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Employers Under Pressure to Pay Higher Wages

Published Thursday Aug 4, 2016


Rob Mercier speaks at a Fight for $15 rally in Massachusetts. Photo Courtesy of SEIU.

Rob Mercier, 31, works as a manager at a Burger King in Nashua for $9.25 an hour, but the mother of his son is encouraging him to apply at Wal-Mart, where part-time wages recently went up to $10.95 an hour, and a full-time worker can earn more than $14.50 an hour in NH. But Mercier has spent most of his working life in fast food, and it’s where he’s comfortable.

Now he’s involved in the Fight for $15, a national initiative to raise the minimum wage to a “living wage” of $15 an hour. He’s been involved in marches and protests and has talked with the media. It’s clearly brought him hope. When he first got involved with the Fight for $15, “I really didn’t think it was going to go anywhere.” Now he sees workers in other cities and states having success. “Now I’m thinking it could make a difference.”

Among the signs of change is Wal-Mart, the store known for pressuring suppliers to lower prices. Wal-Mart is now raising its wages and increasing benefits to retain employees in an era of historically low unemployment. At the same time, Whole Foods, which offers starting wages of $11 per hour, is expanding in the NH market.  It opened its first NH location in Nashua in 2014, opened a second NH location in Bedford in April and plans to open a third store in Portsmouth this year.  

New Hampshire has adopted the federal minimum wage of $7.25 per hour, along with Mississippi and Alabama, making their rates the lowest in the nation. Yet NH is surrounded by states with higher minimum wages, says Russ Thibeault, president of Applied Economic Research in Laconia. Maine is set at $7.50, Vermont  at $9.60 and Massachusetts at $10, and most have adopted built-in increases that will, for example, raise Vermont’s minimum to $11.54 over the next several years. Maine’s minimum wage has no built-in increases, though there’s a statewide referendum vote on the issue coming in November.

“If you’re living in Nashua and they’re paying higher across the state line, you’re going to go across the state line,” says Nancy Kyle, president and CEO of the NH Retail Association.

Nationally the Fight for $15 is calling to raise the minimum wage to $15 per hour as a livable wage and two states, California and New York, have agreed to move toward that. All this puts pressure on a NH market where unemployment hit a 16-year-low of 2.6 percent in March. While classical economic theory says when unemployment is low, competition for workers drives up the cost of labor, average wages to date have been “pretty stagnant,” according to Annette Nielsen, lead economist at the NH Department of Employment Security.

In NH, the fight is not necessarily about an increase in the minimum wage, as very few employers pay the $7.25 minimum wage, but a debate over what is a livable wage and how widespread the problem of low wages is.

Average hourly wages for full-time workers at Wal-Mart and Whole Foods are now between $13.38 and $15.81. Wal-Mart also changed its benefits to offer a paid time off system that combines sick, vacation and holiday time to give employees more flexibility. It is also offering full-time employees free, short-term disability covering 50 percent of wages. So far, Whole Foods says it has not raised its wages even though Wal-Mart’s average part-time rate of $10.58 is now close to the organic grocer’s starting wage of $11 an hour.

“We have a lot to offer our applicants besides the hourly wage,” says Linda Shear, regional executive coordinator of Team Member Services. For Whole Foods, its workers are eligible for rapid advancement, paid time off and bonuses for meeting goals. She notes that they had no trouble lining up top-notch employees for the new store in Bedford.

Whether that holds true elsewhere remains to be seen. “It’s going to be interesting this summer to see what happens with seasonal employers,” Nielsen says.

Who Makes A Low Wage?
Among the lowest paid occupations in the state are dishwashers in the North Country, who earn an average entry-level wage of $8.22 based on June 2015 NH-specific data from the Bureau of Labor Statistics. So who still makes minimum wage in NH? An analysis by Nielsen that focused on Cheshire County determined minimum wage earners amounted to about 3.7 percent of workers. Another 10 to 11 percent had wages above the minimum but below $12 an hour. And 20 percent of workers make in the $12 to $16.80 range per hour. This was based on 2014 data, but Nielsen says she believes statewide numbers would be roughly similar.

