Features, Strategy and Operations

Recalibrating Salaries: The Raises Americans Have Been Waiting For

Boost salaries and you boost the whole economy. Armed with more money for spending, consumers can increase purchases of homes, consumer goods, leisure activities and much more. Most Americans-working-class and middle-class Americans-have been waiting many years for pay raises that would lift incomes that have been stagnant for several decades (according to the Federal Reserve, the average annual wage growth was only 0.3 percent between January 1989 and January 2016).

News headlines boast of a booming economy, with the unemployment rate at 3.6 percent (May ’19), close to a 50-year low, and average hourly earnings up 3.1 percent from the prior year. We are told that any American who wants a job has the best chance of getting one in many years.

Now, we are seeing workers’ salaries begin to climb. But it isn’t the government that is stoking the fire: it is American businesses-and many of them are retailers. The currently mandated $7.50 an hour Federal minimum wage has not increased in 10 years. But around 40 city and state governments and a growing number of companies are taking the initiative of increasing the minimum wage to between $10 and $15 an hour, independent of the Federal government.

How badly do American workers need a raise? One need look no further than a few key economic statistics. The median rent payment for an apartment rose from $800 a month to $1,500 a month over the past seven years, according to the Zillow Group Consumer Housing Trends Report, and the median price for a home increased from $223,000 in January ’06, to $305,000 in January ’19, an increase of $82,000. The average cost of child care in the U.S. is currently $1,385 a month. The National Center for Education Statistics says that the average cost at four-year colleges in the United States comes to $26,120 per year, or $104,480 over four years. College loans are a $1.6 trillion shackle that many millennials say is delaying them from stepping into their adult lives (college loan debt is even higher than total credit card debt). Health care costs have sky-rocketed: a [non-Medicare] family spends an average of $8,200 per year, or 11 percent of its income on health care, not including employer contributions. Retail sales have struggled to keep pace, and it was recently announced that 7 million consumers are now behind on auto loan payments-an all-time record high. It is clear that lower-class and middle-class families are straining to keep up.

Retailers Lead Initiative for Minimum Wage Increases

in many cases, it is retailers who are spearheading salary increases. The retail industry employs close to 29 million employees and supports another 42 million jobs, or a total of 1 in 4 of all American jobs, according to the National Retail Federation (NRF). And while retailers have historically been known for low salaries, here are some retailers who have taken the lead: Amazon raised its minimum wage to $15 an hour last November and has committed to an increase to $16 in the future. The company employs 250,000 regular employees and 100,000 seasonal workers. Costco just raised its minimum wage to $15 an hour, the second increase in the past 12 months. Nordstrom’s minimum is now $14.96. Target has a minimum pegged at $13 an hour; and Walmart, Home Depot and CVS, each have a new minimum of $11 an hour. Walmart employs 1.5 million U.S. workers.

Retailers and other employers say that they are increasing salaries in order to be more competitive and to help retain workers. The employment market is dealing with a host of new challenges, including:

  1. A mismatch of skills, especially for companies who use proprietary technology or specialized IT system.
  2. Boomers exiting the workforce.
  3. Low salaries that are unattractive to many job seekers-especially recent graduates.
  4. High costs for childcare.
  5. The inability of many workers to pass a pre-employment drug test-attributed to the “opioid epidemic” and the increasing popularity of marijuana. (As marijuana is becoming legal in many states, some employers are beginning to drop marijuana testing. An interesting factoid: there are more stores selling marijuana in Colorado than there are Starbucks.)

It has also become more difficult to get a true picture of U.S. employment, as many workers have voluntarily dropped out of the workforce, and therefore are not counted as unemployed. And it is uncertain how millions of workers now in the huge “Gig” economy-Uber, Lyft, TaskRabbit, Takl, Care.com, and the like-who are dependent on shifting market demand to determine how many hours they are able to work, are counted.

For many employees in food service and hospitality, tips are playing a bigger role as well. As restaurant and hotel prices go up, tips, figured as a percentage of the bill, increase as well. In some establishments, the bill comes with suggested tipping amounts filled in, ranging from 15 percent to 25 percent or even higher. (Proprietors say it is about convenience, but some customers feel it is an effort to intimidate them into leaving bigger tips.) In the past, a 15 percent tip was considered de riguer for standard service, with 20 percent reserved for exceptional service, above-and-beyond the norm. Now, business owners and service staff alike, take the view that they are entitled to a minimum tip of 20 percent or higher, whether the venue is The Four Seasons, a local greasy spoon, or even a coffee shop-regardless of the quality of service. (At a local restaurant, I recently observed that our tip of $20 for dinner, multiplied by three table seatings for the evening, would result in a total intake of around $60 for the server’s three hours of work: a pay rate of $20 an hour, in some cases perhaps in addition to some type of base pay. It was also interesting to note that menu prices at this restaurant had increased by around 20 percent, compared to last year, and as menu prices go up, so do the tip and sales tax.)

