Adam Snyder, MAGNET’s Sector Partnership Managing Director, wrote a compelling piece on manufacturers needing to boost starting wages to stay competitive in the labor market. Today, we look at this issue from the jobseekers’ and employees’ perspective, offering insight as to what these individuals face on a daily basis. Both pieces, intended to spur a mindset shift, can offer manufacturers insight as to how to close the gap by drawing talent into our industry.
Work is a social contract between an employer and employee, an exchange of labor for compensation. The employee then uses the compensation to provide the basic necessities of life: food, shelter, clothing, healthcare, etc. But then, to get to work, an employee needs transportation and childcare.
For the employer, compensation is calculated by looking at the labor market and competitors’ wages. However, I wonder if the employers ever consider what the wage rate means to the employee – how it affects them and their families. Or, what happens when the compensation offered does not allow people to meet basic needs?
Businesses expect employees to come to work every day, on time and mentally prepared for a full day’s work. That is part of this social contract. However, businesses often struggle to find employees who can meet these presumably minimum requirements. A universal refrain is that people don’t want to work; or people say others want to work but then they miss days, come late or aren’t mentally present enough to do a good job.
We need to consider the possible correlation between wages being paid and the quality of employees and their work; the impact of the wages we pay employees so they can work, manage their lives and take care of themselves and their families; and how wages affect the ability to be a good, reliable employee.
Consider this case study:
Employee A: Paid $13.50/hour; $29,120 annually before taxes
Let’s then apply the well-known rule that people spend 30% of income on housing costs (even though a recent Harvard report found that 45% of households making between $30k and $45k have rent costs above 30%).
This means Employee A has about $500 to spend on both rent and utilities. However, in Cleveland, $500 rent (just rent) equals housing, like in one of these two photos; one came from an ad with no interior photos included and another is a third-floor apartment with no kitchen in an east side Cleveland neighborhood.
If Employee A has children, the kitchenless apartment is likely insufficient.
Now let’s run the numbers for Employee B.
Employee B: Paid $15/hour; $31,200 annually before taxes
With the 30% rule, B now can afford $564 per month for rental costs. In Cleveland, a $564 rental affords an employee something like this two-bedroom apartment on South Broadway in Cleveland.
Or, for $575 per month, B can live in the Shaker School District in this South Moreland Buckeye Shaker one-bedroom apartment, though children would sleep in the living room.
Let’s show one final case.
Employee C: Paid $18/hour; $37,440 annually before taxes
C now has $712 to spend on rent, which equals renting a three-bedroom west side apartment, which could look like:
or this two-bedroom apartment in the Buckeye Shaker neighborhood:
Choosing an apartment typically requires considering a variety of factors, such as: public amenities, crime rate/public safety and the quality of schools, looking at the graduation rates. And where schools do have better numbers, specifically schools where students have better opportunities to finish and move on to quality careers or colleges, like Cleveland Heights, Shaker and Lakewood, employees may struggle to find affordable housing.
Finally, employees need to budget for transportation, typically a car. Yet, with the example wages above, saving for the purchase of a vehicle (and the insurance and fuel required – which at $4 per gallon isn’t easy) would take quite some time. In fact, Employee A, making $1660 per month, will likely struggle to be on time for work.
Beyond the long-term benefits to your business of raising the wages that Adam laid out, there are humanitarian considerations to make regarding the exchange of labor for compensation. Analyze the breadth of employees you have (hint: most employers far underestimate how many of their workers are living under the stressors presented here), and learn at what wage range employees start becoming more reliable in showing up for work (on time) and mentally present to do a great job. These extra thoughts may lead to different calculations around the value of employees and their wages.