Ever since Barack’s State of the Union speech, states have been moving on proposals to raise their minimum wage from $7.25 to around $9 an hour. At the moment Barack called for it, 19 states already had minimum wage standards above $7.25. But now, that number is skyrocketing.
New York is talking about going to $9 by 2015. Michigan and Illinois are both talking $10. Alaska’s considering $9.75 by 2016. Cities like San Francisco, Santa Fe, and San Jose have already risen (to $10.55, $10.51, and $10, respectively). And right now our home base of Minnesota is considering upping to as much as $9.50 by 2015.*
Reportedly the majority of Americans back the idea of raising minimum wage, but how do staffers feel about it? The more I read these stories, the more I wonder how minimum wage increases impact the staffing world.** Does this mean happier candidates? Does it mean higher bill rates, and therefore unhappy clients? What will it do to workforce demand and placement numbers?
Despite the fact that his business is placing skilled trade workers, and therefore isn’t remotely close to minimum wage levels, MetalSkills’ VPO Paul Connerty says they’ll likely feel a trickle-up effect from this. “As the baseline wage increases for non-skilled workers, the impact would eventually be felt upward across most of the wage spectrum. To pay for the increased cost of labor, businesses increase price or reduce cost (i.e. cut jobs or hours). That has a definite effect on the staffing industry.”
Connerty added that the impact of minimum wage increases will vary based on location.
“Regional economic factors are not a consideration in the national policy decision because the minimum wage, once set, applies to every state. So in regions where the economy is stagnant or slower to recover, employers are not likely to add workers. In those areas the more likely effect will be job cuts or reduced hours.”
Bob Pugliano, a seasoned staffing owner who works with TempWorks as a senior advisor, said that though very few staffing companies charge rates near minimum wage, they still should be aware of this trend. As minimum wage increases, you might be forced to eat some costs because of the long-term agreements you have with your placed candidates.
Here’s an example. You’ve contracted with your candidate and clients to pay a worker, say, $9 per hour for six months. Meanwhile the state in which they’re employed is considering upping their minimum wage from $7.25. If they increase it by 50 cents or a dollar, no big deal. But let’s say they jump to $10. You’re now legally obliged to pay them that.
“If somebody’s contracted for long-term, and minimum wage goes up, that’ll be the biggest impact,” Bob said. “The staffing company might have to eat that. So I’d just say companies that do those kinds of placements need to be aware of long-term contracts and how much higher they’re going to have to adjust the bill rates. … So maybe something to consider would be including a clause in your agreements that would make the client absorb the increase instead of you.”
* In related news, Bangladesh may double their minimum wage for garment workers (from 25 cents an hour to 50).
** Also, the more I read them the more I think back to my first job. In 1996 I started as a restaurant busboy at $4.75 an hour (the minimum wage at that time). So if you compare that to $9.50 in 2015, that’s double in less than 20 years. #gettingold