A growing body of research sheds light on how the downward pressure on blue-collar wages is bad for the overall U.S. economy. While supply-chain employers have enjoyed a rebirth and reinvention of the sector, it comes with increasing competition to manufacture and deliver goods faster and cheaper. This fierce global competition on everything from a dishwasher to a drone is driving companies to compress their profit margins. And one of the largest components of production is labor.
Historically low wages paid to hourly blue-collar workers across the supply chain can be damaging to a company’s bottom line, especially given the unprecedented labor shortages and widening skill gap facing these same companies. Beyond the implied obligation of employers to value and support their workforce, the personal financial stress of blue-collar workers can have a negative impact on profits.
Research has uncovered empirical evidence of the cost to employers when employees face financial insecurity. After studying a large transportation company employing over 1,000 short-haul truck drivers, professors from the University of Pittsburgh concluded that two-thirds of employees didn’t have enough savings to cover 60 days of expenses in case of injury or illness, and 33% reported financial stress.
This stress, or “cognitive tax,” was associated with drivers being 50% more likely to have a preventable accident in the following eight months. Researchers estimated that employee financial precariousness costs the company at least $1.3 million per year.
The issue spans the entire supply chain, with many blue-collar workers just one missed paycheck or flat tire away from financial distress. According to the Federal Reserve, four in ten adults would struggle to come up with just $400 in the face of a financial emergency.
With mental sharpness and focus being so important to the safety of employees operating machinery, equipment and vehicles, the impact on supply chain organizations is great. In addition to productivity and safety, there’s the issue of talent attraction and retention. The lowest unemployment rate in 50 years is making it difficult to attract blue-collar workers to jobs that are vital to the resurgence of the U.S. manufacturing industry. This is a relatively new labor market dynamic for blue-collar employers.
All this points to a need for supply-chain organizations to begin making reasonable investments in their hourly workforce. Employers can start by studying their own workforces to determine if current wages and benefits offered are covering life’s most basic expenses, or if employees are relying on public assistance programs, operating with little to no savings available for an emergency, or using credit cards to pay for the cost of living.
To gauge the financial security of their blue-collar workforce, employers can first examine the cost of living by location and then compare it to the average annual blue-collar wage.
To make the business case for increasing pay rates, correlate the existence of financial security or insecurity with non-financial performance criteria such as safety, attendance, productivity and turnover, and their impact to the bottom line.
Everyday challenges that appear easy for higher-income earners to overcome can represent a crisis for a worker earning below the cost of living. As a result, there’s often a disconnect between blue-collar workers and management. Some examples:
- Transportation. For those who own a car, a common event like a flat tire or auto repair can mean the different between making rent or paying an electric bill. For those who rely on others to drive them or carpool, last-minute shift changes might be difficult to accommodate.
- Childcare. Employees who cannot afford childcare might alternate work schedules among parents, one working day shifts and the other at night. Therefore, working past normal hours might create a high-stress issue for parents who must leave young children unattended or be late for work.
- Health and wellbeing. With inadequate or non-existent health benefits, many blue-collar workers face increased levels of sickness, absenteeism and lower productivity.
- Basic life needs. When every dollar counts towards the most basic of needs, such as food, housing and clothing, missing just a few hours of work in order to see a doctor, meet with a teacher or tend to personal business presents tremendous angst, especially when hourly workers do not have paid time off or sick days.
In short, a financially insecure workforce is plagued with sometimes unavoidable tardiness, absenteeism, high levels of stress and lacking optimal health, all of which impact workforce stability and performance.
Despite the fact that blue-collar wages have begun to increase, they still lag the national average cost of living due to historical wage stagnation dating back to 2000.
The current average hourly pay rate for the 18,000+ blue-collar workers who participated in a 2019 “Voice of the Blue-Collar Worker” survey conducted by EmployBridge is $13.87. On the surface, this might appear to be a fair wage, given that the current federal minimum wage of 2019 is $7.25. However, the average hourly pay for blue-collar workers falls well below the real cost of living. For example, the U.S. state with the lowest cost of living is Mississippi, where the average annual salary is $38,144, or $18.33 per hour. Blue-collar hourly workers would need to earn roughly five dollars more an hour to meet the state’s average cost of living. Meanwhile, hourly blue-collar workers in California would need to earn $30.27 more an hour to meet its average cost of living.
Offering higher pay rates to blue-collar workers not only helps solve the financial challenges and economic insecurity among an organization’s workforce, it has been proven to deliver profitable outcomes, especially when there’s a labor shortage.
In a study of 200 manufacturing and logistics companies, EmployBridge found hourly wage increases were “very likely to significantly reduce turnover, improve attendance and enhance productivity.” Results were most dramatic with hourly pay rate increases of $1 or more.
Moreover, the cost of losing one blue-collar worker earning $14 hourly is $4,569, according to a meta-analysis by the Center for American Progress. This amount could be used instead to give that same employee an hourly pay raise of $2.24 for a year, which can greatly impact their level of financial security.
The realities of the marketplace bring many choices to a shrinking blue-collar workforce. In short, while blue-collar workers have been traditionally perceived by business as having few choices in the job market and easily replaced, today’s reality is quite different. Now, blue-collar workers are increasingly scarce, in high-demand and hungry for employers that treat them with respect.
More than ever, blue-collar workers are opting to leave their jobs for more money and better offers. Consider that among blue-collar workers over the last decade, the unemployment rate has dropped from 13% to 3.3%, and the number of persons voluntarily quitting a job rose from 81,000 to 231,000 year over year. Average turnover among blue-collar workers in 2018 was 20%, according to CompData, and turnover rates are expected to go higher. According to the 2019 “Voice of the Blue-Collar Worker,” 26% of those who are currently working are actively seeking new jobs, and 30% are willing to consider a different job opportunity if it presents itself — amounting to 56% of the blue-collar workforce at risk.
Brian Devine is senior vice president at EmployBridge.