Why do you pay workers?

I swear I'm going somewhere with this.

The issue.

The question in the headline.

Explain.

No, this isn’t my hard turn against workers or “A Modest Proposal” moment. I have been thinking a lot lately about both the problems employers have in recruiting people they need into jobs and the reasons those jobs are open in the first place.

As I have been thinking about it, it occurred to me: how many employers have an answer to the question, “Why do we pay people?”

So, I have been putting that question to employers in my orbit. The answers I have heard are awfully varied. Sometimes they’re pretty thoughtful meditations that could come out of an economics class (We’re exchanging payment in return for their labor, which is valuable to us because it helps us move goods and services to our customers). Sometimes they’re pretty straightforward, let’s say (Because we have to).

Neither of those examples are the answer I had in mind—and nowhere nearly smart-assed enough to come from me.

So why do you pay workers?

So they show up, of course.

The daily cost-benefit analysis of showing up.

So, let’s go back to the economics class explanation. A business hires people because they need people who can do the things that make the business money or enable the business to make money. In exchange for their labor and time, the business pays the worker. But beyond competency and, you know, actual talent, the most important thing for many businesses is that a person is there to do the work.

What are workers doing with the money they get in return, though? The general answer is that the worker is using it to pay for their lives. If what they get in return isn’t able to let them do that, then that academic exchange of labor for resources starts to break down. If they’re not able to buy groceries, it’s harder for them to get to work. If they’re not able to pay for medical care, it’s harder for them to get to work. If they’re not able to pay for a ride or bus fare, then they can’t get to work.

Sometimes workers quit because their daily cost-benefit analysis tells them that the grief isn’t worth the pay anymore. Sometimes it’s because they lose the job because of distractions from the constant battle to make ends meet.

Of course, workers can make do—but it’s getting hard out there, if you pay attention to recent surveys. Seventy-three percent of workers say they are struggling with anything beyond basic living expenses. Sixty percent of Americans can’t afford a minimal basic quality of life. Half say they’re living paycheck to paycheck.

And only 40 percent of Americans have a good job, per research published last week from The Families and Workers Fund, Gallup, Jobs for the Future, and the W.E. John Institute for Employer Research. Pay is part of the reason why.

As political and business leaders fret over filling roles in key sectors, they need to take into account those surveys—and very recent history that a lot of people were awfully take-y about at the time. Nearly one-in-three Americans quit or changed jobs in 2021 and 2022 during The Great Resignation, as the employers faced worker shortages after early pandemic disruptions. The most common reason workers quit? Better pay.

I don’t think you can dismiss that as just a blip. Even though employers have taken back their leverage as the employment market has cooled, a lot of workers say they would quit if they could.

The Spreadsheet Brain Problem.

Since becoming a small-business owner, I have observed a phenomenon in myself that I call Spreadsheet Brain. Sometimes, when it’s late and I’m calculating expenses, I find myself annoyed with one number in particular—salary—because it’s always there and always costing the business an annoying amount of money, even when I’m doing a great job of keeping other expenses low. Please note that I am my only employee.

I share this to say that I get it. Most employers are in the business of making money. (Mine is, at least.) It’s hard to make money if you’re paying a ton of overhead every month and not getting the amount of productivity or sales you want in return. The pressure only increases when you have investors who are only looking for the most in profits they can squeeze out of you. Many investors only see salaries as items on a spreadsheet, and they usually start with overhead when they wonder if you’re maximizing their profitability.

Thing is: you get what you pay for, and you get what you don’t pay for, too. If you want workers to take hard jobs and show up when you need them, but you don’t pay enough for them to cover the costs of living, eventually you’re going to pay a price—either in lost productivity or lost profits due to how much you’re spending on turnover.

So what do we do about it?

Well, I don’t have easy answers.

If you’re struggling to retain talent, I would recommend trying to pay people more based on your local cost of living—but I’m also not going to pretend this stuff is easy. You may not have the money to do it, for one. Plus, investors aren’t going to easily shift thinking that businesses always can squeeze more juice from a flattened orange—particularly when AI is being marketed to employers and investors as being able to get more juice from fewer and flatter oranges.

But I do think the question at the top of this piece is a good conversation starter—delivered thoughtfully and not as the first step in not paying workers since that’s the precise opposite of the point of this newsletter. My impression is that why you pay people isn’t something a lot of employers think about—there are a lot more “Because we have to” folks than not. Thinking about it is a lot of the battle in my experience. This stuff can be accepted as scenery in the employment relationship and not worth the curiosity.

But if you are curious, you might find something worth rethinking.

Card subject to change.

Well, that was fun. Sorry for a later delivery today due to kids stuff and the infrastructure propping up half the internet catching fire yesterday.

On Friday, I’ll be back to depress you in the most up-to-date way possible about the state of the shutdown. I’ll have some apprenticeship thoughts and other updates on where we are on funding, of course.

I’ll also be answering more paid subscriber questions about where we are in workforce. You can drop in yours by clicking the button below—and sign up here for paid.

Next Tuesday: There’s a population that gets a ton of out of workforce development. So why are we de-emphasizing them—and making it harder for them to get the training they need to get jobs employers need filling?