NPR’s Consider This recently covered the struggle many businesses are facing as they try to find workers in 2021, despite high unemployment. Many low-wage employers are turning to signing bonuses to incentivize those who are jobless to re-enter the workforce via their open positions. With some blaming increased unemployment benefits for the mismatch between the number of open positions and the number of available workers, others suggest wages are the issue.
Montana Governor Greg Gianforte early in May replaced pandemic unemployment benefits in the state with a one-time “return-to-work” bonus of $1,200. In an appearance on Fox Business, Gianforte was asked about the possibility that the shortage of applicants might be due to residents “not wanting to work at the positions that are available” rather than not wanting to work more generally, to which he replied, “well, you got to start someplace.”
There has been a trend in corporate management away from raising wages because of the psychological effects of a pay increase. Labor economists have long noted that wage increases tend to be “sticky.” Once someone makes a higher base pay, they are likely to resist future attempts to reduce that pay. Bonuses, on the other hand, can come and go with less pushback from workers.
Increasing base pay also has significant financial downsides for a wide range of employers. For publicly traded companies, stock values are tied to retained earnings, which in turn depend on expenses. And payroll is often the single biggest expense for service companies. Increasing base pay also increases employers’ share of employment tax obligations, perhaps permanently.
While economic theory suggests a shortage of workers signifies a need to increase base pay, it’s ultimately unsurprising that companies are opting for signing bonuses now.
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