wage or slightly above are also getting government benfits in one way or another. Maybe it’s reduced lunch for their children at school, maybe it’s food stamps or reduced childcare. So now all of a sudden your pay goes up and you no longer qualify for these benefits. There isn’t an “ease you out of” for these programs so that money is not going to get these workers anything. The raise in pay will just equal out their other benefits and it won’t do anything. Does something need to be done? Of course. However I also know that I worked very hard to get to the point that I’m at now. I have two Bachelor’s degrees and when I got my job as a contractor in 2009 was making $13.00 an hour, I got that amount because I had no benefits and that was their way of “equaling my pay”. Now that I’m an employee and have even more education I’m making just over $20 an hour and it took me 3 years to get there. I have a degree in Social Work and you would not believe how many people don’t want assistance in knowing how to save money. There are a lot of people that want the handouts and don’t want to work to better themselves. I know it’s not all people so please don’t go off on me about this, I see it first hand every day.

  16. 20
    Scott

    I’m totally against raising the minimum wage. Here in California, companies are already packing up and leaving. My position as a supervisor means nothing now, as I’m now paid the exact amount as a part timer or entry level associate. They do not understand that the minimum wage is a great idea in theory…but looking at what its causing…. not worth it. My company is letting go of 1 manager per store in California, and several other stores are firing non essential staff now. Unemployment is on the rise, and with minimum wage increasing, it’ll be higher before christmas. The economy is going to hit another low when it caps at 15$/hour

  17. 21
    Cheryl

    If wages go up, companies need to find a way to pay that extra money. It has to come from someplace. So prices go up. It’s a simple as that. And when prices go up, people stop, or slow their buying.
    If I pay 10 people $9 /hr I spend $90. Now if wages go up to $10 , I spend $100. I need to get that $10 somehow. Or I just pay 9 people $10 and I loose 1 person, but my ex pence us the same.
    So it raise prices, or lower quality. Simple math.

    Also. If I’m a Manger and I make $16, and wages go up to $15, and mine dont. Why would I take on extra responsibly and stress. …for $1 and hour. I’m a good burger flipper.

  18. 22
    B

    It’s simple economics people. When people have higher wages they have more money to spend therefore increasing these companies revenue that will cover the cost of that extra pay.

  19. 23
    Shafted

    I think the person who gained a skill set over the years to be earning, say.. $20/hour or twice the current minimum wage is the one he will be most upset about this. Companies MUST – by law – increase the minimum wage but they don’t have to increase other wages over the minimum. So Joe $20/hour has a few choices: 1) Continually ask for a raise which is always awkward and never guaranteed 2) Realize a sense of equity must be made and adjust for it (i.e. do less work or not strive to do more) and finally 3) this move just might make tipping a thing of the past. There is no way I will ever tip someone again in California if they are making $5/ hour less than me. To serve food. To deliver pizza, to drive me somewhere, etc. No way. Can’t have your cake and eat it to.

  20. 24
    Jeff

    The problem is the middle income class has had their wages stagnating for years. The low income class has their income subsidized with the tax money from the middle class. While CEOs sometimes make 300 x the average salaried individual in their organization – not the janiotor, the average employer.

    The rich need to pay more taxes and the tax structure for businesses needs to be more competitive in the US compared to othet countries so companies will stop trying to not pay taxes and sheltering their money.

    If you earn $300 million in one year, why shouldn’t you be paying a 50% tax rate?

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