The recent turmoil in the entry-level wage market has left a lot of restaurant managers poring over financial spreadsheets and puzzling over what their business strategy should be.
In the face of efforts to get federal, state, and local laws changed or enacted that would raise minimum wage levels, businesses with substantial numbers of entry-level workers have been forced to examine their business models to see if they will work in a higher wage environment.
Businesses which cannot support a higher wage bill face some unpleasant options — including cutting back on staff or operating hours, moving or completely shutting down.
Franchise-based businesses in Seattle have a particularly acute problem because many of them have been targeted to be treated as large businesses irrespective of the number of employees.
Under the new rules if the franchisor is large the franchisee in Seattle is considered to be large, too, even though it may only have a small number of workers.
A prominent, Nobel Prize-winning economist is trying to convince us that, “low wages are a political choice” rather than an economic one, but while that may be true for politicians, the real world of business doesn’t work that way.
Anyone who has ever spent hours poring over a payroll report, sifting through performance reviews and pay raise possibilities, or setting a pay level for the latest job opening knows that it is economics, not politics, driving the decisions.
At its fundamental level it works this way: if you set the wage level too high you go out of business; if you set it too low you end up doing the dishes yourself at 2:30 in the morning.
There are several factors that enter into the decision process at all wage levels:
Turnover rate. All businesses will experience some turnover, but it is an especially important issue in those dependent on an entry-level workforce. We tend to think of fast-food operation as symbolizing that type of business but a lot of retail and other businesses have very similar workforce characteristics. The typical profile elements are entry-level wages, a short training cycle and minimum initial job skills required beyond showing up on time.
The makeup of the actual and potential entry-level workforce varies a lot with demographic changes, including domestic birthrates as well as immigration volume and patterns.
It also tends to change with major economic swings. An entry-level wage job opening might attract college graduates during a recession, for example, but in better times candidates with higher education tend to find jobs elsewhere in the economy.
Management and supervisory workload. At times the applicant pool for entry-level jobs is characterized by poor work habits — attendance especially as well as inadequate communication skills and underwhelming ambition or other forms of motivation. These workers if hired create additional demands for both time and effort by management and supervisory staff — sometimes to the point of creating a turnover problem in those positions.
Management competence. Turnover problems may say more about management than about the workers. The CEO of a nationwide chain of mid-range restaurants once told me that the key indicator of a manager’s capability was the turnover rate. Many managers, especially inexperienced ones, believe that they can buy their way out of a turnover problem with higher wages. It will generally work only if your wage scale is considerably lower than the competitive market level and you correct that, or in situations where your market allows you a higher wage cost and you pay “above market” or “golden handcuff” wages to get and keep top workers.
Turnover often depends on motivational factors, management issues, and the underlying reasons why the workers signed on with your business in the first place. If a displaced computer technology specialist takes an entry-level job packing shipping boxes, for example, he or she is going to quit when an opening in the computer industry arises. A 50-cents hourly raise and a red hat aren’t going to lure that person into staying.
The best management practices to control your wage cost involve staying in touch with your own workers, understanding them, supplying motivation when it is missing, and keeping track of where they come from, why they leave, and where they go after working for you.
If the government raises your labor costs, you can and must use good management to understand and get the most out of the workforce you have and the workforce you need.
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