A living wage is defined as the minimum income necessary for each working adult in a household to meet typical expenses for essential goods, such as food, housing, and healthcare. The federal minimum wage has fallen below what is considered to be a living wage in most of the nation causing the subject of living wages to become a hotly debated topic. Many business owners have been resistant to the idea of paying living wages because they see higher wages as an expense they can not afford. However, paying a living wage can benefit businesses in a variety of ways.
Increased Employee Retention
When employees are paid a living wage, they are more likely to feel like their work is valued. When employees feel like their work and their welfare are valued by their employers, they are less likely to leave. Additionally, higher wages mean that employees are less likely to receive a better offer from a competitor and leave for higher pay. Increasing employee retention can save businesses money. United for a Fair Economy estimates that it costs employers 150% of their employee’s base salary to recruit and train new employees. The added expense of paying a living wage is often less than the cost of replacing employees who leave because of low wages.
Employees who are struggling to make ends meet are generally not as productive as employees who are not. They may not be as focused on their jobs because their minds are occupied with worries about how they are going to make rent or keep food on the table. They may struggle with health concerns that they can not afford to have treated by a doctor, which can mean more missed days of work. Employees who have to work multiple jobs to make up for low wages may be coming in to work physically or mentally exhausted, which can lead to more mistakes and decreased production. They may also resort to stimulant use, which can negatively impact the quality of their work. On the positive side, when employees are paid more they tend to be more engaged and focused and do better work. Employees who are paid higher wages are more likely to show up for work, which means fewer missed days.
Happier Employees and Customers
Employees who are not financially struggling feel valued and supported by their employers and tend to be happier. Happier employees tend to be more productive and have better relationships with customers. They also tend to stay employed longer, which means they have the time to build long-term relationships with customers and vendors. All of these factors can add up to better service and happier customers. Customers like knowing that if they need assistance an employee they have had positive experiences with will still be there, which can increase customer retention.
One of the best ways to incentivize the best employees to choose a business over a competitor is to offer them higher wages. The advent of the Internet means that many businesses aren’t just competing against local rivals for employees and customers. Attracting highly productive and motivated employees can help set a business apart from its competitors in a tight marketplace.
Economic growth is fueled by consumer demand. When lower-wage workers are paid higher wages, they spend most of that extra money in their local communities. Additionally, living wages reduce the number of tax dollars needed for government spending on income-support programs and grow the tax base. This means that more of the tax dollars a business pays can go into infrastructure programs that may benefit that business.
Consumers tend to be more loyal to brands that they feel are good citizens. Paying employees a living wage can help build goodwill with current and potential customers. Financially secure employees are also more likely to be involved in charitable giving, which can further increase the positive reputation of a business.
Employees who have financial security can get married, purchase homes, start families and contribute in other ways to their communities. Stronger communities make for a better environment for businesses to grow. Hari Ravichandran, the founder of Endurance International Group Holdings, Inc., has referred to this phenomenon as the “virtuous cycle.” Paying employees a living wage in turn results in benefits to the business that can be passed on to the community, which is made of people who in turn become customers and employees of the business.
Because of the many ways paying a living wage can benefit businesses, businesses are encouraged to view higher wages not as a burdensome expense with no return, but as an investment that can help grow the business. Employees who are treated as valuable assets tend to return that investment with increased productivity, higher quality of work and less turnover.
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