The Benefits of Increased Minimum Wage for Companies and Employees

With the minimum wage inevitably rising, we should not be afraid of the externalities of this change. There are many great things that come with the increase of the minimum wage. According the CEO and Co-Founder of ClearCompany, Andre Lavoie, there are three reasons why we should be happy about the increase of minimum wage. These three things are: it will help recruit and retain talent, improves employee satisfaction, and it improves your company brand (Lavoie). On the contrary, many people are worried about the minimum wage increase. They believe that it will increase the produce, gas, and living expenses that we already pay large amounts of money for; however, that shouldn't be the only thing that matters. If the CEO of a company or boss of an employee has a happier team working for them because of increased employee benefits, there is a higher chance they will treat the employees better. Employers are also less likely to be strict and stingy as well because everyone is happy and working hard. Paid sick leave and paid time off should be required by employers in order to keep employee retention rates high, increase company morale, and is good for business productivity. Clearly, employee benefits are extremely important to the employees themselves, as well as the business in which they are employed.

In companies around the United States, employees leave positions due to being unhappy with their current job’s benefits and compensation. When an employee leaves his or her position, companies often incur turnover costs which include, but are not limited to, the costs of hiring and training a new employee to replace the one that left the company and making up for the bonuses given to both the new employee and the employee who vacated their position. Turnover costs can become exponential in large companies that have a high turnover rate due to the fact that the average cost to replace an employee is estimated to be about one-fifth of that employee’s salary (National Partnership for Women & Families). This means that for every person making a fifty-thousand-dollar annual salary that a company loses, the company must then pay ten-thousand dollars in turnover costs on top of the salary they must pay the newly hired employee. Discernibly, it is not difficult to see how these costs can add up if many employees leave, becoming a financial burden to a business regardless of the size.

Employees that have the option of paid leave have been shown to return to their pre-leave positions at a rate of ninety-four percent (Boushey, O'Leary and Mitukiewicz). In a study conducted by Eileen Appelbaum and Ruth Milkman in 2009 and 2010, where surveys of employees in California were taken, it was shown that, “Workers with low-quality jobs who used family leave insurance while on leave were more likely to return to their pre-leave employer—82.7 percent—than those with low-quality jobs who did not—73 percent.” (Boushey, O'Leary and Mitukiewicz) In the sector of paid maternity leave, Google, a company who once offered three months of partially-paid maternity leave, saw postpartum women leaving their jobs at the company two times more than other employees. Given this startling number, Google increased its paid maternity leave to five months of fully-paid leave and saw their rate of postpartum women who left their positions after the birth of their child decrease by fifty percent (Miller). Furthermore, eighty-seven percent of businesses in California found that paid leave programs had reduced costs and increased savings for their businesses by reducing the rate of employee turnover (National Partnership for Women & Families). This figure suggests that the businesses in California that employed paid leave programs had a similar outcome to that of Google in recognizing that many employees leave their positions due to life events and new job opportunities that offer better benefits. It is clear that by implementing paid leave, employee retention rates are increased and the fiscal drain of employee turnover rates is significantly reduced.

Alternatively, company morale is extremely important for employee happiness with their employer, creating prosperous companies. According to Harvard Business Review, “a majority of the most successful companies report that exemplary benefit programs strengthen employee loyalty and morale.” (National Partnership for Women & Families) For companies that report low morale, the costs are often both monetarily- and productivity-related. From “The High Cost of Low Morale by Nicole Fink”, Michael Blankenship from Roberts Wesleyan College wrote, “The Gallup Organization estimates that there are 22 million actively disengaged employees costing the American economy as much as $350 billion dollars per year in lost productivity including absenteeism, illness, and other problems that result when employees are unhappy at work.” (Blankenship) Understandably, it is pertinent for employees to reign-in low morale problems and their negative repercussions in order to keep business operating costs within a manageable range.

Paid leave is a superb solution to keep the financial and productivity effects of low morale within a company in check. For example, New Jersey employers who instituted the state-wide program for paid leave reported that the program, “helped reduce stress among employees and improve morale among employees who took leave and their co-workers.” (National Partnership for Women & Families) The New Jersey state program for paid leave does not just affect employees who take leave, it also affects co-workers because when one employee’s morale is boosted by leave, other employees will feed off of the employee who has a high morale level. Additionally, according to the National Partnership for Women and Families, “In California, virtually all employers (99 percent) reported that the state’s program had positive or neutral effects on employee morale.” (National Partnership for Women & Families) The State of California’s paid time off program named in this quote is important to recognize because it shows that the program has not harmed the majority of businesses in the sector that was surveyed. The significance of this is hard to not acknowledge by skeptics of instituting paid time off in a state-mandated setting. There are clear, positive benefits to having paid leave as a way to boost company morale and harness the effects of low morale in the workplace.

Finally, instituting a program of paid time off has proven to be advantageous for business productivity. In a survey taken by Harvard Business Review, it was found that “employees in countries that take more vacation do have a strong desire to get a lot done as well as a tendency to move faster,” and “simply spending less time at your desk forces you to waste less time” (Zenger and Folkman). These findings point to a strong correlation that if an employee takes a break from work, most likely using paid time off, then the employee’s productivity will proliferate and thus, increase business profits. Also, it was found that, “a study of paid maternity leave in OECD countries notes that an added week of paid maternity leave raises labor-force participation rates of young women ages 20 to 34 an average of 0.6 percentage points to 0.75 percentage points (Boushey, O'Leary and Mitukiewicz). Although small, these numbers are extremely significant to deciphering if paid time off is correlated to profitability inside a business. An example of how this could be applied in a business setting would be if two women, both between the ages of twenty-four and thirty-years-old were to have returned to work from maternity leave. The twenty-four-year-old woman had one extra week of leave than the thirty-year-old woman did. Once both women returned to work, the twenty-four-year-old woman had produced 99.75% of the products she could product while the thirty-year-old woman only produced 99.6% of her available products. The discrepancies between the two women’s production would obviously be exacerbated on a larger scale, as one would see in a large company. Likewise, from the National Partnership for Women & Families, “Nearly 90 percent of businesses surveyed about the effects of the California paid leave program said that the program had either a positive effect on productivity or no noticeable effect.” (National Partnership for Women & Families) These significant studies make it very hard to discount the idea that productivity in the workplace is increased by the amount of paid leave offered to employees. Evidently, productivity is positively correlated to the amount of paid time off that an employee uses throughout his or her employment.

As Initiative 1433 looms on the Washington State ballot to be voted on by the people of Washington, it is imperative to understand the positive effects that having state-mandated paid sick leave and paid time off has on the State’s employees. Of these benefits, the most important are: keeping employee retention rates high, increasing company morale, and being suitable for business efficiency. Utilizing paid leave programs allows employers to retain employees and therefore, reduce costly employee turnover rates, to increase company morale by reducing stressors of the workplace, and to be useful in keeping production levels high within a business. Clearly, it is important for employers, as well as employees, to recognize the obvious benefits that paid time off has on businesses and therefore, it should be mandated in Initiative 1433 and in every State and United States Territory.