Seeing link between wages and workers, more businesses raise the former to address the latter

As businesses emerge from COVID-19 lockdowns, many are facing the challenge of too few workers to accommodate strong demand. And while the labor shortage isn’t new, it’s definitely a sore spot for many that’s growing more acute.

And amid a booming jobs market, some economists say the shortage isn’t labor related, but rather wage-driven — an economic third rail that companies big and small have increasingly grabbed in order to address widespread labor shortages. 

Yet the strategy of raising pay, which can be risky given the higher costs that may get passed down to consumers, is especially perilous for small businesses that often lack pricing power.

According to data from worker advocacy nonprofit One Fair Wage, 57% of service workers are not returning to restaurant jobs in states that have prematurely ended federally funded unemployment insurance benefits. Around half of U.S. states have made this move, or soon will, as a way to spur workers to fill record-high openings.

Yet the fear of contracting COVID-19 remains a major factor, about 54 percent of workers are leaving the sector for that concern, according to One Fair Wage’s study.

“The data is showing that in fact, they don’t want to come back because they’re saying the tips are unreliable, the health risks are too high and most of all, [they] don’t want to work for sub-minimum wage anymore,” Saru Jayaraman, president of One Fair Wage said.

The list of companies paying more grows longer

U.S. Rep. Jamaal Bowman speaks on the steps of the RWDSU Mid-South headquarters before a tour of a congressional delegation to a nearby Amazon plant to show their support for workers who will vote on whether to unionize, in Birmingham, Alabama, U.S. March 5, 2021. REUTERS/Dustin Chambers

To be certain, there is a link between joblessness and pandemic-era unemployment assistance. U.S. Bureau of Labor Statistics data for April shows that 25 states planning to cancel benefits early have recovered about 80% of the jobs lost during the crisis, compared to a 66% recovery rate for the rest of the country.

However, about 2.4 million more people in states that have stopped the insurance benefits early are unemployed, or no longer looking for work, hinting at a slower hiring cycle for the future.

Meanwhile, the labor shortage has reached “crisis” levels — especially in the services sector, where independent businesses and restaurants — slammed by COVID-related lockdowns — continue to struggle finding workers, even with the underlying recovery.

There’s no question that some industries are facing challenges filling open positions as the economy slowly reopens. But in the restaurant industry, there are other constraints at play keeping workers from reentering the labor market.

Owners have blamed the shortage on a variety of factors, even as they challenge the idea that workers prefer to stay on unemployment insurance rather than return to work.

Increasingly, observers and worker advocates point to low wages as being to blame for the labor pressures restaurants are facing. In response, a growing number of food and consumer giants like Chipotle (CMG), Walmart (WMT), Amazon (AMZN) and McDonald’s (MCD) have announced that they are raising wages in a bid to attract workers.

The dishwasher needs to be just as valuable as the person hosting at the front door as the server.Ryan Lowe, restaurant owner

The fight for higher restaurant wages has been exacerbated by the pandemic. Workers have long called for a raise in the federal minimum wage to at least $15 per hour, up from the current $7.25 per hour approved by Congress in 2007.

For many workers trying to get by, that is a problem.

During a virtual roundtable discussion Tuesday with restaurant owners and industry experts, Ryan Lowe — owner of Ore House in Durango, Colorado — said that his restaurant has responded to the changing landscape by hiking wages.

“We brought our sub-minimum wage up to the full minimum wage that Colorado requires,” said Lowe. He also added a “whole team tip pool,” where all of his workers made the same compensation.

“The dishwasher needs to be just as valuable as the person hosting at the front door as the server,” he added.

Lowe noted that by changing the wages, they were seeing workers make an average of $30 an hour by splitting tips equally.

Organizations like One Fair Wage and RAISE: High Roads Kitchen offer how-to-guide and tools to guide restaurants through boosting pay for workers, including how to hike menu prices to offset the cost.

Opponents of minimum wage hikes say the costs are ultimately passed along to the average consumer. Lowe, however, insisted it could work for everyone.

“The ability to raise wages for everyone on our collective team, it does work, it’s different, but it does work,” Lowe added.