Total Compensation is Key in Minimum Wage Debate | Don Brunell

One of the problems with the minimum wage debate is the name itself. If we want to ensure that we don’t hurt lower-income workers, we should consider total compensation, not just wages.

One of the problems with the minimum wage debate is the name itself.  If we want to ensure that we don’t hurt lower-income workers, we should consider total compensation, not just wages.

Case in point:  Bill H. earns $15 an hour as a parking lot attendant.  Lisa W. earns $12.25 an hour at a fast food restaurant.  But Lisa’s employer provides merit raises, paid vacations, health insurance, management training, education scholarships, childcare assistance and a 401k retirement plan.

Who is better off?  Would it help or hurt Lisa if she lost all her benefits, but gained $2.75 an hour in wages?  We need to consider that question as part of any debate about the minimum wage.

The truth is raising the minimum wage is not as clear or as simple as some would have us believe.

Let’s leave aside for a moment the fact that no city or state has ever attempted to raise its minimum wage by 60 percent.  Most experts agree that the more extreme and abrupt the increase, the more economic casualties it creates – lost jobs and lost opportunities.

But as any employer knows, there is much more to employee compensation than wages.   According to a March, 2014 report from the U.S. Bureau of Labor Statistics, private-sector employers pay an additional 30 percent on top of wages for employee benefits such as Social Security, Medicare, workers compensation insurance, unemployment insurance, paid leave, health care, retirement, etc.

For example, the BLS reports that, while the average service worker makes $12.17 an hour, their benefits bring their total compensation to $16.95 per hour.

Because Washington’s current minimum wage is the highest in the nation, employer costs – and employee benefits – are likely greater here.

Take Dick’s Drive-In, for example.

An iconic Seattle-area institution for 60 years, Dick’s Drive-in provides good wages and generous employee benefits. According to Jasmine Donovan, granddaughter of founder Dick Spady, employees start at $10.25 an hour, receive regular merit raises, health insurance, $22,000 in scholarships over four years, child-care assistance, bonuses, paid vacations, a 401(k) retirement plan with a 50 percent employer match, and paid volunteer time at local charities.

 

These benefits push the total compensation for employees of Dick’s Drive-In above the targeted $15 per hour minimum wage.

But if the company is forced to bump wages to $15 per hour, it will not be able to afford the employee benefits it currently provides.  Donovan cautions, “Employees who earn higher taxable wages, but lose valuable tax-free benefits may end up worse off.”

The same is true for the employees of Burgerville restaurants.  Founded in the 1960s, Burgerville operates 39 restaurants from Centralia, Washington to Albany, Oregon.

Like Dick’s Drive-In, Burgerville management is focused on helping their employees succeed.

Employees who work their way into management positions get free management training, medical and dental insurance, a 401k plan with a company match, paid vacation, child care assistance and tuition reimbursement.

These benefits have value – value that must be considered in any discussion about raising the minimum wage.

What else should that discussion include?

Jasmine Donovan suggests that the minimum wage should increase with education and skill levels. High-school dropouts who earn a GED would get a bump in their minimum wage; high school graduates earn a higher wage.  Technical or management degrees net an even higher wage.

These steps not only recognize the added value of education and skills, they provide incentives for people to achieve those goals in order to get higher pay.  The skills and education they gain as a result will help them succeed throughout their lives.

Isn’t that what we really want?

Don C. Brunell is a business analyst, writer and columnist.  He recently retired as president of the Association of Washington Business, the state’s oldest and largest business organization, and now lives in Vancouver. He can be contacted at theBrunells@msn.com.

 

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