Page 81 - PR COMMUNICATION AGE July - December 2020

Higher pay will pay for itself

E nterprises, and even productivity). Moreover, labour costs customer leads through the roof, and

governments, often seek to
Gravity, a relatively small company of
have little bearing on competitiveness
hold down the pay of
thousands of employment inquiries.
IT industry pay very well, but, because
employees in an effort to reduce costs. or profitability. Many companies in the about 200 employees, received
This effort to reduce pay to cut costs of their business models, are extremely Profits have never been higher.
long pre-dates pandemic profitable. But lower wages do lead to
“lockdownomics” and won’t disappear ill health and financial stress, indicators These are not just interesting
when the pandemic ends. of diminished well-being. examples. They’re consistent with
fundamental ideas in economics. The
Post 9/11, almost all airlines — except What the evidence shows principle of efficiency wages refers to
Southwest — resorted to lay-offs and paying above market to improve
Evidence suggests that if companies
begged for large wage concessions workers’ productivity levels. As
paid more, not only would they help
from unions. When US-based economist Lawrence Katz explained,
their employees but also they would
automakers struggled to turn a profit, “High wages can help reduce turnover,
actually help themselves. Here’s the
they negotiated two-tier wage elicit worker effort, prevent worker
logic.
structures where new employees collective action [unionisation], and
would make less money. The 2008 In 1914, Henry Ford introduced a $5 attract higher quality employees.”
financial meltdown accelerated this per day wage at Ford, more than
trend. Pay cuts, sometimes the result doubling the prior rate of pay. The Evidence suggests that with more
of downgrades in rank or shortened move aroused the ire of The Wall motivated and higher quality workers,
work-weeks, are occurring more Street Journal, which accused Ford of less supervision is required because the
frequently than at any time since the “economic blunders if not crimes.” The employees are less likely to shirk
Great Depression. Pay for the average result of the higher pay: diminished responsibilities and are more qualified,
worker remains constrained today, turnover, higher quality workers and thereby saving on supervisory costs.
possibly one explanation for the higher productivity and profits. Brazil’s Semco is a good example.
worldwide ongoing financial stress and
political turbulence. About 100 years later, Dan Price, CEO Because of the profit-enhancing, cost-
of Gravity Payments, generated reducing effects of higher wages, in
But contrary to what many leaders mammoth publicity — and scepticism the end, paying more might actually
and HR professionals seem to believe, from Fox Business — when he reduce labour costs. Higher wages can,
employees’ rate of pay is not announced a $70,000 annual minimum therefore, actually pay for themselves.
synonymous with labour costs (which wage for Gravity’s employees. The
reflect not just the rate of pay but also much-talked-about move drove A contemporary illustration of this

"Never let your mind 2nd guess what you heart already holds the answer too"

PR COMMUNICATION AGE July - December 2020 81