When I worked on Capitol Hill, each year we would see a new push to increase the minimum wage that would struggle to secure the needed Republican votes. This year, we are seeing a similar pattern.
In January, House Democrats introduced the Raise the Wage Act of 2021 to increase the minimum wage to $15 per hour, which was included and then removed from President Biden’s COVID-19 relief package. Then, the Senate Finance Committee introduced a “Plan B” that would impose tax penalties on corporations that do not pay their workers a certain amount. It too was killed within a few days.
Before 1968, the minimum wage rose along with inflation and productivity gains. But gridlock has stalled progress in Washington, and the federal minimum wage has remained stagnant at $7.25 per hour since 2009. If the pattern from the 1960s had continued, today’s federal minimum wage would be above $24 per hour, reports the Center for Economic Policy and Research.
The Economic Policy Institute (EPI) estimates that gradually raising the minimum wage to $15 per hour by 2021 would have improved pay for 32 million workers, or 21% of the U.S. workforce, many of whom are women with children and people of color.
Following years of polarized politics, a growing number of people trust businesses significantly more than the government. In January 2021, the Edelman Trust Barometer reported that 61% of people surveyed expressed trust in businesses, while only 53% worldwide trust governments.
Consumers, stakeholders, employees, and communities are increasingly demanding more of the brands that they trust. While Washington struggles to move minimum wage legislation forward, business leaders can lead on fair pay.
This is both a racial justice and gender equity issue.
Historically, minimum wage increases have made great strides in reducing pay inequality, particularly along racial and gender lines, and inaction has been detrimental. For example, minimum wage increases in the 1960s decreased the Black-white earnings gap by 20% in the years that followed. In contrast, failing to increase the minimum wage after 1979 is the cause of almost half of the growing gender pay gap among lower-paid workers, according to the EPI.
Increasing the minimum wage would be a huge step forward in repairing decades of damage caused by growing pay inequity between underpaid workers and median-wage workers. The EPI reports that almost one-third of all Black Americans and a quarter of Latinxs would receive a pay increase if the federal minimum wage were increased, and more than half of workers who would benefit are adult women, 28% of whom have children.
Without ensuring that people at every level of an organization can earn a living wage, diversity, equity, and inclusion policies cannot hold weight.
Invest in your employees and reputation
Beyond the aforementioned racial and economic equity issues, failure to take action to address pay disparities and low wages opens employers up to vulnerability.
- First-mover advantage: As companies like Costco, Starbucks, and Unilever commit to increasing their minimum wage, improving diversity and inclusion, and investing in their workforces with continued education, other companies will feel the pressure to follow suit – or risk losing employees to competitors with better offers. At a time when there is increased pressure on brands to bring jobs home to America, raising the minimum wage of workers is a direct investment in businesses’ local communities.
- Reputational risk: When companies take on policy-setting roles, they are expected to act for the benefit of their employees and the communities they serve. Edelman found that more than 75% of respondents worldwide, and 72% of those in the U.S., trusted their employer “to do what is right,” and more than two-thirds said they rely on businesses to step in where the government lacks. This translates into consumer scrutiny of corporate action. From a regulatory perspective, as industries see increasing consolidation through M&A, fair wages, and investment in creating jobs domestically are under the lens as well.
- Increased productivity: In 1914, Henry Ford introduced the “five-dollar day” at a time when the average factory wage was $2.30. The move boosted worker productivity so much that he called it his most effective cost-cutting move. Research from the Harvard Business Review also shows that paying wages above the market rate can motivate existing employees to work harder. Today’s employers are putting weight on the well-being of their workforce. They recognize that workers who are less financially stressed, have food security, and can afford childcare can be more present and productive in their roles.
- Talent competition: As more firms are increasing minimum wages as part of holistic benefits packages, those who don’t risk losing top talent to competitors. Consider the cost of paying workers more compared with the cost of constantly training new minimum wage workers, estimated to be about 16% of the employee’s annual salary, according to the Center for American Progress.
While the cost of living varies significantly by geography, a blanket $15-dollar minimum wage demonstrates that brands care that their employees earn a living wage and can provide for their families. Communities want businesses to take action. It’s time for business leaders to respond to this call.