2016 Resolution #4 – Reconsider Your Minimum Wage

Posted January 18, 2016

Resolution #4 – Reconsider your organization’s “minimum wage” in light of all of the costs associated with being cheap

The December 14, 2015 issue of Crain’s Detroit Business featured a series of insightful articles on the problem of Alices written by Lindsay VanHulle. No, not employees named Alice, but ALICE, an acronym for “asset-limited, income-constrained, but employed” popularized by the United Way. ALICEs populate many entry-level, minimally-skilled jobs, but also include a large number of potentially valuable employees. The problem, of course, is that ALICEs have a lot to think about that is not directly related to work, and those thoughts just don’t go away between 9 and 5.

My first really serious consideration of ALICEs came long before the term was coined. I had gone to visit a non-profit health center, and went into the employee break room to get some water. Sitting at a table were two young women who I would find out later were Licensed Practical Nurses (LPN). They were talking about their efforts to get into some of the many programs available for those living in poverty their state – food stamps, housing assistance, etc. You could tell that this sort of conversation went on there a lot, and probably not just in the break room. Later on I found out that these two nurses were earning about $9.75/hour (and the prevailing market rate at the time was about $17/hour), and had no benefits because they worked less than 32 hours a week. Turns out that most of the employees of this organization were part-time, primarily to avoid providing benefits, and that the organization intentionally paid as little as possible, feeling that was it’s obligation as a “non-profit.”

Stepping beyond just feeling some sort of moral outrage at this situation, why should businesses care about their ALICEs? It should be obvious:

ALICE is a prime target for turnover. $.50 an hour is a huge difference in an ALICE’s life, and even if they love their job, they’ll have to jump on opportunities for higher income. Turnover is always problematic, particularly in service settings where customers of all types want continuity, and staff members want to know they can rely on their colleagues. Turnover is expensive, and most employers also find there is a shortage of skills needed to take even entry-level jobs, making turnover a logistic, as well as expensive, concern.
ALICE is not going to be as reliable as a more well-off employee, no matter how much they desire to be dedicated. Income-constrained workers need to stretch what little they have, which means they may only be able to afford less-reliable child care options, put off repairs to their vehicles, suffer from poor-diet related problems and not be able to take that visit to the doctor that could prevent an extended illness.
ALICE is not going to be engaged at work. An ALICE has too much on their mind. Whether it’s worrying about any of the problems caused by asset-stretching, thinking about how to find a job that pays more, or worrying about how to afford groceries after work on Friday night, most of ALICE’s concerns are not related to how to best help their employer achieve the mission. The organization may not be actively creating ALICE’s disengagement, but they are doing nothing to counteract it, and thus perpetuate a problem.

To become financially stable, the United Way reports, a single ALICE employee in Michigan would need to earn an annual income of $24,230, or $12.22 hour, while a family of four would need both parents to earn at least $25.17/hour. It is not the obligation of an employer to ensure that all of their employees are financially stable. However, it is essential for employers to know that those employees who are not financially stable are not necessarily going to be performing at the level their jobs were designed for. Of course, employers may certainly account for that when they are designing their jobs, but is it the optimal approach?

So why don’t employers turn the ALICE problem into an advantage? It would seem obvious that an employer could turn a disengaged ALICE into a person who was grateful for the opportunities presented by an employer who changed the acronym to simply “someone who is making a living”? ALICE earnings aren’t particularly high, certainly not for jobs that are expected to be held for a long time. Hiring at a rate closer to what the employer will eventually pay could remove the risks associated with pay related turnover. Rather than being disengaged, these individuals could end up as some of the most engaged.

Is it too expensive? Of course not. Add in the costs of turnover to the lost productivity to the waste of wages spent by having other employees cover for absent employees, the costs of temporary help and continuous training, and even the fact that a smaller number of better-trained and more reliable staff could do a better job than a larger number of marginal staff, and even from a financial perspective it makes sense.

This is not an argument for raising the country’s minimum wage. Increasing wages nationally for everyone, whether they are providing essential services to your organization or flipping burgers at the local fast food joint, does not create a more reliable workforce. But for each individual organization, finding a higher “minimum wage” at which the organization’s productivity and efficiency improves, where more employees are engaged and can focus their efforts on work, has got to be a compelling priority.

Wouldn’t it be great if every organization could say: ALICE doesn’t live here any more.