John Driscoll chairs the Board of Magnit Global, an international staffing company, and is the former President of Healthcare for Walgreens. Previously, he was also CEO at CareCentrix, president of Castlight, group president at Medco, SVP at Oxford Health Plans, and senior advisor at Walgreens Boots Alliance. John also served as a captain in the U.S. Army Reserve. Co-author, Morris Pearl, is a former managing director of BlackRock and chair of the Patriotic Millionaires.
What’s the big idea?
American workers are paid insultingly low wages for increasingly demanding jobs. Despite the growth trend of productivity metrics, the workforce has not been rewarded with better pay. Raising wages to match cost-of-living has been consistently shown to be a triple-win: for workers, businesses, and the entire country. Paying the people pays off for everyone.
Below, co-authors John and Morris share five key insights from their new book, Pay the People!: Why Fair Pay is Good for Business and Great for America. Listen to the audio version—read by John—in the Next Big Idea App.
1. Paying a higher minimum wage unlocks the power of your people.
In 2013, when I was hired as the new CEO of a struggling healthcare company called CareCentrix, my investors told me to cut costs so that we could shrink our way to survival. We weren’t taking care of our customers and sales had slipped. But like most businesses, we were largely a people-powered company and many of our employees were struggling to survive on the wages we paid. Every year, we asked for more effort from our employees while paying many of them less.
After I became CEO, I made sure that any employee could reach me directly. After an initial period of awkwardness, many did. I learned a lot about what we could do to improve our business and I also came face-to-face with the everyday challenges of our lower-paid employees.
Roughly a third of our company made less than the prevailing living wage of $15 an hour. What that translated to was full-time employees not being able to pay their bills. We had one customer service rep living out of her car with her child, and another claims specialist who was looking for an advance to pay for diapers. Another middle manager was paying out of her own pocket to buy her team turkey dinners for Thanksgiving.
CareCentrix is not unique. Our economy is largely based on business services and many service companies pay as little as they legally can. Even today (twelve years later) nearly twenty million workers earn less than $15 an hour.
I came up with a novel solution. I froze my salary and all senior executives pay and invested in the people we depended on and who depended on us to pay them a fair wage. We more than doubled our entry-level wages from $7.25 to $15 an hour. It proved to be a great investment. It unlocked the power of our people to succeed. We cut turnover nearly in half. We boosted the productivity of our call centers and claims payment centers by over 30 percent. Over the next nine years, CareCentrix tripled in size and more than quadrupled in value before being sold to Walgreens in 2022.
2. Higher wages grow the economy.
Raising the minimum wage helps low-wage workers get paid more, but it can benefit all of us. Our economy depends on consumer demand. 70 percent of the American economy’s growth depends on ordinary people’s ability to buy goods and services. But when the cost of living speeds up and real wages drift down, we are suppressing that growth.
Right now, 40 percent of working Americans (more than 50 million people) make less than the standard cost of living for a single person with no kids, which is approximately $20 an hour. We have a substantial underclass of Americans working full-time jobs for near-poverty wages. And that’s not because American workers are any less productive. In fact, they make their employers more money than ever. Throughout the 20th century up to the late 1970s, workers’ productivity gains were matched with wage increases. When workers made their employers more money, they earned more, and America’s economic growth was the envy of the world.
“40 percent of working Americans (more than 50 million people) make less than the standard cost of living for a single person with no kids.”
Since then, productivity has risen by more than 70 percent, while wages have increased by less than 10 percent. Nearly all the profits from that increased productivity went to Wall Street investors and executives like me. Congress has allowed our wage floor (the federal minimum wage) to stay fixed while the prices of nearly everything else have gone up. The minimum wage hasn’t been raised in 15 years; it is still $7.25 an hour, or $15,000 a year for full-time work.
Things haven’t always been this disconnected. If the minimum wage had kept up with inflation since its peak purchasing power in 1968, today, it would be close to $15. And if the federal minimum wage had kept pace with both inflation and productivity gains since 1968, it would be nearly $26 an hour. But that’s not where we are today, with a federal minimum of $7.25 an hour. There is not a single county in the entire country where that meets the cost of living.
When forty percent of American workers earn less than the actual cost of living, we’ve got a lot of Americans who are limited in how much they can participate in their local economies. A higher minimum wage would give tens of millions of consumers more money to spend in their local businesses and restaurants, boosting the economy.
