In industries that must hire hourly workers, many of them high volume, recruiters are working to compete with companies that are raising minimum hourly wages to fill open positions. While a blue collar recovery seems inevitable for grocery, food service, health services, delivery services, warehouse, logistics and retail, some larger companies aren’t waiting around for Congress to set a federal minimum.
The median wage in healthcare support and service (non-certified, non-supervisory) jobs was $24.48 an hour in 2019. The median hourly rate for warehouse workers was $18 an hour in 2019. While the actual minimum wage varies by state, it is set federally at $7.25 an hour; the median wage for these industries was higher due to the demand for talent, particularly in healthcare service roles. When 2020 rolled in, so did higher hourly wages, with many companies offering “pandemic pay” or “hazard pay” for healthcare and other essential workers. The average hourly rate for healthcare support and services in 2020 was $26.28 and for warehouse workers, $21.26 (Source: BLS).
Taking the unemployment rate into account, these increases are significant. But are they sustainable?
How the Competition for Talent Plays Out
While many of the hourly increases were originally temporary to meet demand for essential workers, larger companies that collectively employ hundreds of thousands of hourly employees have made the increases permanent. Demand for candidates in industries that employ blue collar workers is increasing, and many companies have changed their outlook on the value of essential workers, who took on additional risks to their personal health and safety during the COVID-19 pandemic.
While Walmart’s minimum starting wage will remain $11 an hour, starting March 13 of this year, the company said it will pay store workers who stock shelves or support its e-commerce business $13 to $19 an hour, depending on their role and store location. Retailers including Target, Best Buy and Amazon have raised their starting wages to $15 an hour. Costco raised its minimum wage to $16 an hour starting in February.
Not All Large Companies Are Increasing Employee Hourly Wages
The COVID-19 pandemic has generated record profits for America’s biggest companies, as well as immense wealth for their founders and largest shareholders, but workers have not benefited. A Brookings report published in November of 2020 shows that while many of America’s top retail and grocery companies that raked in billions during the pandemic shared little of that windfall with their frontline workers, who risk their lives each day for wages that are often so low they can’t support a family.
According to the report:
“With few exceptions, we find that companies have offered only modest or negligible extra compensation to workers while earning windfall profits. Three companies – Best Buy, Target, and Home Depot – bucked this trend and provided more generous compensation to workers during the pandemic both in absolute generosity as well as relative generosity compared to their financial performance. These three companies provided the most COVID-19 compensation to workers through temporary pay increases, bonuses, and permanent wage increases. Together, their frontline workers earned an average of $2.53 extra per hour since March, compared to just $0.21 per hour at CVS Health and $0.83 per hour at Albertsons. All three companies earned double-digit profit growth compared to last year, but at more modest levels than the runaway profits some competitors who were less generous to their workers earned.”
This is a nice way of saying that while companies like Amazon and Walmart did increase employee wages, the cost to the companies compared to what their earnings looked like in 2020 was a drop in their collective buckets.
Calculating Cost of Vacancy (COV)
Demand for talent means that HR and recruiting leaders must balance the cost of higher pay against the cost of lost sales due to vacant positions. While it varies by industry, cost of vacancy (COV) can be estimated taking the company’s revenue per employee (which is the company’s total revenue divided by the number of employees) divided by the number of working days in a year (220). This gives you the average revenue produced by an employee on a daily basis. Note that it’s difficult to accurately measure the negative impact a vacancy will have on productivity, employee engagement and team morale, and even harder to tie monetary values to these metrics.
However your business decides to move forward with how you compensate hourly workers, you must start by evaluating your hiring and recruiting metrics in order to understand trends. This includes your true cost of vacancy and how keeping the position open or filled impacts your store’s sales and customer support.