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The fastest way to fix a labor shortage: Pay more

Analysis by Christine Romans, CNN Business

Updated: Fri, 21 May 2021 10:29:10 GMT

Source: CNN Business

For decades, worker compensation has been stagnant, while corporate profits make up an ever-increasing share of the economy.

The coronavirus pandemic has made the divide between employee and employer far more apparent. Covid disrupted the labor market in ways we have never seen: health worries, family obligations, hybrid-learning and child care shortages mean millions of workers remain on the sidelines. The Bureau of Labor Statistics reported a record 8.1 million job openings in March.

As the economy reopens, employers are scrambling to meet the demand from newly vaccinated customers.

To retain and recruit workers in a tightening labor market, a parade of companies in recent weeks vowed to raise their minimum wage.

Under Armour next month will bump its minimum pay from $10 an hour to $15, a pay raise in the US for more than 8,000 employees. Amazon said last week it is hiring 75,000 workers at an average starting pay of $17 an hour, and offering $1,000 signing bonuses in some locations. At McDonald's corporate-owned restaurants, some 36,500 employees will get pay raises. The company said average hourly wages should reach $15 by 2024. Costco, Walmart and Chipotle also raised average pay.

But the prize goes to Bank of America. It has already doubled its minimum wage since 2010 to $20 an hour last year, and vowed to raise starting pay to $25 an hour by the year 2025.

CEO Brian Moynihan told my colleague Poppy Harlow it will cost the company "a few hundred million dollars a year" when it happens in 2025. He called it an "investment" in the "standard of living for our teammates."

The bank can easily afford it. It earned $8.1 billion in the first quarter and gave $5 billion back to shareholders in dividends and stock buybacks. That's 5,000 million dollars to shareholders in three months, compared with an extra few hundred million for workers four years from now.

Before you applaud...

Hold off on the good citizenship awards. This is good business.

"The recent wage hikes -- from McDonald's to Bank of America -- were not necessarily because these companies have suddenly gone soft," says Greg Valliere, chief US policy strategist at AGF Investments. "It's because they need to retain labor and inoculate themselves from criticism from the populist left."

A move to raise the minimum wage to $15 an hour is currently stalled in Washington. The Biden administration has raised the minimum for federal contractors, and wants corporations and the rich pay for Biden's infrastructure and care economy agenda.

That's why Bank of America's wage hike is a "smart public relations move," says Valliere. "Major companies also may be worrying about an assault on their huge profits and astonishingly generous compensation packages for their top executives."

And it's just not a good look when deep-pocketed public companies have full-time workers who make so little, they rely on food stamps and Medicaid. Millions of Americans working fulltime earned so little, the taxpayer was subsidizing the wages through the safety net, according to a report from the GAO published late last year.

There's obviously a difference between those deep-pocketed major corporations and small proprietors.

Millions of small business owners run with ultra-thin margins. For them, rising food and labor costs coming out of the pandemic are especially critical. Many employers say they face competition from enhanced jobless benefits. Those benefits are scheduled to run out in September. More than 20 Republican-led states have moved to end those federal benefits early to entice those workers back into the jobs market.

The big companies raising wages "were also on the winning side of the pandemic," said Diane Swonk, chief economist at Grant Thornton.

That could exacerbate the divide between the haves and the have-nots as we exit the pandemic.

"Sadly, they are competing away workers from smaller businesses that were barely able to stay afloat during the crisis," Swonk said. "I worry about what that means for dynamism in the economy."

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