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Minimum wage increases are gaining traction to address the talent shortage, but work-life balance is the key to younger workers

Liz Wilke Principal Economist, Gusto 

Pay gains are necessary, but not enough, for employers to attract workers

On the business front in the US, Target recently announced it was raising its minimum wage in some areas to as much as $24/hour. This news is both a signal of the stress that the talent shortage has put businesses under, and also a bellwether of more pay raises across the board as employers keep trying to lure talent into their doors. 

Target’s move has downstream effects for other employers looking for workers with similar (and not so similar skills). When big companies raise pay in an area, it creates competitive pressure for other employers in the area to raise their pay as well. A recent study of Amazon pay shows that a 10% increase in Amazon’s prevailing wage forces other employers in the local area to increase their own wages by 2.6% on average. The continued labor shortage will be felt by smaller companies than Target and Amazon, facing similar pressures to raise pay to compete for workers.

Pay still isn’t enough to get workers back (or keep them)

Yet, we know from recent research that workers care more about pay. In fact, workers may care about some things more than pay. 

The Atlanta Federal Reserve Bank released a paper last week estimating that recent wage growth is only enough to close 16% of the gap between pre-pandemic and post-pandemic employment levels. In other words, the lower level of employment is a long-term trend, and increasing wages alone won’t fix it. Employers will need to turn to other incentives to coax workers back into the workforce. 

Gusto’s monthly pulse survey of more than 300 employees aligns with the Fed’s finding.  More workers this month are prepared to leave their jobs over work-life balance than low pay. This is part of an emerging trend that HR professionals and managers have been noticing for some time – a new prioritization of employee well-being and support for the “whole human” who comes to work. I’ve written before about the relationship between the talent shortage, the pandemic, and this rising trend. 

What’s really interesting about this research is that the effect of pay raises differs across generations, with Millennials being less responsive to pay increases than Baby Boomers, and Gen Xers even less responsive than Millennials. This isn’t just about the pandemic, this is a generational shift, and companies with workplace cultures that can adapt to this are going to gain in the short and long-term.

Liz Wilke
Liz Wilke Liz Wilke is a Principal Economist at Gusto, researching the state of work and business in the modern economy. She is a veteran of both the technology and government sectors, where she directed research programs and public spending that supports dynamic, resilient companies and workers across the globe. Liz currently lives in Washington, D.C.
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