- There’s an obvious fix for all the business owners who cannot find workers: pay more.
- As companies scramble to address labor shortages, experts say higher pay is the only real solution.
- Some businesses will close, but that is part of a functioning free market system.
- See more stories on Insider’s business page.
As a former manager of a Chipotle in West Virginia, Chris Drown knows how hard it is to hire employees.
“We had plenty of applicants, but anyone we hired would quit because the wages we were offering were far too low compared to the stress of the crew positions,” Drown recently told Insider.
Employees were driven away by long, stressful shifts, and those who took mandated breaks were considered “lazy,” Drown said. Understaffing was a constant issue, as employees who were paid roughly $10 an hour scrambled to clean and chop sufficient ingredients to keep food on the line, he said.
Drown decided it was time for him to quit his $15-per-hour job after ice storms pummeled West Virginia in February. According to Drown, he was expected to show up to work despite icy road conditions. When the ice melted, roads began to flood.
“I contacted the field leader and told him we needed to close early, my staff feels unsafe,” Drown said. “It was expected that even if I was there by myself, I would have to keep the store open until close no matter what.”
“So I closed the store, went home, and never came back,” said Drown, who is now working in retail.
As companies scramble to cut hours and change operations, some experts also recommend raising wages, saying it could provide a more permanent solution to the worker shortage.
“You couldn’t pay me $20 an hour to work in food for the conditions we had to endure there,” Drown said. “After I left that location, five more people quit. Now, they are operating with online orders only and limited hours because they still can’t keep up.”
Experts say that a number of factors are making it difficult for companies to hire, despite an unemployment rate of 6%.
Enhanced unemployment benefits, workers’ concerns about catching COVID-19, and the rapid reopening of businesses are all cutting into the number of potential candidates. Even before the pandemic, many lower-paying jobs were struggling to hire.
“We’re going to go back to that really competitive marketplace for labor,” said Marc Wulfraat, the president of logistics consulting firm MWPVL.
“It’s going to be a shock to companies that are paying low wages,” Wulfraat added. “They’re going to be the ones that are hit the worst, because all that low-wage labor is going to find a home elsewhere – where there’s more money to be made.”
People looking for jobs increasingly have options that pay at least $15 an hour at industry giants like Starbucks, Amazon, and Target. They may also be able to find jobs that offer greater flexibility than traditional retail jobs, such as driving for Lyft or delivering food for UberEats.
Credit Suisse analyst Lauren Silberman told Insider that companies are going to have to improve their pay, benefits, and culture to combat hiring difficulties. Companies’ values are increasingly important to workers, Silberman said, making a chain like Starbucks that has invested in building a reputation of social consciousness potentially more attractive to workers than some of its fast-food rivals.
Employers told Insider they are already looking into offering new benefits and higher pay. Blake Casper, who owns 60 McDonald’s locations in Florida, said that he is considering raising starting wages from $12 to $13 per hour. Dunkin’ franchisee John Motta said that it is already impossible to hire people at minimum wage.
“I wouldn’t have anybody at my store if I was paying at $7.25,” Motta said. “The minimum wage is pretty much dictated, in my opinion, by the marketplace.”
Some businesses will be forced to close. That’s not a bad thing.
Employers are quick to say that higher wages will create new problems.
Companies usually offset higher wages by passing costs along to customers. In the restaurant industry, for example, minimum wage regulation typically leads to higher menu prices. This week, Chipotle CFO Jack Hartung said that a $15 federal minimum wage would mean a slight increase in burrito prices. (Chipotle did not respond to Insider’s request for comment on Drown’s experience working at the chain.)
“Ultimately in any business, the customer pays for everything,” Waffle House CEO Walt Ehmer told Insider in November. “We don’t have any other source of revenue other than the customer. So, we have to be careful how we treat our customers and we don’t stick it to them with giant price increases.”
Motta and other franchisees expressed concerns that higher prices would drive away customers and hurt business. But, executives at chains including Kura Sushi, The Cheesecake Factory, and Texas Roadhouse have said that, so far, customers have adjusted to higher menu prices related to higher pay.
Not every business can afford to raise wages to compete with companies like Amazon and Target that already pay at least $15 per hour.
Wulfraat said that some companies will try and replace some workers with automation, but that can be an expensive investment. Some will be forced to close, even after surviving the COVID-19 pandemic.
“How are businesses that struggled during the pandemic, that were barely able to stay open now, being asked to pay people more money?” said Ryan Alovis, the CEO of LensDirect.
“Those people don’t even want to show up to work, because they may actually be making more money at home than they will going to work,” Alovis added, referring to enhanced unemployment benefits. “We’re in a scary cycle.”
Businesses closing because they cannot afford to meet workers’ demands is part of a healthy free market system, experts say.
Analysts have been warning for years that there are too many stores and restaurants in the US, with supply outpacing demand. Joe Weisenthal wrote in Bloomberg Markets’ newsletter on Thursday that the tight labor market will help roots out “zombie companies” that are doomed in a truly free market.
“And so now we might find out who the real zombies companies were – the companies that were only able to succeed due to cheap labor caused by a precarious market, and thus bringing the economy down as a whole,” Weisenthal writes.
Drown said his time at Chipotle helped him come to a similar conclusion.
“My opinion is that restaurants will only succeed if they are staffed properly and pay enough to meet the stress of it all,” Drown said.
“Without having both, turnover will keep going up,” he continued. “Slim staffing is really hurting restaurants, and that’s the main reason we are seeing the whole industry struggle to meet demand.”