Poole Economics Professor Steve Allen Weighs in on Living Wages

This fall, Poole College economics professor Steve Allen moderated a panel discussion titled “Wages that Work: An Employer-Led Conversation on Living Wage,” as part of the three-day symposium, Make it Work, that addressed current economic and employment challenges. The event was presented by Jobs for Life™, in collaboration with Live Well Wake, Wake County Board of Commissioners, Wake County Cooperative Extension and Wake County Social + Economic Vitality.

We sat down with Dr. Allen to learn more about the national context around living wages, the challenges they present, and how employers right here in the Triangle are tackling the issue.

Q&A with Steve Allen

Explain living wage and how it compares to minimum wage?

SA: Living wage is a concept that originated in Baltimore in 1994 when the city council passed an ordinance requiring all city contractors to get paid a living wage, which is more than the state or federal minimum wage. To date, nearly 120 communities around the nation have such a law, primarily in areas like the Boston-Washington corridor, the Great Lakes area and the West Coast. 

In North Carolina, the city of Durham has a living wage bill that was passed in 2004, covering all Durham municipal workers and city contractors. Durham’s living wage is $16 an hour – quite a bit more than the federal minimum wage of $7.25 an hour. The minimum wage, which applies to all workers in the private sector, as well as federal employees, hasn’t changed since 2009. So comparing that $7.25 minimum wage to $16 an hour, that’s a big jump.

How is the living wage calculated?

SA: The federal government annually publishes the bare bones, minimum amount of money a family of four can live on. Their research determined that $26,500 is the very minimum annual income needed and then converted that number to dollars per hour and came up with a figure around $13 or $14 an hour. Many individuals argue that the federal number is too low and should be in the $20s. It’s extremely hard to be scientific when it comes to determining a poverty line because everyone has differing views of what basic needs are. Cities that offer a living wage usually set them around $15, $16 or $17 an hour. 

When we talk about employees who earn minimum wage, who are we talking about?

SA: Generally, we’re looking at employees in retail, hospitality and personal services. Those are sectors of the economy where employers would gulp if they had to pay their employees $13 or 14 an hour. Of course, many of those employers are acutely aware of what’s being called the Great Resignation of 2021. We’re at all-time highs both for job vacancies listed by employers and workers quitting their jobs. 

Ultimately, employees aren’t buying what employers are selling these days. COVID changed things. Lots of jobs aren’t going to come back in certain sectors of the economy and it takes a while to sort things out. Many people have switched from in-person shopping to online ordering – so stores are depopulated. At the same time, warehouses and distribution centers are trying to navigate the new buying trends. And people’s views on appropriate wages vary. For a single parent, running a forklift in an Amazon warehouse for minimum wage probably isn’t cutting it. However, a teenager might be fine bagging groceries for $7.25 an hour.

So how do employers navigate the reality that not all employees are in the same position of needing a living wage versus a minimum wage?

SA: That’s the challenge. The living wage is calculated based on an individual being a breadwinner in a family of four – but that’s certainly not reflective of the entire working population. There are teenagers out there getting their first job and retirees who just want a part-time gig to pass the time. There are lots of jobs where you don’t need much skill to perform the task and a lot of workers who don’t bring a lot of skill to the workplace. That’s where you run into real challenges of trying to determine a one-size-fits all approach to wage regulation. 

How are you explaining these issues to your MBA students – many of whom will likely be employers themselves one day?

SA: The advantage of paying people more is that you can be more selective in who you hire, you can have higher expectations for performance and productivity, there’s generally lower turnover and you can invest more into your workers because they will be more likely to stay. There are several virtuous things that come along with offering higher pay. At the same time, though, employers need to make more money in order to offer employees higher wages. If productivity does not increase enough to offset the cost of a higher wage, research shows the impact will be on the customer. And how many customers are going to be happy paying more? It gets really emotional listening to people who are trying their best to make ends meet, but there are also challenges on the employer side – take the guy who runs the corner bodega who isn’t earning much more than his employees, for instance.

Is providing a living wage a universal issue or a domestic one?

SA: In my experience, this is a U.S. issue. Minimum wages in Europe, Japan and Australia, for example, are higher than those in the U.S. And on the other end of the spectrum, less wealthy countries don’t even have these discussions, as a large part of these economies are informal – they are cash only, taxes aren’t involved and no one is making much money. 

How are some employers getting creative in their operations in order to provide their employees a living wage?

SA: During the “Wages that Work” panel, we heard from the owner of a restaurant in Durham called Zweli’s. It’s not a high-end, white tablecloth restaurant – so as much as he’d like to pay all his employees $15 an hour, it simply isn’t feasible. He hopes that his wait staff, who earn tips, will average a wage that is closer to a living wage. For his workers in the kitchen who don’t earn tips, he’s increased the hourly pay closer to $13 an hour. He’s also implemented other perks to create a healthy, happy working environment. He offers his staff paid mental health days. He works to hire previously incarcerated individuals to get them back on their feet. He offers his employees a low-cost, preventative health care plan. All of these are his way of trying to treat his employees with respect, build community within the restaurant and create an environment people want to work in – even if he can’t offer a higher hourly wage. 

Are there any Triangle companies seeing success in making the jump to a living wage?

SA: Another panelist was Jennifer Wale with The Body Shop, which recently became B Corp certified. They increased their base pay from $10 or $11 an hour to $15 an hour, putting them in the living wage category. They found that they have saved money by being able to cut back on their use of staffing agencies, and they are also experiencing greater employee loyalty and productivity. It’s worked for them. I think we’ll see that the longer the “Great Resignation” persists, the more employers will have to drive up hourly wages. And while we’ve seen wages increase steadily over the last four to five years in the least skilled sectors of the economy, they still have a long way to go to get into living wage territory. 

If companies are forced to raise hourly wages – either by government mandate or out of desperation of needing to attract enough employees to continue operating – how can they do that without simply passing along the costs to customers?

SA: There are a lot of low-margin businesses and COVID has shown us that many can’t last forever. We lost a lot of businesses and a forced increase in hourly wages would likely make us lose more of them. However, at the same time, some employers would figure out a way to do it. Challenges often force employers into ingenious ways of coping. Take the restaurant industry, for example. The automation that the restaurant industry has seen would likely have happened anyway, but COVID forced the process to accelerate. Because of labor shortages, restaurants figured out they could make customers do more work on their end, like ordering and paying online, which saves employers time and labor. 

How else might businesses get creative if they started paying higher employee wages? There are many options for employers to continue operating profitably. In retail and services, one option would be to cut back on the number of hours they are open. A restaurant that was previously open for lunch and dinner seven days a week might cut their lunch service. A retail store might reduce store hours and only stay open for hours they are most profitable. But customers also need to expect that the service they have received in the past will likely degrade. We’re already seeing that to some extent, like at hotels. To receive new linens and housekeeping every day, customers need to request it. I wouldn’t be surprised if we start seeing more of an airline-pricing model for hotel amenities. I think the days of free continental breakfasts might soon be long gone. And then I think there are a handful of businesses that won’t be able to make the shift to paying employees a living wage while still being a part of the regulated, tax-paying economy. 

How does the Triangle compare to other areas around the country in providing living wages to employees?

SA: In some parts of the country with high costs of living, like New York, New Jersey and Connecticut, a $15 hourly wage doesn’t cut it for a family of four. But in areas like Montana or Idaho, $15 an hour sounds pretty appealing. We’re in the middle of those ranges. The average family of four in the Triangle needs more than the $26,500 national average, particularly because our housing costs have gone up.