Must We Fear High Wages? | DCR Workforce Blog

Must We Fear High Wages?

moneyIt looks like pay rates are heading north in some parts of the country. Effective Jan. 1, hospitality and transportation workers in SeaTac, a small city in Washington, will be earning minimum wages of $15 (from an existing $9.32) and also get paid sick days and inflation adjustments, going forward. The $15 minimum wage, if ratified, will be the highest in the whole country.

The vote to raise the minimum wage is certainly controversial.  The new pay rate law’s opponents have appealed. The matter may finally end up in the Supreme Court before a conclusion can be reached.

Arguments in favor of either side abound:

  • Proponents argue that higher pay leads to higher spending, which boosts the economy, increases the tax base and brings the federal deficit down. In contrast, they believe that a nation of families living below the poverty level pays in other ways – with higher medical costs associated with poor diet, lower levels of educational achievement tied to the inability to pay for advanced degrees, and increases in social and behavioral issues..
  • Opponents state that higher wages put unnecessary pressure on employers. By eroding corporate profits, we threaten the very survival of businesses which are struggling to overcome the recent economic downturn, forcing them to downsize their workforce.  This leads to increased unemployment

It is to be seen if businesses will respond to the mandatory wage increase with mass layoffs and send unemployment numbers soaring up further.. Businesses could also reconcile themselves to making less money, or raise prices, hoping that their competitors would be constrained to do the same. Alternatively, companies may attempt to soften the financial blow associated with the steep jump in minimum wage with an increased use of agency and independent contractors. This strategy removes the costs associated with employment taxes and benefits.

Businesses exempted from paying the higher wages may face a resource crunch and suffer attrition as the lower rates they offer prove highly unattractive.

The rise in pay rates will come naturally in sectors like healthcare, where the whole nation is witnessing a shortage of physicians as well as nurses and advanced practitioners. Similarly, the IT sector has been witnessing a paucity of talent and demand for more workers with the right qualifications and capability to perform. These segments are already witnessing a revolution of sorts with the more talented workers undertaking independent contracts at higher wages, thereby spreading the burden of higher wages to more employers.

Will the decision by the voters in SeaTac foster similar actions across the nation?  A hike in minimum wages across the board has been one of the many points of discussion as congress struggles to find ways to stimulate the economy while balancing the budget.  Many will be closely monitoring the impact in SeaTac next week and for the weeks to come.

The content on this blog is for informational purposes only and cannot be construed as specific legal advice or as a substitute for competent legal advice. They reflect the opinions of DCR Workforce and may not reflect the opinions of any individual attorney. Do contact an attorney for advice specific to your issue or problem.
Lalita is a people/project manager with extensive experience in operations, HCM and training and development across industries like banking, education, business consulting, BPO and information technology. She believes in a dynamic approach to life and learning as change is the only constant.