Biggest Increases are at the High-End of the Pay Scale

Most wage increases have happened at the lower-end and the higher-end of the pay scale, with many salaries for jobs in the middle remaining stagnant. At the upper-end, for example, according to The Wall Street Journal, newly-hired lawyers for large firms saw their starting salaries increase to $190,000 in 2018, a jump from $160,000. In Silicon Valley and other tech enclaves, a starting salary of between $100,00 and $150,00 produces a yawn these days. Among a recent list of the top 20 most popular jobs for college graduates, across a range of professions (including many positions in tech and health care), only a couple of jobs paid less for a starting salary than $50,000 to $60,000, with some paying around $80,000. As recently as five to seven years ago, some of these same jobs started at $35,00 to $40,000.

A Wall Street Journal 2018 survey of S&P companies with the highest median employee pay, found that pharmaceutical companies were among those paying the highest, from $200,000 to $253,000. Facebook, leading the tech sector, was identified as having a median pay of $240,000, while Alphabet’s median was $197,000. Other sectors with high median salaries include energy, finance, health care, and industrials. Traditional business management (MBA) jobs and many social and creative jobs are losing out in the wage game. Between 2014 and 2018, the number of accredited full-time MBA programs in the U.S. shrank by 9 percent, due to waning demand.

According to recruiting firm Korn Ferry, the average starting salary for entry-level jobs for new college grads is $51,347, 20 percent higher than in 2009. A recent survey by cnbc.com revealed that most college grads say they “expect to earn $60,000 in their first job.” The majority of Boomers had to work and advance for more than half their careers to reach a wage of $50,000. And in the late ’80s and early ’90s, only 2 percent of all employed women in the country earned $60,000 or more. Of course, income is most relevant as it translates into buying power, and things were more affordable back then. But in terms of buying power, we are already seeing recent price increases biting into newly increased wages, and even higher prices related to tariffs on Chinese imports remain a threat. All of this has the potential to neutralize some of the financial gains workers have begun to make.

Time to Rethink Financial Benchmarks

But while we have seen significant increases in salaries for minimum-wage, rank-and-file workers; for recent college grads; and for employees in highly-specialized professions like technology, science, law, finance and health care; in most cases, we are not seeing income adjustments across the wage spectrum. Salary increases for certain employment categories, for example, teachers and first responders, and in some cases, middle managers and tenured employees, are lagging behind. For society to benefit equitably, adjustments need to extend across the income spectrum, including adjustments to Social Security.

It is time to take a serious look at poverty level wages ($12,490 for a single person and $21,330 for a family of three) and other governmental economic definitions, most of which have not significantly increased in decades, as well as considering a redefinition of social class by income: what constitutes lower class, middle class and upper class, today? And we need to examine the increasing costs of maintaining a middle-class living standard, newly-recalibrated salary levels, and why just looking at inflation (as it is defined by the government today) is not the best indicator to give an accurate picture of peoples’ financial needs or capabilities.

The Federal Reserve’s 2018 Survey of Household Economics and Decision-Making, released in June, found that the middle class is in a position of “financial fragility.” The accepted definition of middle class is generally households with between $40,000 and $85,000 in annual income. But for those households, with homes costing in the $300,000s, a college degree totaling more than $100,000, and annual expenditures for food and health care, each running around $8,000-it looks like today’s prices are leaving the middle class behind. Indeed, it would be difficult, if not impossible, for households with incomes of $40,000 to $85,000 to support such levels of expense. So how is the middle class getting by? Credit, is more than likely the only thing that is making middle-class lifestyles possible for millions of consumers today.

Housing affordability, in particular, has become a key issue. A new survey by Freddie Mac found that only 24 percent of those currently renting said that it was “extremely likely” that they would ever own a home, a decrease of 11 percent, compared to four years ago. And as to those unfilled millions of new jobs, for people unqualified or uninterested in becoming a techie, the employment arena may be quite limited, filled with low paying jobs that lack opportunities for advancement-hospitality, food service, health care support, retail sales or logistics/warehouse and distribution centers, delivery services, marketing call centers, maintenance, and the like. Amazon hires hundreds of thousands of employees each year, many of them seasonally, with most of these hires spending their days packing and unpacking cardboard boxes, in giant anonymous warehouses-hardly the career path most Americans dream of.

A $100,000 income, for many middle-class families, has shrunk from affluent or near-wealthy status to just “getting by.” It may not be long before a household income of $100,000 is required to be solidly in the middle of the middle class.

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