If you own a small bar, which should you care more about: paying your one or two bartenders an extra $5 an hour or the fact that the 30 people in your bar all have more beer money in their pockets? Sure, expenses go up, but the amount of money you have coming in makes up for it.
3. Paying a living wage is the new gold standard for great companies.
While increasing consumer demand is one compelling reason businesses should support a higher minimum wage, I found that paying low-wage workers more paid unexpected dividends for my business. That turns out to be the case for much larger and more successful companies as well.
There is no company in America that is more focused on low costs than Walmart. It’s the most successful retailer in the world. Yet, in 2015, under the leadership of their new CEO, Doug McMillon, they committed to raising their wages above the minimum of $7.25 and shifting away from part-time work to more full-time work for their team. They massively improved employee morale and reduced employee turnover. Today, Walmart earns more revenue than any other company in America, and since 2015, its stock price has outperformed the S&P500.
“Companies with better-paid employees experience higher customer satisfaction, improved profitability, and faster-growing stock prices.”
Reams of academic research document how higher-paid, happier workers are more productive and less likely to switch jobs. Turnover is very expensive: for the average company with just 100 employees, turnover costs typically amount to $2.6 million per year. Paying employees a higher wage often saves money.
Research also shows that companies with better-paid employees experience higher customer satisfaction, improved profitability, and faster-growing stock prices. It is a clear business win, and that’s why we’re seeing more super-successful companies like Walmart and Bank of America raise their employees’ wages to a living wage. Higher pay pays for itself.
As JP Morgan’s Chase CEO Jamie Dimon explained in his letter to shareholders, “The more you invest in people—whether through better wages, better benefits or better training—the more successful your business will be.”
4. Business needs the government to set rules for fair pay.
While more corporate leaders understand the value of a living wage, companies still have too many incentives to prioritize short-term profit over longer-term value. Many CEOs can’t see how wage increases will help their business in a few years and are more worried about their profits for next month.
With the federal minimum wage at $7.25 an hour and many states still requiring less than $15.00 per hour, many small businesses pay as little as possible. This is why 11 million full-time employees qualify for food stamps. When businesses fail to pay a living wage, taxpayers pay the bill.
“Companies still have too many incentives to prioritize short-term profit over longer-term value.”
At another end of the spectrum, some business leaders do whatever it takes—even bending the law—to pay their employees as little as possible. Wage theft is rampant, with thousands of businesses confiscating tips and forcing people to work overtime without pay. Every year, economists estimate that employers in America steal around $50 billion in wages from their employees. That’s more than three times what is lost to shoplifting each year.
The executives greenlighting wage theft are not going to raise wages even if it’s a long-term winner because they’re too selfish. The only way to reliably fix the problem of low wages is for Congress to change the rules for everybody and mandate that working people be paid a wage they can afford to live on.
5. Politicians need to catch up to their voters.
The political fight over minimum wage is so frustrating because it is born from not understanding how business and the economy work. Raising wages is a win-win for workers and businesses. The people who claim that doing so will kill jobs and destroy businesses have been proven wrong time and time again. We don’t have to guess what’s going to happen: dozens of cities and states have raised their minimum wage over the last decade, and in each case it has gone well.
Some critics say a higher minimum wage causes businesses to close. Yet a year after California raised its minimum wage for fast-food workers to $20 per hour, there are now 10 thousand new fast-food jobs in California. Denny’s restaurant CEO admitted on a shareholder call that higher minimum wages in California led to their California locations performing better than ever.
Some people fear that a higher minimum wage leads to rising inflation and higher consumer costs. However, during peak inflation over the past several years, states with $15 minimum wages saw essentially the exact same levels of inflation as those with a $7.25 minimum wage.
American voters already understand the argument. Too many full-time workers are paid too little, and the majority of voters believe that workers should not have to suffer to succeed. Meanwhile, members of Congress have sat on their hands on raising the minimum wage. Democratic and Republican voters, in Red states and Blue, have reliably voted to raise the minimum wage in twenty-one out of twenty-two ballot initiatives. Even in Republican strongholds like Missouri and Alaska, voters recently voted to approve raising the minimum wage. It’s time for Congress to catch up to their voters and raise the minimum wage to a living wage. It will help low-wage workers and help grow the economy for all of us.
To listen to the audio version read by co-author John Driscoll, download the Next Big Idea App today:
