This article below was written several years ago just as housing and rent prices began to skyrocket in the Portland Metro region and a boom in migration into the state and region was taking root. Realizing that these changes were about to increase workers’ cost of living, I described necessary considerations in order to recruit talent, particularly socio-political dynamics that impact policies and the stability of our local workforce.
I stand by the message below and only add that COVID has placed an additional burden on both businesses and workers to stay afloat, which is why businesses and workers should stand together and leverage that unity to demand policies that support local business growth and the labor it needs. In other words, labor’s relationship with employers need not be adversarial.
In short, I argue that small and mid-size companies cannot afford to waive off politics and policy development for others to address; but rather, take the time to learn more about how policies impact a company your size and how your workers can be your allies.
Going Back to 2016: The Original Article
Small and mid-size businesses across industries have expressed frustration with: a) inability to find qualified entry level candidates and b) mandated increases in minimum wage. First, it’s easy to understand business frustration with mandated wage changes so to be clear, the following analysis does not debate the wisdom of wage policies. This is a review of external forces on supply and demand in labor.
A key point missing in most discussions is that there is a lack of labor supply for entry level positions because current wage rates do not address the rising cost of living.
Economics: Supply & Demand
Economics basics – Employers seeking staff have ‘the demand’ and the available workforce for the proffered wage is the ‘supply.’ Right now, there is little supply for a big demand. To think of it another way, Bob is a retail clerk making $10/hr and wants to buy a new car (Bob’s demand), but Bob can’t find a car he can buy (supply) because Bob can’t afford it. What does Bob do? He takes the bus, he walks, or he rides a bike until he has money to buy a car. Maybe Bob’s inability to buy a car prevents him from finding a better job, which inhibits his growth. The problem isn’t that there aren’t cars on the market, it’s that Bob can’t afford to buy one.
Small businesses have the same problem. There are people who can perform entry level jobs, but they are not responding to job postings because the wage doesn’t meet their cost of living. There is a flaw in the assessment of labor supply & demand economics where those with the demand mistakenly believe their price offer adequately covers the suppliers’ costs. For example, my offer to buy a new Toyota for $1,000 is inadequate to cover Toyota’s cost to make the car.
Real Challenges: Cost of Living
So what is the cost of living in this region? Entry level manufacturing jobs in Hillsboro pay roughly $12/hr. Median wage for wait staff in the Portland Metro is $13/hr including tips. Retail pays about $11-$13/hr. At the same time, rent prices have consistently risen throughout the Portland Metro making Hillsboro rent at minimum $900-$1,000/month. Take home pay for $12/hr is about $1,500. Add utilities and transportation and there isn’t much left. In 2015, Portland Metro apartment rent increased by 63%, but renter income increased only by 39%. If someone happens to live with another person or has a spouse to cover costs, then they may be more likely to accept $12/hr, but the employer may also want a 40 hr/wk commitment, which can present a variety of issues for students, parents, people with disabilities, etc. Moreover, someone willing to accept $12/hr as full-time pay may have limited job skills or possess life skill challenges. As the adage goes, you get what you pay for.
To address the cost of living, government used the tools in its box through minimum wage increases. Government encourages disposable income for the general public since the masses [are supposed to] drive a balanced supply and demand economy. To incentivize the average consumer’s spending, government lowers interest rates or mandates changes in pay. Mandates are rarely welcomed by businesses because it takes away freedom to troubleshoot issues yet the problem being overlooked is the rising cost of living and its effects on both small businesses and communities where homelessness and crime are on the rise.
Regardless of mandates, natural supply and demand is at work here where increases in wage (price for labor) are now required to obtain the supply as suppliers’ (workers) costs have risen. Both employers who voluntarily increase their price offer above minimum wage and employers who are mandated to increase their minimum price offer must evaluate their budget and operations.
Wages and Consumer Price Elasticity
As the charge above shows, some businesses must increase prices in goods and services, which may ultimately affect the very employee needing more disposable income (a backfire). Alternatively, price increases could be passed on to a price tolerant (inelastic), quality sensitive customer. In the latter case, price increases could reasonably cover higher labor costs. Each small business must determine how to allocate new costs if hiring is necessary, but regardless of government mandates to pay more, the supply has naturally dried up at the current wage rate.
Summary: Solutions & Considerations
What is the solution to the problem? Some suggest housing availability/density and affordability have the biggest impact on disposable income, while others favor increases in pay.
Right now Oregon, and Portland Metro specifically, suffer from an imbalanced economy as an influx of high income residents into the local economy are driving the cost of living. If everything from groceries to rent is priced for $100,000+ earners, then blue collar flight, increased homelessness & dependence on government assistance and ad hoc wage regulations will occur. Blue collar flight and wage mandates harm small businesses, which rely on lower paid employees to stay open though small retailers are also heavily impacted by increased vagrancy.
In the end, the issues discussed above are neither solely community nor solely business related. They require a holistic approach to the cost of living on our economy.
Sukol Venture Consulting 