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The Business Case for Paying the People

My name is John Driscoll. I am a member of the Patriotic Millionaires and a Senior Advisor to Walgreens Boots Alliance and the EQT Group. Previously, I was the CEO of CareCentrix, Group President for New Markets at Medco, and Executive Vice President at Walker Digital. I have built my career helping develop and lead high growth companies in health care and technology.

We normally write this newsletter in the collective voice of all our members. This week though, I decided to take the reins to give you a rundown on the state of wages in America, with special attention to several new reports, including news about the job growth that California is currently experiencing in its fast food industry after raising its minimum wage to $20 an hour. I also want to share a bit about my own professional experience as a healthcare executive to make the business case for paying workers wages they can survive on.

Last month, in partnership with the Living Wage Institute, Dayforce, a human resources provider, released its inaugural Living Wage Index. Using data from the MIT Living Wage Calculator, their team analyzed records from roughly 600,000 full-time employees across the country to gauge how many of them make a cost-of-living wage, i.e. a wage sufficient enough to afford basic essentials. Their results were astounding, and not in a good way.

Under a model assuming a family size of two working adults with two children, Dayforce found:

  • 44% of full-time workers in America do not make a cost-of-living wage.
  • There are gross gender inequities in pay, as women are 32% less likely to earn a cost-of-living wage than men.
  • There are significant racial and ethnic pay disparities, as 60% of Black and Latino workers fail to earn a cost-of-living wage compared to 32% of their white counterparts.
  • Industry also makes a big difference: more than half of workers in leisure and hospitality, retail, and healthcare fail to earn cost-of-living wages.

To fully appreciate how extreme the wage issue is in America, it’s helpful to look at it from the perspective of a single adult with no children. According to the MIT Living Wage Calculator, North Carolina is the median state in terms of the average cost of living ($44,844) in the US – which simply means that the average single worker in America needs to earn $21.56 an hour to be paid a wage they can live on.

And how many Americans, you may ask, make under $21.56 an hour? Far too many – approximately 54 million. Yes, that’s right, more than one in four American workers.

While it’s helpful to look at “medians,” it’s important to understand that the cost of living varies dramatically across different states and locales around the country – and that governments within those different geographies also differ dramatically in terms of what they’ve done to help workers receive fair pay for full-time work.

Last month, Oxfam released its sixth annual Best States to Work IndexThe index ranks all 50 states, the District of Columbia, and Puerto Rico on three worker-related policy dimensions: wages, worker protections, and organizing rights. On the wage dimension, Oxfam scored states on the degree to which their policies enabled workers to earn cost-of-living wages. The District of Columbia, Washington, and California were the highest scoring states on this front, while Indiana, North Carolina, and South Carolina were the lowest scoring.

After fifteen years of a frozen federal minimum wage – a wage that’s falling in real terms – we’ve made some progress over the past few years. Between 2019 and 2023, as the economy rebounded from the COVID pandemic, workers in the 10th percentile experienced a 13.2% growth in real wages, which was the highest growth that low-wage workers have experienced since 1979. Twenty-nine states and the District of Columbia also increased their legal minimum wages. But unfortunately, “better” is still not “enough” for low-wage workers in America. No state minimum wage – not even in the “best” places like the District of Columbia, where workers earn a minimum of $17.50 an hour – pays enough to support a family. When 44% of full-time workers can’t make ends meet, we have a long way to go on the road to wage fairness in America.

It strikes me as morally wrong that, in the richest country in the history of the world, we have millions of people working full time who cannot afford the basic necessities like food, rent, and utilities. This is especially the case in light of the fact that CEOs and corporate executives often receive payouts worth hundreds, sometimes thousands, times more than what their average employees make. Starbucks’ new CEO, Brian Niccol, is but one of them: news broke last month that he will receive a $113 million pay package – which is 7,952 times more than what the median Starbucks employee makes in a year ($14,209).

But paying workers well isn’t just about fairness. From my own experience as an executive, it’s also what works and makes better business sense. In 2014, when I was CEO of CareCentrix, a Connecticut-based home healthcare services company that was ultimately bought by Walgreens Boots Alliance, my executives and I decided to forego raises for ourselves and instead doubled wages for the rest of the company’s workers from $7.25 an hour to $15. Rather than dooming us to financial ruin, it ended up being a win for everyone as our business more than tripled in size and quadrupled in value.

Many investors and peers were skeptical that investing in our employees would help turn CareCentrix around, but it shouldn’t be a surprise. It’s just basic business sense that really only requires recognizing that workers are human beings, not cogs in a machine. When people are paid enough to feel a basic level of economic security, they will be stronger and more productive workers. When workers aren’t stressed about getting evicted from their apartment, having their electricity or gas shut off, or being unable to afford a cake to celebrate their kid’s birthday, they will be able to fully engage at work. They will also be more loyal and motivated to help a company that treats them as the human beings that they are, as opposed to disposable and replaceable costs.

Critics of raising minimum wages like to say that doing so will kill jobs and local economies. To them I make two points. The first, and most important, is that if you can’t afford to pay your workers cost-of-living wages, you probably can’t afford to be in business at all. The second is that they are simply wrong. Study after study has found that raising minimum wages has a positive effect on employment. If you think about it, it makes sense: with more money in their pockets, workers will naturally spend more in their local economies, which in turn creates jobs.

If you still don’t believe me, just look at what’s been going on in California. In September 2023, California Governor Gavin Newsom signed a law that increased the state’s minimum wage for its fast food workers to $20 an hour. (It went into effect April 1, 2024.) Over the last year, critics have whined nonstop over their fears that the wage hike would kill jobs, but judging by the numbers, they had nothing to worry about. Since the wage increase went into effect, the state’s fast food industry has added 11,000 new jobs and now boasts a record total of 750,500 jobs.

In January, we will have a new president and a new Congress. Whichever party wins has an opportunity to chart a new course on wages in America. They can and should raise the federal minimum wage to a cost-of-living wage. They can and should abolish the subminimum wage for tipped workers. They can and should abolish the subminimum wage for disabled workers. They can and should take steps to ensure the stability of businesses, the economy as a whole, and our democracy.

The Patriotic Millionaires have a special solution in the works to help fix the wage issue in America, and we’ll be sure to tell you about it soon. But for now, I hope that I was able to lay out the facts regarding America’s wage crisis and help you understand why paying the people is in everyone’s best interest.