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Why Talking About Employee Poverty Makes Us Uncomfortable

Geplaatst op dec 31, 2013 in News

Earlier this month, I asked a simple question about an apparent change in the social contract at work: Do employers care if their employees are paid so little that they require government assistance to get enough to eat?

The response was overwhelming — close to 600 comments on the HBR website, and the discussion was picked up by The Huffington Post, MSNBC, and other outlets.

What can we learn from those comments about the answer to that question?

We might expect that the readers of HBR are interested in and sympathetic to the problems facing businesses that directly affect the average person. Given that, it may be surprising that a majority of the comments thought that employers were wrong to pay poverty-level wages. But there were also many who did not believe that such low wages were a moral dilemma for companies paying them, and their arguments fell into three general categories.

One camp simply denied that low-wage workers and their families are truly in need, typically based on heroic assumptions about how little it actually costs to live. Whether or not we personally believe these workers are poor enough to merit attention, however, the U.S. government has determined that the roughly 10 million working poor are paid too little to make it without government help.

A similar assertion was that the working poor are there by choice.  It is certainly true that individual responsibility has a profound influence in determining one’s life circumstances, but the idea that poor workers could solve their financial needs themselves by moving up to better jobs represents a fallacy of composition: Yes, a low-wage worker who really applies themselves can probably move up to a better job, but there are nowhere near enough of those better jobs for every low-wage worker to get one. The commentators who feel that they pulled themselves up by their own bootstraps should be the most aware of how difficult that was to do, and if they are honest, they also know that different circumstances could have stymied them as well.

The third theme was to assert that employers do not have any moral responsibility for what their employees are paid.  A crude version of this argument is that employees are just like any other commodity and that squeezing down their costs was a perfectly acceptable thing to do. As someone who has studied human resources for decades, I have never met an employer who actually held this view. Employers want their employees to look after the interests of the business, and it is almost impossible to secure that behavior with an approach that says, “We have no responsibility to you.” As my colleague Christopher Kulp notes, even if one believes that business has no responsibility to employees, employers are people, too, who are also citizens, parents, and community members. In those roles, it would be surprising if they did not care about poverty, whatever the cause.

Clearly, these three assertions do not hold up to careful scrutiny, and it is tempting (and concerning) to see them as efforts to rationalize away uncomfortable facts.

The last argument in particular does not deny that low wages are a problem, but asserts that in practice, there is nothing that employers can do about that because low-wages are simply the result of the market, and tampering with the market will cause worse problems: Higher wages will lead to layoffs, inflation, and businesses failing.

If business success is that sensitive to wages, then employers have been getting quite a break in recent decades, because the minimum wage has declined about 40 percent in real terms since its peak value in 1969. Earnings for the hourly paid in general have also declined since their peak in 1972, about the point when wage increases stopped keeping up with productivity increases.  On the other hand, wages have been rising sharply for executives and managers, and commentators have not complained that these increases would kick off inflation, cause layoffs, or force companies out of business.

Nevertheless, it is certainly true that there is no free lunch and that higher wages — no matter who gets them — have to be paid for in some way.  It is also true, though, that there are benefits to individual employers who pay higher wages.  Paying more gets better workers with lower turnover and better job performance, which offset some or perhaps even all the costs of higher wages.  Given this, it is surprising how few employers seem to ask themselves whether they would be better off paying their low-wage workers more.

If all employers raised their wages for low-paid jobs, many of the benefits of being a better employer would go away. But so too would the potential problem of having higher costs than competitors — after all, most low-wage jobs are in retail, hospitality, and food service, where there is no foreign competition. And when it comes to the argument that higher wages would lead to layoffs en masse, my read of the evidence on changes in minimum wages, which raise the floor for all employers, is that any effects are small: a 10 percent increase in the minimum wage reduces jobs for low-paid workers by maybe one percent.

In the end, we are left to ponder why so many successful companies set pay so low that their employees need government assistance to eat. At least part of the cause has to be decisions made inside companies. What changed in the companies over time to make this happen? Perhaps this is a question that does not get asked because the answers are uncomfortable.

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