How Should Employers Respond When the Minimum Wage Falls?

How Should Employers Respond When the Minimum Wage Falls?

It’s not every day that minimum wages decrease, but at a moment when multiple US states are passing preemption laws to prevent localities from creating their own employment regulations, some employers are facing a situation in which they were forced to raise wages for their lowest-paid employees when the pay floor went up, only for it later to be brought back down. Such was the case in St. Louis, Missouri, which raised its local minimum wage to $10 an hour this May, but was undercut by a state law that overrides local hikes and forces cities to adhere to Missouri’s state minimum wage of $7.70.

That law went into effect earlier this week, so many St. Louis employers now have to decide what to do about the employees whose wages they raised in May in response to the now-defunct local ordinance. Steve Boese considers their options, all of which have downsides:

  1. Cut everyone who was bumped up to $10 back to their wage level as of May.
  2. Keep everyone at $10 who was given the bump in May.
  3. Pick and choose who gets to stay at $10, (the better performers, more essential folks), and bump others back to their May hourly rate, or some other rate less than $10 that better reflects their performance, value, and position relative to their peers.

Options 1 and 2 are the easiest to implement, and for different reasons, the easiest to justify back to the employees. Which is why I would expect that the vast majority of employers will opt for one of these approaches.

The differentiating strategy of Option 3, Boese argues, “could possibly drive better overall performance, as better workers feel more rewarded, and the others see a way to work towards the wages they desire.” It would also, however, be much trickier to implement, requiring organizations to precisely gauge the value of individual low-level employees and communicate its reasoning clearly and convincingly. For that reason, he suspects most organizations won’t opt for it.

Indeed, after Missouri’s preemption law was passed, some St. Louis businesses said they planned to go with Boese’s second option and keep the raises in place, at least for current employees, though they may pay new entry-level hires the lower minimum wage. A pressure campaign by local pro-labor activists, called “Save the Raise,” has threatened to picket and boycott businesses that revert to the state-mandated wage floor, but also plans to publicly laud those employers that choose to stick with the $10 minimum.

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St. Louis’s Minimum Wage to Fall as Missouri Lawmakers Move to Preempt Local Hikes

St. Louis’s Minimum Wage to Fall as Missouri Lawmakers Move to Preempt Local Hikes

The city of St. Louis passed an ordinance in 2015 to raise the local minimum wage to $10 per hour as of this May and to $11 next January. This put it well ahead of the state minimum wage in Missouri, which stands at $7.70, just slightly above the federal minimum of $7.25. However, a new Missouri law that goes into effect August 28 will override the local minimum wage increase and return St. Louis’s minimum wage to the state standard, CNN reported last week:

The Missouri General Assembly passed a law earlier this year that prohibits local governments from setting a higher minimum wage than what the state requires. St. Louis Mayor Lyda Krewson, a Democrat, called its passage in May “a setback for working families.” …

Missouri Governor Eric Greitens took a stance in the minimum wage debate, but didn’t sign the bill into law. It will go into effect next month regardless. The Republican governor said the St. Louis ordinance that raised the minimum wage will “kill jobs, and despite what you hear from liberals, it will take money out of people’s pockets.”

To support his argument against the higher wage floor, Greitens cited a recent study by economists at the University of Washington, which found that a jump in Seattle’s minimum wage from $11 to $13 an hour last year ended up reducing low-wage workers’ incomes by an average of $125 per month due to cuts in their hours. Opponents of higher minimum wages have jumped on this study as evidence that they do more harm than good, but critics have found flaws in the study’s methodology and pointed out that it conflicts with most other research on the impact of minimum wage hikes.

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Indiana Bans Cities From Banning the Box as More States Pursue Preemption Laws

Indiana Bans Cities From Banning the Box as More States Pursue Preemption Laws

At the same time that the Trump administration is looking to roll back multiple elements of federal employment regulation in the US, we have also seen a recent trend of states and cities taking the lead on introducing new regulations such as minimum wage laws, overtime rules, paid sick leave mandates, and bans on salary history inquiries. Employers, however, fear that a patchwork of regulations will make compliance a nightmare, and some states see the proliferation of local labor ordinances as a form of overreach by municipal governments.

These states, mostly governed by Republicans, have begun advancing legislation to curb the implementation of these local ordinances; Indiana, for example, recently passed a law barring local governments from enacting ban-the-box laws, which prohibit employers from inquiring about candidates’ criminal records early on in the application process, Roy Maurer reports at SHRM:

The legislation is meant to make it easier for employers that operate statewide from having to navigate different hiring processes and obligations throughout the state, said Sen. Phil Boots, R-Crawfordsville, the author of the bill. It takes effect July 1. Over 150 state, county and city governments have enacted ban-the-box laws across the country, and new laws are being passed every year. Most are limited to public-sector hiring.

Indianapolis and Marion County passed its ban-the-box law in February 2014. The ordinance prohibits city or county agencies and vendors from inquiring into an applicant’s conviction history until after the first interview. If no interview is conducted, the employer is prohibited from making inquiries or gathering any information regarding the applicant’s criminal convictions. Other areas of the country are attempting to enact bills like S.B. 312.

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