The Elbert Files: Iowa’s low-wage burden
An economic conundrum that has gone unresolved for decades is Iowa’s reputation for paying low wages.
Low pay is responsible for a large part of the so-called brain drain that has resulted in so many talented young people leaving the state. It is also a factor in the “skills shortage” that is causing concern among our major employers.
A handful of local businesses, including Des Moines’ Belin McCormick law firm, recognized this problem long ago and created pay scales that are competitive with those in large metropolitan areas, allowing them to attract top talent.
You could argue that much of the success that Des Moines has experienced in recent years is due in large part to the efforts of forward-thinking businesses that realize that decent pay is part of the cost of moving forward.
But Des Moines is in many ways an exception. The rule for Iowa as a whole is that we are a low-wage state.
Average compensation in Iowa in 2014, according to the Bureau of Economic Analysis, was 81 percent of the national average. That’s up from 78.4 percent in 2001, but it is still 19 percent below the national average.
There are many reasons that workers in some parts of the country, including much of the Midwest, are paid less than workers in other locations. Some are valid. Some are not.
Squeezing the last ounce of profit out of a business is not a valid strategy. In fact, it is usually counterproductive, as Henry Ford learned in 1914 when he doubled the minimum daily pay of his employees.
The benefit most frequently connected with Ford’s famous pay hike was that it provided his workers with enough income to actually buy the cars they were making. The more tangible benefit, though, was that the higher wage drastically reduced the very high employee turnover that was costing Ford more than any benefit he received from the low wage.
Two explanations commonly cited in defense of low wages are an oversupply of workers in a particular industry, nursing for example, and differentials in the cost of living.
Matthew Rizai, CEO of Workiva Inc., a fast-growing, Ames-based business software developer, explained cost of living differentials as well as anyone when he recently told The New York Times that tech workers can “live big” in Iowa, where they have access to good schools and comfortable housing at a fraction of what those benefits cost on the coasts.
The problem with any debate about low wages is that arguments quickly become circular, creating a chicken-or-egg question that makes it difficult to determine in specific situations which reasons are valid and which are not.
Business owners can, and do, claim that higher wages make products and services uncompetitive, subjecting them to the possibility of failure and eventually unemployment.
While that may be true in situations, the concept is also a catchall excuse to justify questionable pay practices.
In my own industry, newspapers, there has been a continued ratcheting down of pay scales during the past 15 years. When I joined the Des Moines Register and Tribune in 1975, the company paid the highest wages of any newspaper in Iowa.
When I retired in 2012, seasoned reporters and editors could, and did, find better pay at smaller publications in Iowa.
The Register and its parent, Gannett Co. Inc., are not alone in employing low-wage practices. Sadly, they have become common throughout the news industry.
I don’t have a solution. I wish I did.
But I do know that no matter how sincere politicians and business leaders are about boosting economic growth, they will never achieve above-average growth, or even average growth on a sustained basis, in a state that has below-average wages.