Cost of living vs. minimum wage: How top employers address pay rates

The topic of minimum wage has received increased attention recently as the cost of living soars due to inflation and supply chain issues. In recent years, more and more top employers have been taking a closer look at how their wages can cover employees’ basic cost of living. Not only is this a matter of ethics for many, but it also makes good business sense.

In this blog post, we explore why more employers are focusing on the increasing cost of living and why your organization should be taking note.

What is a cost of living?

The definition of “cost of living” can vary, but it generally refers to the estimated dollar amount needed to cover worker's basic needs, including food, housing, healthcare, and other essential expenses, without the need for government assistance or additional sources of income. Depending on location, the minimum wage often isn’t sufficient to cover the local cost of living.

The problem with today’s minimum wage

The current federal minimum wage in the US has remained unchanged since 2009, at $7.25 per hour. State and local laws may provide higher minimum wages, but 20 states still use the national standard. This has left many workers struggling to make ends meet, with 67% of Americans concerned about the cost of living as inflation continues to erode their purchasing power. The result is that employees are often unable to cover essential expenses, leading to financial instability.

This also has a significant impact on employers. The mismatch between the cost of living vs. the minimum wage, exacerbated by inflation, is driving 4 million Americans every month to quit their job in search of higher wages. In a time where the talent shortage is a top concern for employers, failing to provide the right wage rate is more costly than ever before.

How top employers are addressing cost of living

Many organizations are taking the lead with initiatives aimed to retain talent by adjusting salaries. Unilever has announced that all employees and direct suppliers on an international level will be paid a living wage by 2030. This offers considerable benefit to workers, as those in some developing countries will see a 68% wage increase as a result of the company’s new sustainability strategy.

Other employers like Costco are also implementing substantial wage hikes, raising its minimum wage to $17 an hour. The organization has a long history of offering competitive wages, but this comes as a response to changing worker expectations and an increasingly competitive job market.

Chobani is another organization striving to offer higher wage rates. In 2020 it announced that employees would earn at least $15 an hour in an effort to link company success and worker prosperity. The company’s CEO, Hamdi Ulukaya, believes demand for increased wages and more conscious businesses will grow over the next decade.

What can employers do?

Providing a competitive wage has a range of benefits for both workers and employers. It improves employee retention, makes your company more attractive to candidates, and reduces stress among your workers – leading to a more productive and happy workforce.

Employers must gather feedback from workers to better understand their needs and ensure that they’re compensated appropriately. By opening channels of communication with workers, you can accurately assess the risk of employee turnover and take measures to retain top talent.

Employers can also research local wages and use data to make salary decisions, guaranteeing they’re paying their employees fairly and competitively. Cost of living can vary drastically by state, so properly assessing workers’ financial needs is key. That’s why we created the Adecco Cost of Living Calculator: This tool uses government data on household circumstances, location, and average expenses to provide a reference point to develop pay rate strategies.

At Adecco, we offer comprehensive data solutions to help you outperform competitors. In 2020, we helped a leading apparel brand increase fill rates by 70% while reducing turnover by half thanks to insightful data analytics. To learn how we can help your organization thrive, contact us today.