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Wage Increases: Is Everyone Benefiting?


If your organization is struggling to recruit and retain employees, there may be some key people slipping through the cracks. This blog is going to help you understand who to pay attention to, and what they need. Read on if you want to build a stronger workforce.

With wages rising sharply over the last year, it would be easy to think that everyone would be better off, but things aren’t necessarily as rosy for one section of our population: ALICE workers (Asset-Limited, Income-Constrained, Employed). ALICE doesn’t make enough to cover their life expenses and usually relies on support from various state and federal programs to provide for their families. Inflation hits ALICE particularly hard and combined with the potential of falling off various benefit cliffs, losing access to government benefits, they are particularly at risk.

This matters greatly to employers because if ALICE is not paid a living wage and provided affordable health insurance, these workers may opt to leave the workforce altogether. Many of them already have. The challenge for employers is understanding what ALICE is going through, and what they need to do to bring them back.


Who Has Benefited From Wage Increases?

Some people have benefited from wage inflation. For younger, single employees, particularly those still living at home, the pay increases have certainly had a positive impact. Not worried about living costs, covered under their parents health insurance, these employees may be in a far better position than pre-pandemic.  They are the individuals who have had the time to train up, switch careers, and take advantage of the opportunities provided to them. 


The Downside

ALICE, typically a parent or someone who provides for others, are faced with a different challenge. While wages have increased nearly six percent in the last year, “real earnings,” which take into account the cost of living, have decreased nearly two percent. Given that much of the increase in inflation is due to housing costs (including rent) and transportation costs (new and used vehicles, as well as gas prices), ALICE has been hit particularly hard.

The “living wage” for a single parent with one child nationwide ranges from $25 to $40/hour depending on the state. Adjusted for hours worked, the average hourly rate for production and nonsupervisory workers in February 2022 is just under $23. This means that a significant part of the population does not earn enough to care for anyone other than themselves.  

The Federal and state “safety net” programs are designed to make up the difference between what employees are paid and what they need to live. These programs, however, are indexed to employee earnings, and typically do not “phase out”, but simply cease when earnings reach a certain level. This is commonly referred to as a “benefits cliff”.  If an employee who received a $1/hour increase in pay, about $175, but then lost a $350 benefit payment, the raise may not be desirable at all.  It is why for many years, employees have turned down an increase, or a promotion that would pay more, but not enough to overcome the loss of government benefits.  

Benefit thresholds can be, but are not always, indexed to inflation or average earnings. As a result, increasing wages may disqualify employees for benefits, at the same time they need them the most. Although a pay raise may seem like the best solution for all, there is a bigger picture. ALICE is not enjoying the same benefits as some when it comes to wage inflation. With the loss of some of their “safety net” benefits, they end up right where they started, or perhaps even farther behind.


What should employers do with this information?

Employers need to think strategically about recruiting and retention.  They need to understand their current (and potential) employees’ needs and pain points in order to make them more attractive as employers.  They need to really grasp issues like benefit cliffs (the point at which people are kicked off government help) and how those cliffs may block their ability to attract and retain people near the bottom of the pay scale. 

Strategic thinking means looking at the total picture as it applies to employees.  For example, it may be better for your employees if you cover more of the health insurance premium, than if you raise your minimum wage by one dollar per hour. You must take an honest look at your specific workforce, the financial challenges they deal with, and then build your pay and health insurance structures to meet their needs.

That is, if you want to attract and retain a strong workforce.