Why Raising Wages Might Be a Way to Solve Your Labor Problem (Opinion)
January 2, 2021 Good labor is hard to find these days, not to mention expensive. More than likely, labor costs are your biggest cost of doing business. So, I hesitate to ask, have you thought about raising wages?
I confess that while I agree with the fairness and equity arguments surrounding minimum wage hikes, I see them as a challenge for cash-strapped growers already trying to squeeze profits out of their businesses. How do you pull the money involved with wage hikes out of thin air? Or, as my father used to say, “You can’t squeeze blood from a turnip.” But lately, I’ve had cause to think about who really benefits from a wage hike.
I’m not arguing for or against pay raises. Rather, I’m laying one more tool on the table. Take a moment to consider the possible hidden benefits of another solution to your labor problems and decide if it is right for you. Here are a few things to think about.
At our annual GreenhouseConnect event held via Zoom in October, Brian Stephens, General Manager of BrightFarms, delivered a fascinating presentation on how his operation tackled its labor situation. The company’s initial approach was like other greenhouse operations: Pay agricultural rates and offer great benefits (e.g., medical, 401k, etc.) beyond the pay. It didn’t work. Turnover remained high, and the pool of replacement candidates dwindled. Hiring temporary labor worked to fill the gaps, only the expense made it an unsustainable solution for the future.
After performing a labor analysis, BrightFarms found its wages were some of the lowest in the area, less than the average cost of living and on par with fast–food workers’ pay. They were saving money, but at a cost in other ways: Higher turnover rates, skyrocketing payroll costs, increased time spent on training, and rising overtime hours. All of it negatively impacted overall labor costs. BrightFarms decided to immediately raise the pay for all its employees and include additional pay raises for retention. Yes, the company had to come up with more money for payroll. Nevertheless, the results speak for themselves. Turnover stands at 3%. Overtime hours are down. Retention and reliability are up. Referrals have increased. Costs are down.
Paying higher wages could allow you to attract and retain better employees. In today’s competitive labor market, no one can afford to lose valuable talent. Walking away from a low-paying job is mostly painless, but a higher-paying job makes one think twice. With more capable talent onboard and wanting to stay put, think of the possibilities – better leadership, cumulative experience, streamlined costs, boosted productivity, and perhaps more.
There’s a secondary benefit here as well. If higher wages attract better workers, that means a larger labor pool, one that gives you more opportunity to sort out the gems from the junk. Another side benefit could be that better employees translate to better quality product.
What about productivity? There’s research supporting the theory that productivity increases with wage hikes and research that says productivity isn’t tied to wages. For argument’s sake, let’s go along with the premise that workers who value their jobs are more productive. Maybe they want to hold on to their job, possibly they want to offer value equal to their pay, perhaps they want to show gratitude to a good employer, or they’re naturally a hard worker. Whatever the reason, a more productive workforce creates more economic value in the long run.
Is raising wages right for you? Only you know what is best for your business. However, with limited options for labor these days, carefully consider all your options. This is one I hadn’t thought of previously as being viable or sustainable, but for some, it could be another useful tool in the toolbox.
Have you thought about the pros and cons of raising wages at your operation? Do you think it is a viable solution to solve the industry’s labor woes? Have you discovered a better solution to your labor situation than raising wages? I welcome your thoughts on the subject. Contact me at [email protected].
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