Long-Term Impacts of a $15 Minimum Wage on Local Government

OnNovember 3, 2020, the Florida voters have spoken, and Amendment 2 was passed. This initiative passed with 60.8% of the vote, just over the 60% minimum required for approval. Effective, September 30, 2021, the new Florida minimum hourly rate will be $10 an hour or $6.98 plus tips for tipped employees and set to increase $1 an hour each of the following years to $15 an hour in September 2026. This change will put the Sunshine State on a short list of states that have enacted a $15 per hour minimum wage. Other states that have approved the same minimum include California, Connecticut, Illinois, Maryland, Massachusetts, New Jersey and New York.

There has been plenty of discussion about how this will affect the private sector, but what about the public sector, especially our rural cities and counties? This article will focus on the questions you need to be asking to prepare your governmental agency for the coming effects on your projected payroll and possible wage compression.

Some organizations may not need to worry about this impending change as the market that they live in is already at a level where you are paying your entry level positions at or above this wage now to remain competitive in the market. The problem arises when in the smaller organizations that pay a competitive wage of $9 to $10 an hour now and are not able to increase services at the current wage due to budgetary constraints. Once they go to $10 an hour in September of 2021, they will be forced to look at the compression issues related to moving just those low paid employees up to the new minimum.

The first year two years will probably not hit as hard as the following three years. These years will be where the real compression starts for most. Listed below are a few items to consider as you start looking at which positions that are compressed due to the rising minimum wage and the residual effects of that move:

1What are some of the challenges associated with wage compression?

a. Compression can hinder recruitment of top talent or the best qualified candidates as they generally command a higher starting wage.

b. Low-level managers or supervisors in highly skilled positions will be compressed when line level employee salaries begin rising to nearly the same levels. 2 What about pay considerations for employees with seniority?

a. If this goes unattended, it could trigger possible turnover of long-time employees making less than or equal to new hires in a similar positions.

b. These employees with seniority take with them many years of institutional knowledge. What have you been doing to harvest that institutional knowledge prior to their departure? Many things are triggered when this exodus begins.

3Do you need to make pay grade or pay band adjustments?

a. Finding a balance between pay scale adjustments and minimum starting salaries is going to get tougher.

b. Your employees that have been on the job for many years are not going to like being at the bottom of the pay range or anywhere south of the midpoint. Even if you bump them up and slide the pay sales they will still be near the bottom and will ultimately be training the new hire that comes on board making the same as them with little to no experience.

Ultimately, pay compression can lead to turnover if employees feel they’re being undervalued. This is more apt to happen if long-time employees discover that they’re receiving little more money than new hires. The situation can be especially troublesome when your best, most tenured employees decide to jump ship. Even if they’re not actively looking for a new job, employees can lose motivation resulting in lost productivity.

Here is a closer look at the percentage increases through 2026. Start doing the math and think about your low-skilled and semi-skilled employees and the overall effects of them making $15 upon hire in the year 2026. If you do not increase your skilled workers, they will be making the same wage and we all know that won’t help as the unemployment rate drops and people that have been sitting on unemployment begin to re-enter the workforce. Just imagine if you increased your entire organizations wages by over 58%...detrimental to most, not possible for others, but it’s the law. Take a look at this progression as it relates to the percentages of increase:

By DOUGLAS G. BABER