The Case for Paying Employees a Living Wage
Arguably the most important stakeholder group in any company is its employees. The company controls their standard of living, determines whether their families are educated, can afford to care for themselves if they become sick and can support themselves once they retire. It’s not a stretch to suggest that companies can dramatically transform the health and happiness of their community by treating their employees well.
So how can we define “well”? Maslow’s hierarchy of needs tells us that it’s very difficult for anyone to achieve higher levels of performance until their basic needs for food, water, warmth and rest are met, so an important element of a strong, sustainable organization is to pay at least a living wage. In Edmonton in 2021, that amount was $18.10 per hour. The minimum wage in Alberta is $15 per hour so it’s possible that your business has a few folks who don’t earn enough to meet their basic needs.
Living Wage Alberta is a non-profit organization that calculates and publishes the real cost of living for an Albertan family. They analyze the income needs of a household with two adults working full-time, and two children. So, at 2,080 hours per year, per adult, this translates to an annual household income of:
$18.10 x 2,080 x 2 = $75,296 annual household income
If this two-adult, two-child household is earning a living wage, here’s the lifestyle they can expect (from the Living Wage Alberta website https://livingwagealberta.ca/how-living-wages-are-calculated/):
A 3-bedroom rental home, with utilities
Groceries to feed four people based on Canada’s food guide and including a mix of fresh, frozen and minimally-processed foods
Clothing for four, including footwear and outerwear, that may be needed for common work, school and social occasions
Transportation costs, which vary by municipality size and location
For example, a purchased 8-year-old compact car with 1,200 litres of gas per year or transit passes for two adults and one child, plus 12 round trip taxi rides to work or shopping per year
Childcare
Health care (Alberta Blue Cross)
Tuition
One person taking one course per semester
Other household items
I think that most people would agree this family’s basic needs are met. One issue though, is that it requires a two-adult household. In Canada in 2020, there are 1.78M single parent households out of 10.25M total households (from statista.com). That’s 17% of Canada’s households, and the single-parent household expenses aren’t much lower. The 3-bedroom home, the vehicle, the childcare and the educational costs remain the same. The only reductions would be in groceries, clothing, some other household items and health insurance. The single working mother would have to earn double the living wage in order to live independently, or rely on the father of her children to bridge some of her income gap. Of course, that father has expenses similar to hers, so it’s highly unlikely that he has much to spare. This would mean that an independent living wage is closer to ($18.10 x 2) $36.20 per hour, because the household expenses are still around $75k per year. It’s a very real possibility that Albertans are being forced to choose between marriage and living in poverty for themselves and their children.
Even with a 2-parent household, this model assumes that there is only one preschool-aged child and one school-aged child per household. Childcare for preschool children is significantly more expensive than out-of-school care, so hopefully these families are spacing out their births and not having more than two children. They can only afford out-of-school care for 10 months per year, so they must have family or friends caring for this child free of charge throughout the summer months, or one parent isn’t getting a full 2,080 annual hours. And most daycares are only open from 7 am to 6 pm Monday to Friday.
The health insurance meets the needs of a reasonably healthy family. Most plans at this cost don’t include coverage for short or long-term disability, and very limited coverage for things like glasses, eye exams, anything paramedical such as physical therapy or psychological support. There is generally limited coverage for prescriptions and almost nothing for orthodontic treatments. Any sort of disability or long-term physical or mental health concern in this family would seriously impact their ability to meet their basic needs.
Hopefully once the children leave home, these two parents are now able to redirect all the funds that were previously spent on childcare, clothing and groceries toward retirement savings because the government retirement benefits available to seniors will not support the rental of a 3-bedroom home, never mind the additional health costs most seniors incur.
Now let’s consider the minimum wage household. These folks are not earning enough to maintain the standard of living described above. They are likely bridging their $13,000 annual income gap [($18.10 - $15.00) = $3.10 per hour x 2,080 x 2 = $12,896] with additional work hours, so they have a second job. They may also be living below the poverty line if they aren’t able to do that.
Another major challenge for our minimum wage workforce is the availability of full-time and/or flexible part-time work. Organizations save costs with entry-level positions because there’s a large pool of potential candidates when specialized skills aren’t needed. They can structure the jobs as less than full-time to avoid paying for benefits or vacations. They can send employees home before working a full day if there’s not enough work coming in, or they can lay them off temporarily for up to 90 days. The companies are lowering their own costs by passing them on to government social programs or individuals because they know that there is always an employee willing to take what they can get in order to try and meet their basic needs.
It seems to me that businesses will pay one way or another. Either we pay our employees enough that we can preserve the middle class and decrease the need for social programs, or we will pay in corporate and personal taxes for those who can’t make ends meet. Social transfers are costly and provide meaningful work for no one but the government workers who administer them.
But how can business pay for this? There are lots of ways, and expert support might be needed to find the extra money. Dick’s Drive-In in Seattle, WA has figured it out though. Their minimum wage for all employees is $19 per hour, plus child care, health care and scholarships. The most expensive item on their menu is $4.25 and their burgers cost $1.89. If a fast-food restaurant can do it, then there are probably ways for all businesses to make it work. The Gravity Payments CEO, Dan Price, recently took a personal pay cut so he could raise minimum wage for his employees to $70k per year. Their revenue increased 300%, and in the middle of the US hiring crisis, he has hundreds of applications for every open position. The Alberta Living Wage Network tracks and promotes certified Living Wage Employers who enjoy superior business results because of it. And Gallup, a leading employee engagement research firm in an article by Jim Harter Aug 26, 2018, asserts that: “Organizations and teams with higher employee engagement and lower active disengagement perform at higher levels. For example, organizations that are the best in engaging their employees achieve earnings-per-share growth that is more than four times that of their competitors. Compared with business units in the bottom quartile, those in the top quartile of engagement realize substantially better customer engagement, higher productivity, better retention, fewer accidents, and 21% higher profitability. Engaged workers also report better health outcomes.” Whether you want to benefit your community or not is a personal decision, but paying people better is good business. It’s difficult to point to the direct cause and effect, but the data is overwhelming. It’s not just a cost to business – it’s also a benefit. And it might even lower taxes in the longer term.