Employers these days are faced with difficult decisions. To attract workers, they may need to increase the minimum pay rate they offer. In other cases, state laws are hiking the minimum wage. For employers, this typically means taking a hit to cash flow and profitability.
To compensate, many employers are reducing hours for workers or adjusting the way they schedule to keep workers below the threshold where the pay benefits. For employers, this reduces the overall compensation cost.
Employees may have a higher hourly rate, but work fewer hours or losing benefits. In either case, they’re earning less.
Researchers examined more than 5,000 employees at 45 locations for a national retail chain and compared what happened to employees in a state that had several increases in the minimum wage versus states with no increase.
The study, published in the Harvard Business Review, revealed interesting trends. Analysis showed that increasing the minimum wage made no significant difference in the total hours worked, but revealed a difference in how hours were allocated among workers.
“For every $1 increase in the minimum wage, we found that the total number of workers scheduled to work each week increased by 27.7%, while the average number of hours each worker worked per week decreas by 20.8%,” study authors Qiuping Yu, Shawn Mankad, and Masha Shunko stated in the Harvard Business Review.
For example, the average store monitored in California, which saw several hikes in the minimum wage during the survey period, employed four more workers per week. At the same time, each worker received five fewer hours. Even with the higher minimum wage, employees on average saw pay decrease by nearly 14%.
Workers also lost eligibility to benefits in some cases. For every $1 increase in the minimum wage, researchers saw the number of employees eligible for retirement benefits decrease by 23% and those eligible for health care benefits decrease by nearly 15%.
The Bottom Line for Employees
The overall impact on employees showed a grim picture. Based on these factors, for every $1 increase in the minimum wage, employees lost $1,590 per year. That’s equivalent to an 11.6% decrease in total compensation.
The Bottom Line for Employers
Using these scheduling tactics, employers were able to mitigate a portion of the wage increase.
“Our estimates suggest that the average store in our California data set recouped approximately 27.5% of the increase in its wage costs through savings associated with reducing benefits,” the researchers added.
Fair Workweek Laws
Cities and states have enacted fair workweek laws to address employer scheduling. New York, San Jose, Seattle, San Francisco, and Emeryville, California, along with the State of Oregon, require employers to provide opportunities for part-time employees to increase hours before adding new staff.
The San Francisco law requires employers to provide workers with an estimate of weekly hours before hiring, a two-week notice period for schedule changes, and additional compensation for schedule changes with less than a week’s notice.