Thursday, February 4, 2016

Raise wages? Are you nuts?!?!

Driving into work the other day, I was amused to listen to a story on Marketplace (the public radio business show) where the reporter was marveling at the 3% unemployment rate in Iowa.* I was also amused to hear the "s-word" about the difficulty in finding workers in The Hawkeye State:
...Swenson said a worker shortage is part of the problem. It’s hard to get people to move to Iowa or keep skilled workers from heading to states with higher wage opportunities. The shortage of workers makes attracting new businesses tougher, too. 
Swenson said one would expect employers to start bidding up pay to compete more aggressively. He said average earnings are about 80 percent of the national average, and many rural Iowans work more than one job. 
But Wells Fargo economist Michael Swanson said there are risks to recruiting with higher pay.  
“If I start raising rates to attract new employees, I have to raise wages for everyone in my organization,” he said.
First, I should say this is one of those things that we who criticize employers for low wages don't often take into account - it's not just the latest worker's pay, it's also everyone else's pay that needs to be calibrated to the new higher amount. That said, I don't think anyone has to worry that managers are losing sleep over how to make their new higher payroll:
Kemin Industries, an agricultural and biotech company based in Des Moines, isn’t raising wages much to deal with its worker shortage. Instead, Amanda Formaro, an HR director, said the company has stepped up recruiting and is looking at ways to help low-skilled workers get training.
Well, it's a good thing they've found a solution. Heaven forfend they'd have to raise rates significantly.

*Truly, that is a remarkably low rate for U3 unemployment. Hard to say what the broader U6 measurement might be.


  1. This country really rolls on cheap labor. And the attitude is: its up to you to make sure you are not exploited, and the government's job is not to protect you from this.

  2. “If I start raising rates to attract new employees, I have to raise wages for everyone in my organization”

    Not true. There's a reason why discussing your salary with your co-workers is taboo.

    1. Heh, that's true, but once the word gets out, there will be a minor rebellion, no?

    2. There won't be. Who are you going to complain to? At the very least complaints will fall on death ears, but it could be if you complain to the wrong person you will be fired and replaced.

    3. There's a good deal of disparity between the salaries of those who were hired during good and bad economic times - starting salaries are responsive to market conditions, and a person usually gets small annual percentage raises from that starting point.

      I'm surprised that companies aren't willing to pay a premium to recruit candidates to places like Iowa. It isn't just the lack of Starbucks, Target, etc - you'll almost certainly have to move again if things go sour at work, and your spouse could be waiting tables with a PhD.

    4. Duh, everyone knows this is how things work:

      1) During good times, you need to raise hiring wages to attract people. Tell those people to not discuss their salary with colleagues.

      2) Eventually (through talking or through other routes) other employees will learn about how poorly their salary compares to current market rates.

      3) The other employees will ask for equivalent salaries, not get them, and then threaten to jump ship to another company to find a better salary. Sometimes they will get the raise, and sometimes they will go to the new job, so that all their institutional knowledge is lost.

      4) The moral everyone learns is that you are rewarded for disloyalty.

      I guess in the end it's still the most economical choice for the employer, because a good chunk of employees won't know how or care to bring their salaries up to par using the above method.

  3. Presumably living in Iowa is one of those things that people really like (it always looks like a nice state from 40,000'....) and are willing to accept a low wage to stay in. This gives employers just enough pricing power that they're indifferent if they get employee X or employee Y (i'd think costs associated with employee transition would be bad, but WTFDIK: apparently not bad enough to prompt higher wages). One of the things that struck me from the NPR piece was it implied many people in IA have multiple jobs. Perhaps some sort of economic Brownian motion where recycling workers is efficient? I assume purchasing power parity comes into play also: unsure where IA ranks compared to the la-dee-da states (like Arkansas and Idaho....).

  4. I am from Iowa and actually wouldn't mind moving back to Iowa, but every time I apply for a job I really want I never hear anything but or get the typical rejection. I am not sure how much I believe the statement that people do not want to live in Iowa. I have applied to Kemen (Kemin is in Des Moines with some good bbq around there), but maybe I have too much education since I have a PhD, and Kemin is trying to train up low wage workers into PhD scientist positions.

    1. correction in line 1, but=back