Companies are boosting wages to bring workers back in COVID-19 recovery

At the end of 2020, Lorin Cleveland, 23, decided to leave her job at a Trader Joe’s supermarket in Hyde Park in Chicago, where she was making the city’s minimum wage of $14 with an extra $2 in hazard pay.

Trader Joe’s offered Cleveland $18 an hour to come back. But she had found a child care job that paid even more than that on fewer hours of work — and declined the counteroffer.

“[There’s] hope for better opportunities that are popping up every day,” Cleveland told Yahoo Finance.

Other workers like Cleveland are finding a surprising silver lining in the COVID-19 recovery: higher wages. Although efforts to raise the federal minimum wage collapsed last week, businesses say they are naturally turning to higher pay to entice workers to fill high-contact, in-person jobs.

Fast food chain Jack in the Box (JACK) said wages grew by 5% in the first quarter of 2021. Advance Auto Parts (AAP) is assuming wage inflation in the neighborhood of between 2% and 5% — just to “be competitive” for labor.

“We’re going to continue to increase wages this year, with or without a federal minimum wage,” said Advance Auto Parts CFO Jeffrey Shepherd on Feb. 16.

1-800-Flowers (FLWS) similarly said that dynamics of “supply and demand,” not local or federal minimum wage laws, are pushing up wages.

“It’s tough to get employees,” 1-800-Flowers CFO William Shea told investors on Jan. 28.

Wage growth disparity

The discussion on raising pay comes amid a national conversation on whether or not the federal minimum wage should be raised from its current level of $7.25 per hour. On March 5, eight Democrats joined 50 Republicans in voting against an effort to add a $15 minimum wage to the $1.9 trillion coronavirus relief bill.

The debate arrived as the nation’s lowest wage earners saw the steepest job loss during the coronavirus pandemic. Data from the Federal Reserve using ADP payroll processing data estimates a 23% unemployment rate for the bottom quartile of workers as of January.

Meanwhile, the top quartile of wage earners have nearly recovered all the jobs lost in the pandemic.

In the absence of a $15 federal minimum wage, the picture on wage growth remains largely different market-to-market.

But Domino’s CEO Richard Allison told investors on Feb. 25 that in any market, companies “can’t go out there and hire people” at the $7.25 federal minimum wage. In the supply chain business for Domino's (DPZ) pizzas, Allison said workers are paid in excess of a $15 hourly wage across the country.

“Despite higher overall levels of unemployment across the country, many local labor markets remain tight and wages continue to rise across the country,” Allison said.

The Bureau of Labor Statistics said that average hourly earnings nationally rose 5.3% year-over-year in February, to $30.01 per hour. But those figures remain noisy. Because a large share of the job losses in the pandemic were among low-income workers, the data for average wage growth ends up becoming more representative of higher-earning workers.

Overall, the U.S. still has 9.5 million fewer jobs than it did before the pandemic, meaning that higher wages are only serving to benefit those willing to return to a job in markets with employers able to hire.

In many cases, the pandemic is preventing people who want jobs from getting them. Businesses once hopeful to rehire their employees have gone bankrupt. With schools closed, unemployed parents are finding it harder to leave home. Those with pre-existing health conditions have to decide if the risks of going to work outweigh the need for a paycheck.

But for workers like Lori Cleveland, being in the right place at the right time has helped her find better-paying opportunities.

“I only had luck with those other jobs because they are essential establishments always looking for employees,” Cleveland said of her time at Trader Joe’s. She said life in child care is “easier now,” especially with the better pay.

Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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