THE $15 MINIMUM WAGE: A NAIL IN THE COFFIN OF CUSTOMER SERVICE

15dollarsA PROGRAM TO HELP THE POOR?

In yet another harebrained government scheme designed to redistribute wealth, rather than allowing markets to create it, the $15 minimum wage – more than twice the current level of $7.25 an hour – bandwagon is gathering momentum. Cities, counties, and states from New York to California have passed legislation or taken action through executive orders to begin to phase in the new minimum wage. The upshot of this madness is clear: a huge escalating spiral of labor cost for business and a further death knell for customer service.

The motivation behind the push for a $15 minimum wage is all political demagoguery. It is a facile way to curry favor with voters who would much rather have the government do their bidding. The shrill of politicians that a worker cannot raise a family on the current minimum wage ignores a central fact: only about 6% of minimum wage workers over the age of 24 are single parents working full time. As to the claim that the proposed increase in the minimum wage will help reduce poverty is similarly bogus: the average family income of a minimum wage earner is in excess of $53,000 per year. Most of those earning a minimum wage are low-skilled workers starting out in their first jobs. Roughly 50% of workers at or below the federal minimum-wage level of $7.25 are below the age of 24 and approximately 67% are employed in part-time occupations. These workers are hardly their family’s sole breadwinner.

The political plaint also exaggerates the scale of the problem. According to the Bureau of Labor Statistics, approximately 1.5 million workers earned the federal minimum wage. Another roughly 1.7 million workers were paid below the federal minimum. Left unreported from the above numbers is the fact that many workers paid at or below the federal minimum also earn overtime pay, tips, or commissions. In any event, the two groups of workers amount to about 3.9% of all hourly paid workers in the United States and can hardly be said to figure prominently among the economic priorities of the country.

If the drive for a $15 minimum wage makes for good political theatre the economics behind the move are specious. The Congressional Budget Office in 2014 estimated that a rise in the minimum wage to $10.10 – never mind $15 – would result in the loss of 500,000 jobs. Perversely, those job losses will have to be shouldered by the same people that the increased wage was supposed to have benefited in the first place. So much for running the economy according to government diktat and not free-market principles.

THE NEW OVERTIME RULE: ANOTHER NAIL IN THE COFFIN

Effective December 1, 2016, The Department of Labor has issued new guidelines to employers for non-exempt employees entitled to earn overtime pay. Historically, non-exempt employees were subject to overtime pay at the rate of time-and-one-half their regular hourly rate if they worked in excess of 40 hours a week. Exempt employees, those in professional, administrative, and executive roles have heretofore been ineligible for overtime pay regardless the number of hours worked if their salary was, at minimum, $455 a week. The new rule which goes into effect more than doubles the previous salary minimum to $913 a week. Salaried workers paid below the stipulated new minimum will generally be eligible for overtime pay. The Department of Labor’s new guidelines also establish a mechanism for automatically updating salary and compensation levels every three years beginning in 2020. Under this minimum wage mandate employers will face a Hobson’s choice of either paying excessive amounts of overtime or alternatively hiring additional staff to avoid overtime pay. To be sure, many employers have used the exempt moniker for “administrative” employees in order to avoid paying overtime.

Under the new rules, however, employers will have to be ever-watchful to ensure that employees earning below the new salary minimum do not attempt to game the system as a way to earn overtime pay. Good luck with that! A potential workaround for employers would have them perform financial somersaults in order to determine a rate for an employee reclassified from exempt to non-exempt at a rate which would yield an amount equal to the former salary when overtime was factored in. There is a lot of legal grey in this area and employment lawyers are probably champing at the bit that they may have struck a mother lode of potential litigation. Good luck with that! The added cost of administering the new guidelines by instituting systems which monitor what employee works how many hours and when will be staggering. It’s a safe bet, however, that we as consumers will bear the brunt of the added overhead expense.

WHAT’S SERVICE GOT TO DO WITH IT? robot

Small business owners in retail, fast food, hospitality, and other service industries are expected to react to the new wage mandates in ways that will ensure the survival of their businesses and consequently their livelihoods. Costly business venues will likely be shuttered, expansion plans will be placed on hold, fewer workers will be hired, investments will be directed at replacing expensive direct labor with technology, overtime hours will be reduced to a bare minimum, employee benefits will be stripped, and outsourcing will be pursued with a vengeance. Where market conditions allow, prices will be raised to recover some of the expected margin erosion.

Self-checkout retail counters, hotel check-in kiosks, self-check-in airline ticket kiosks, DVD rental kiosks, hospital admission check-in kiosks, interactive voice response systems, and ATM’s all are meant to disintermediate the service or salesperson. In other words, these technologies are being deployed to reduce cost. If service implies flexibility, understanding, responsiveness, and an ability to communicate effectively, then I know that this self-service world has set us back immeasurably. Even in this brave new world a kiosk can never supplant a competent, well-trained, well-equipped, and empowered front-line worker.

The negative impact on customer service of the new wage mandates is inevitable. At a time when excellence in service is a rare commodity, these mandates will further attrit what today passes for customer service.

 

 

 

 

 

Management Advisor

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