Sometimes a question can be as revealing as the answer.
In between sessions at yesterday’s Income Inequality Symposium, I was drawn into a discussion with fellow attendees about the “total compensation” minimum wage that some in the business community are still pushing. Under total compensation, an employer’s obligation to pay a minimum of $15 an hour could be met by a combination of cash wages, tips, and the cost of providing certain benefits. For example, I explained, $10.50 an hour in cash wages, plus $2.50 an hour in tips, plus $2 an hour in benefits would amount to a legal $15 an hour wage.
So if an employer were to offer a matching 401K contribution up to a maximum of one percent of an employee’s salary, I was asked, what would be the maximum benefit a minimum wage worker could receive? Would it be $0.15 an hour—one percent of the putative $15 an hour minimum wage? Would it be, using the example above, $0.105 an hour—one percent of the employee’s cash wages? Or would it be some more difficult to calculate number?
It took me a moment to wrap my mind around the question, but the answer I arrived at surprised even me. It doesn’t matter on which figure the employer chooses to calculate the maximum 401K match: under total compensation a matching 401K contribution is worth absolutely nothing to a minimum wage employee. Zero. Bupkes. Zilch.
And the same is true of the value of every other benefit.
Think about it. If you are earning a $15 total compensation minimum wage, and your employer generously matches your 401K contribution up to one percent of that higher number, you would receive $0.15 an hour in additional benefits. But that higher benefit could then be used to reduce the wage portion of your compensation by an equal amount. The benefit ends up costing the employer nothing, and the net result is that the “matching” contribution comes directly out of the employee’s paycheck. The employer gives with one hand and takes away with the other.
Likewise for other benefits like health insurance premiums and “paid” vacation days, the cost of which may also be used to decrease the wage component of your total compensation by an equal and offsetting amount. It’s as if minimum wage employees were purchasing these benefits through paycheck deductions; the employer bears none of the costs.
Some business owners argue that without total compensation they will be forced to eliminate benefits in order to shave costs. That may or may not be true. But from the minimum wage employee’s perspective, total compensation virtually guarantees the equivalent outcome. For when a benefit is transformed into a line item to be deducted from your take-home pay, it becomes nothing more than just another monthly expense. “Benefits” are no longer additive to one’s total compensation—eliminate them and your cash wages go up by a corresponding amount.
Of course, the caveat holds that all this analysis is only true of full-time employees. Lacking the cost of benefits to subtract from total compensation, low-wage part-timers and temporary workers could see their effective wage floor rise substantially.
But as a policy for raising the incomes of all low-wage workers, total compensation fails to deliver on its promise, while (for reasons I’ve explained previously) eroding the effective wage floor over time. A $15 total compensation minimum wage simply does not guarantee a $15 minimum wage. And to insist otherwise would be a lie.