Companies Are Raising Wages Without a Government Mandate

According to recent reports, companies are giving wide swaths of their workforces raises without the government dictating it. Some of the companies that have done this in recent weeks include McDonald’s, Wal-Mart, Gap Inc., JPMorgan Chase & Co., and Starbucks.

Starbucks announced its workers would get at least a 5 percent raise this year. JPMorgan Chase is increasing the wages of its lowest-paid workers to $12 per hour.

One factor that may be causing companies to raise wages is the reduction in the number of unemployed persons per job opening. That ratio, now hovering near 15-year lows, and declining since 2009, is only 1.4 unemployed persons per job opening.

With such a small pool of unemployed workers to draw from, companies have to make it more desirable for workers to accept positions, and not jump ship to another company offering higher wages. In other words, the smaller the ratio of unemployed persons per job opening, the more competition there is among employers to retain workers and the higher wages will be.

With companies raising wages on their own in response to market forces, it might be useful to rethink the current craze to raise the minimum wage. California, New York, and the District of Columbia have recently passed bills to raise their minimum wages to $15 per hour. A bill has been introduced in Congress by Sen. Bernie Sanders, I-Vt., to raise the federal minimum wage from $7.25 to $15 per hour.

Heritage Foundation research fellow James Sherk noted in a recent issue brief, “Researchers have paid little attention to the state-by-state impact of a $15-per-hour minimum wage. Such a measure was so far from the policy mainstream that few economists bothered considering it.”

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Sherk conducted a state-by-state analysis and found that a $15 per hour minimum wage requirement nationwide would cost approximately 9 million jobs. Other reports finding minimum wage increases harm workers—especially the low-skilled workers they are designed to protect—exist here, and here.

Sustainable employment occurs when workers are compensated fairly for their productivity compared to others in the workforce. The recently reported pay increases show this process at work. Government interference, in the form of minimum wage laws or other restrictions, just gets in the way and may, as recent studies are confirming, actually hurt those it is intended to help.