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Amazon's giving raises. What about you?

Crain's Chicago Business

Tuesday, July 20, 2021  |  Article  |  H. Lee Murphy

Business (10) , Minimum Wage (10)

The pay push by giant companies now has smaller firms looking hard at their options, an employment lawyer tells Crain's Private Intelligence. Here are the issues at play.With inflation surging and workers in short supply, do employers around Illinois still care about the minimum wage?

While the federal minimum age has been set at $7.25 an hour since 2009, government agencies and some big corporations have sent their own pay scales soaring. The Chicago minimum jumped to $15 on July 1 and the Illinois minimum, pegged at $9.25 per hour at the start of last year, is slated to rise to $15 inside 2 ½ years. Amazon raised its minimum to $15 some three years ago. Best Buy went to $15 in the middle of the pandemic last year, when ice cream maker Ben & Jerry's shot past $18. Costco is at $16 and Facebook is as high as $20 at its facilities in San Francisco. Meantime, U.S. inflation reached 5.4 percent in June.

Even as pay is on the rise, plenty of smaller companies still care about keeping the lid on minimum wage, says Andrew S. Goldberg, managing partner of the Chicago law firm Laner Muchin, who regularly consults with corporations on pay issues. Goldberg, 51, is a Northbrook native who recalls his youth spent working jobs paying not much more than $2 an hour while he was studying on his way to a law degree at UCLA. Excerpts from a recent conversation follow.Goldberg: I'm not confident any increase is coming. With midterm elections coming in a year, I don't think raising the minimum wage is going to be something that Republicans will want to do. Democratic progressive will want it, but moderates are likely to stay silent on the matter as they face re-election themselves. The fight for $15 has now been won in many places, but keep in mind that in other places, it's still at the $7.25 level. The federal structure has been behind on this issue through much of our history.

When your clients come to you for help on setting wage levels, what kinds of questions are being asked?

We'll ask about where a company's facilities are located and what the labor market is like around those places. What are the skill sets? What is the local unemployment rate? Are there wage surveys available to show what the market rate is for certain kinds of jobs? Then a company has to ask itself where it wants to be positioned: Do I want to be in the top third in pay, or do I want to be a very low-wage company while offering top-notch benefits? We ask about bonuses and how individual workers advance on the job and where they can expect to top out.

The fact is, when an employer pushes up the minimum wage to a higher level, there is a ripple effect on wages paid throughout the workforce, right?

If pressures are pushing up minimum wages, then others in the organization are going to say, "What about me?" It's hard to face your workers and tell them that your whole wage scale isn't going to be moving up. If you do, many people will find a reason not to stay.

The biggest companies, like Amazon, seemed to have led the way in pushing up minimum wages. Are smaller employers at a disadvantage?

The bigger your profit and the more cash you have on hand, the better-positioned you are to respond to pressure to raise wages. Amazon, in fact, has had a huge impact on the nation's wage rates wherever it has facilities.

Smaller companies often have to look hard at their options. Maybe they can restructure their operations, move offshore or automate their production in new places. The final solution is often just to count on passing any increase in labor costs along to customers.

For a time, the target for workers at the bottom was to get to $15. Now that many have gotten there, will the increases continue? Inflation is running hot at the moment, and it's not clear that employees will be satisfied with $15 for long.

If inflation continues at the current pace, there will be a hue and cry for more wage distribution. Critics are continuing to look at the disparity between what CEOs earn and their workers at the bottom. Even so, we hope that inflation will level off in a bit. At some point the Amazons of this world are going to stop, figuring that, say, $17 is about the right wage for warehouse workers, and from then on we'll see some stability in the marketplace. 

Going forward, many minimum wage rates will increasingly be tied to the consumer price index, measuring the minimum wage against the cost of living each year. Years ago, many collective bargaining agreements called for wages to be tied to the CPI. But they are virtually all gone now. Increasingly, employers want to lock in their labor costs well in advance, often willing to grant 2 percent or 3 percent increases each year rather than get tied to inflation numbers that can be unpredictable. 

As companies struggle to find workers, it seems that labor has more leverage than it's had in a long time in setting pay rates.

Yes, the tables have been turning and workers have the upper hand to some extent. Yet this process is cyclical. There will probably be an automation shakedown at many companies, and there will be a shift in the kinds of jobs that will be available. In the end, workers always want as high a floor for wages as they can get. That's understandable.