When Hours + Wages Do Not Equal A Comfortable Life

simplexity wellness Mar 05, 2021

If the coronavirus pandemic has taught us anything, it’s that the health and wellbeing of the people in our communities have a measurable impact on our own lives. And yet many do not encourage the financial prosperity of those around us. While the rich get richer, others struggle to provide basic necessities to their families.

In 2019 alone, CEOs raked in an average salary of $21.3Ma 14% increase compared to 2018 and 320x more than the compensation of a typical worker. While high-level executives have always pulled in massive paychecks, the compensation disparity grew exponentially in the last few decades; in 1989, CEOs made “only” 61x more than the average employee.

It doesn’t have to be this way. Dan Price, founder and CEO of Gravity Payments, wants the world to know that our current model, wherein the most wealthy try to convince us that the workforce is inherently lazy and in need of monetary motivation, simply...isn’t true. It’s a fabrication designed by the individuals who benefit from this false narrative. How does he know that? Because he did it. Five years ago, Dan made headlines when he took a massive pay cut, shrinking his $1M dollar paycheck and bringing every single one of his employees up to a minimum of $70K per year.

On Simplexity, Dan and I got into the real-life applications of this monumental model. So as we rage on social media about a $15 minimum wage, let’s pause to consider what actually happened at a company that already took the plunge.

 

THE HAPPINESS EQUATION 

So, why $70K? It’s well over the current minimum wage. It even surpasses the minimum wage being debated on the Senate floor and in Facebook comments. If Dan and Gravity Payments just wanted to make a good show for the media, and even for their employees, the more lucrative solution would have been to give everyone a sizable raise per hour. Instead, they doubled salaries. Why? In short, it’s because that’s what they could afford. But there’s more to it than that.

In 2010, Daniel Kahneman and Angus Deaton studied the impact of money on one’s emotional wellbeing and evaluation of life; they found that the more money we make, the happier we feel. The most surprising revelation in Kahneman and Deaton’s study, though, was the $75K threshold; at $75K, emotional wellbeing levels off. At least in our current economic climate, $75K allows individuals to feel comfortable in their lives and, ultimately, in their minds.

This is hardly surprising, knowing what we know about Maslow’s hierarchy of needswhich asserts that humans require a foundation of physiological supports like food, clothing, and shelter before they can focus on psychological improvements or self-fulfillment. When individuals can afford basic necessities like sustenance and access to wellness practices, they’re granted the opportunity to look beyond their in-the-moment needs, to look beyond their daily stressors, and to plan for the future.

 

THE PRODUCTIVITY FACTOR 

Many argue that offering increased wages across the board will negatively impact the productivity of your workforce, citing this as a reason to keep hourly rates low. Multiple studies have proven that isn’t the case. Rather, if we release the story that the world is made up of lazy people looking to game the system, we discover that people are naturally motivated to do a good job, to be a part of something that matters, and to yearn to master the job that’s before them. We discover that unburdened employees bring more clarity, drive, and leadership to the table.

Companies that supply a livable wage notice an increase in productivity because their workforce isn’t distracted by the tensions that come from financial pressures in life. Rather than wondering how he’ll pay for childcare now that his mother is moving out of state, your cashier can focus on providing the best customer service experience. When she’s not wondering what to cut out so she can replace her broken washing machine, your accounting analyst can improve the way your company logs expenses.

Comfort in your position encourages positive risk-taking, like making your voice heard in a meeting, Dan explains. It creates more innovative, thought-provoking, creative, and inclusive workspaces.

 

THE ACTUAL SOLUTION IN ACTUAL LIFE 

So, what really happens? Outside of studies from Harvard journals or economic projections in newspapers, how does this play out in a real-life scenario? Here are just a few of the results Dan’s team experienced:

  • Leaning in to “the human experience.” Prior to these raises, Dan’s company saw between zero and two babies born to staff members each year. In the five years since initiating pay bumps, they’ve welcomed over 50 babies to the Gravity Payments family. While parenthood may not be right for everyone, offering a foundation of financial stability opens up this possibility to the people who want it.
  • Increased homeownership. Before the raises, no one at their company was a first-time homebuyer. After their salary increases, dozens have gone on to purchase homes for the first time.
  • Debt reduction. As we all know, so much of America is crushed by debt. 70% of Dan’s staff used their increased wages to either substantially pay down debts or to eliminate them altogether, and many either doubled or tripled their retirement savings.

Imagine if we could carry these statistics out to the entire nation or the entire world. To circle back to the start, the coronavirus made clear the connection between the wellbeing of those around us and our own wellbeing. The results at Dan’s company illuminate that message, too. If everyone could comfortably provide for their basic necessities, the world becomes a place of decreased debt, increased homeownership, and less stress around family planningjust for a startUltimately, providing a livable wage is about more than just caring for the individual. It’s about caring for society as a whole.

 

WHAT THIS MEANS FOR SMALL BUSINESSES 

Maybe the most enlightening, inspiring part of my conversation with Dan got to the root of so many conversations happening right now: how does this impact small businesses? Here, we’ve discussed a living wage, but in the larger conversation, we’re worried about a threshold much lower than that: minimum wage. Critics of mandatory wage increases argue that small businesses cannot bear the brunt of this increased economic burden. But many studies push back, arguing that increased wages go back into local economies when people don’t have to look for the absolute lowest prices elsewhere. What’s Dan’s take on this? Well, you’ll just have to listen to Simplexity to find out.

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