Operators grapple with the $31,000 (or so) question

posted by: Amed Realty in Uncategorized

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Many operators probably broke out in flop sweat earlier this week when House Minority Leader Nancy Pelosi (D-CA) endorsed a $15 minimum wage.

Pelosi joins a growing chorus of liberals on and off Capitol Hill pushing to more than double the current $7.25 rate. For his part, President Obama has made raising the minimum wage a centerpiece of his campaign against “income inequality.” Earlier this year, he suggested the rate be raised to $10.10 per hour over the next three years.

Many leaders in this field are watching these developments with a growing sense of unease. It’s not too hard to see why. In fact, they have plenty of reasons to believe a higher minimum wage will be harmful. Chief among them:

• It would make remaining solvent that much harder

• Facilities might need to cut staff in order to pay more to those who remain

• Outlays would likely need to rise for those making a bit more than the minimum wage

• Employment opportunities for low-skilled, entry level workers would be reduced.

These are all legitimate concerns. And I have great empathy for leaders in this field trying to make payroll. In the best of times, it is no small challenge.

Yet, there may actually be good economic and moral reasons to enact a higher minimum wage for workers in this sector. And before you send me a nasty email accusing me of being anti-American or worse, please hear me out: What follows are points that have been made by people who have said the move might be good for corporate America. I’m not necessarily endorsing them, but they deserve more than a casual dismissal.

The classic argument for better pay is that Henry Ford doubled the wages of his workers 100 years ago to $5 a day. He did this not out of a love for the working man, but largely because he wanted to reduce absenteeism and turnover. The move seemed counter-intuitive at the time, yet it worked.

A more modern argument might be that it is time to stop seeing workers as an expense item that needs to be kept to a minimum. Rather, all employees should be viewed as an investment in productivity and top-line growth. That’s the argument many senior living companies use to pay managers more than the competition. Those without a horse in this race might legitimately ask why the logic makes sense at the top but not at the bottom?

Perhaps the most compelling argument is that wage hikes are already happening among companies competing against you for front-line talent.

In February, Walmart announced it was bumping wages of its roughly 500,000 lowest-paid employees up to $9 per hour. T.J. Maxx, Marshalls and Target soon followed suit. The Gap is raising its minimum wage to $10 an hour. Fast food giant McDonald’s said it would raise wages by 10% and offer additional benefits to around 90,000 employees.

At Whole Foods, workers start at $10 an hour, but the average hourly wage is $18.89 (or more than $39,000 a year). The pay is even better at Costco, where workers start at $11.50 an hour. The average Costco employee earns $21 an hour, and that’s not including overtime. And nearly 90% of Costco workers also benefit from company-sponsored health insurance.

Some advocates of a higher minimum wage also cite a moral imperative. They argue that it’s a bit hypocritical for any service organization — much less one that claims to be doing God’s work here on Earth — to be paying below-poverty wages.

It remains to be seen where all this will lead. My guess is that the federal wage may be raised a bit, but probably not be doubled. However, in larger metro areas, the uptick may be higher, perhaps reaching $15 in some places.

Will a higher minimum wage cause an economic hardship for operators? Simple math would suggest labor costs will rise. Yet there will probably be some operators who gain better employees as a result. So the results could be mixed.

What we can all agree on is that the minimum wage, like Medicare coverage, is probably not going to remain sustainable in its current form.

John O’Connor is McKnight’s Editorial Director.