Of those earning minimum wage, most are not teenagers working after school or in the summers. A full 72 percent of minimum wage earners are over the age of 20 and more than a third are over the age of 30. Roughly 14 percent of those workers also have children, and one-third work full-time, according to the NH Fiscal Policy Institute. “Since the Great Recession, you’re seeing a more diverse demographic in those jobs,” Nielsen concurs.

According to the June 2015 Occupational Employment and Wages Study, the statewide median hourly wage (half of people make more and half of people make less) for all occupations was $17.89, excluding teachers. Of the approximate 580,000 workers (again, excluding teachers), about 100,000 had median wages of about $10 an hour. They were primarily working in restaurants, as cashiers, as maids and as retail salespeople.

As of 2014, the latest data available, more than 48,000 people worked as cashiers and retail salespeople in NH, and cashiers in NH, on average, made about $10 an hour. Of all workers, those earning around $10 an hour accounted for about 15 percent of the labor pool.

Wal-Mart and Whole Foods could change those numbers significantly. Wal-Mart employs 6,633 workers in NH and Whole Foods employs just over 300 people between its two stores and expects to add roughly 150 more once the Portsmouth market opens.

Whole Foods entry-level wage is $11 an hour, while the average wage for a full-timer at Whole Foods in NH is $15.81 per hour. Wal-Mart’s entry level wage of $9 an hour remains the same during the initial training period, but jumps to $10 an hour, compared to entry level wages of $8.33 an hour for retail on average. Wal-Mart’s average full-time rate nationally is now $13.38 an hour and $14.29 in NH, compared to an average of $12.62 for retail clerks overall statewide. Wal-Mart’s part-time workers are expected to average about $10.95 an hour in NH when the changeover is complete.

So why is Wal-Mart’s average wage higher in NH? The company needed to go higher to be competitive. “The variation is caused by a number of factors, including the assessment of the business on what a competitive rate of pay would be in an individual market,” says Philip Keene, a spokesman for Wal-Mart.

The Livable Wage Debate
A livable wage, defined narrowly as how much money is needed to live as a sole provider working full time and also supporting a family, changes depending on where you live in NH. (What constitutes a livable wage is also a subject of debate among experts when it comes to families with two wage earners.)

So what would a livable wage be in NH? Several different groups have tried to figure that out, and many even take into account differences in the cost of living between areas like the North Country versus the Seacoast or southern tier.
In the simplest of these calculators, the cost of housing drives the estimate. The question is: given the market-rate cost of an apartment in a given area, what would someone have to earn to afford a studio, a one- or two-bedroom apartment if housing costs can’t exceed 30 percent of their expenses?

Other calculators look at the cost of food, housing, childcare, clothing and other routine expenses. What comes out as a livable wage depends on those cost assumptions. For example, Jeff McLynch, executive director of the NH Fiscal Policy Institute, says the Economic Policy Institute calculator bases the cost of childcare at center-based childcare, a more regulated type of care, while the MIT (Massachusetts Institute of Technology) calculator uses lower-cost family childcare and childcare centers in its calculation. For health care, MIT uses premium costs that assume health care is available via the employer, while EPI bases its cost on the ACA marketplace using the lowest cost bronze plan available in the area, he adds.

On top of that, there is a huge difference in what a livable wage is for a single person versus a single parent. Once dependents enter in, what it takes to support a family changes dramatically. The calculators also fail to factor in that many low-wage jobs are not full-time. And hours often vary depending on need, especially in hospitality, fast food or retail work. A living wage at 40 hours per week may not be a living wage at 30 hours per week.

And what about student loan debt? For the Class of 2015, the average debt nationally was $35,000. Six months after graduation, this translates to a payment of $380 per month for the next 120 months, states Jeffrey Selingo in his new book, “There is Life After College.” According to Selingo, 42 percent of students now carry substantial student loan debt compared to 17 percent in 1989. None of the living wage calculators factor that in, even though many graduates during this recession were unable to find work using their college degree and relied on low-wage jobs.

In a nutshell, a “living wage” depends on the earner and his or her hours and living circumstances. “I don’t think there’s a living wage; there’s multiple living wages,” says Thibeault.

Even workers with Fight for $15 recognize that setting a single number for a livable wage is problematic. The $15 figure, besides being a nice round number, was an hourly rate that would improve living conditions for low-wage workers across the country, according to Markel Bilbao-Mate, a national organizer with the SEIU who worked with fast food workers in NH.

As Mercier puts it, “$15 is just the goal to get us out of poverty,” he says. His precarious hours and income have left him homeless on several occasions. He only wants is to be able to take care of himself and provide for his nine-year-old son.

The Fight Ahead
New Hampshire lawmakers have rejected increasing the minimum wage, even by 50 cents or a dollar, for a number of years. This past year saw three minimum wage bills, one that applied only to tipped workers, one that would have gradually raised the minimum wage over several years to $9.50 by 2019 and another that would have set it at $12 per hour right away. All were voted down.

Many of those who object to raising the minimum wage say that most workers in NH already make well above $7.25, demonstrating market forces are working and the Legislature doesn’t need to intervene.

While not many people make minimum wage, Thibeault points out the debate still matters if you’re one of them. The 3.7 percent who do so add up to thousands of people in the Granite State. “The main thing for me is an equity argument. The minimum wage should keep pace with inflation,” he says. If the minimum wage were pegged to the Consumer Price Index, it would maintain its buying power from year to year. In fact, the buying power of the minimum wage has eroded over time. At its peak in 1968, the minimum wage had a buying power of just under $11 an hour in today’s dollars.

Another idea for setting minimum wage involves pegging it to a percentage of the state’s median wage. “One benchmark economists are increasingly using to evaluate minimum wages is the value of the minimum wage as a share of the median, or typical, hourly wage in a given state. The Washington Center for Equitable Growth projects that if NH were to bring its minimum to $12 per hour by 2020, it would represent 51.6 percent of the median New Hampshire wage,” McLynch says. That’s still below the 58 percent it was in 1979, but within spitting distance.

Regardless of whether wages are raised due to legislative action or market competition, new pressure is on employers when it comes to low-wage workers. Another factor influencing the debate may lie in some other market trends—part-time, contract and a new “gig” economy. While some workers enjoy the flexibility or use part-time gigs to earn extra money alongside a full-time job, many would prefer full-time work at a higher rate of pay.

The number of involuntary part-timers remains elevated in NH and in the nation. While the commonly quoted unemployment figure of 2.6 percent covers people who lost jobs and are actively seeking full-time work, another unemployment calculation includes discouraged, marginally attached and involuntary part-time workers.

That figure, measured quarterly, now stands at 7.4 percent at the end of the first quarter of 2016. It’s down from 8 percent in 2015. That’s better than the national average of just over 10 percent, but it has not come back down to pre-recession levels the way other measures of unemployment have. “It’s one of the signs that things are not as rosy as you might think,” Nielsen says of the labor market. More people are cobbling together income by working multiple jobs that do not typically include health benefits or retirement contributions, she says.

A new research paper, “The Rise and Nature of Alternative Work Arrangements 1995-2015,” looks at the growth of the gig economy, which includes Uber-style jobs, freelancing, on-call, temp and contract workers.  The authors, economists Lawrence Katz and Alan Krueger, found this share of the workforce rose from 10.1 percent in February 2005 to 15.8 percent by the end of 2015.

Nielsen says it possible this represents a more permanent structural change in the nature of work in the United States. Low unemployment could conceivably create demand for workers that reduces the number of people who are involuntarily part-time, but not necessarily.

Employers may move part-timers into full-time jobs to keep them from going elsewhere, but full-time work is traditionally accompanied by other benefits, like health care. Employers who raise wages and/or benefits then face a choice to either increase prices or lower profits. Or they can look for ways to increase automation to reduce the need for workers.

In the end, the future of this tighter labor market will be a negotiation between employer and employees, Kyle argues, and she’s not ready to predict what direction this negotiation will go. As employees have greater choice in jobs, do they seek out higher pay, more hours, fixed hours, better benefits, a chance to advance, or greater flexibility? It will vary from worker to worker and employers will need to be adaptive, she says. “The solution should be a private agreement between employer and employee and shouldn’t be legislated,” she says.

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