preview

Living Wage Challenges

Decent Essays

Risks and challenges of using a living wage Companies that use a living wage base system rather than basing pay on the legal or market rate may face some challenges. Living wage, which is “essentially a minimum wage based on the cost of living in a particular region” (Noe, Hollenbeck, Gerhart, and Wright, 2014) has been used instead of the legal or market rate to pay low wage employees in the hope that they will not need government assistance to supplement their income to support their family. As Grant and Trautner states “living wage ordinances are founded on the principle that an honest day's work should be rewarded by an honest day's pay, and local tax dollars should not be used to finance poverty level jobs” (2004). There may be benefits …show more content…

“Opponents of living wage ordinances argue that creating a mandatory living wage would lead to job loss, particularly among low-skill employees, resulting in wage gains for mostly higher income employees rather than the poorest employees (Bloom, 2003). The company would need to have fewer jobs available to the low-skill employees to keep costs of payroll within limits they can afford. While IKEA uses the living wage to pay their employees, to keep the costs within the range they need to keep their doors open, they may not be able to hire the same amount of personnel if they were paying the legal or market wage rate. This is a risk for IKEA by not having enough employees to have available for customer’s needs. If enough customers are unhappy with the service of IKEA, they will look elsewhere for their furniture …show more content…

Employees that are aware they are getting paid less for doing the same job as someone else, even in a different city, promotes a sense of unfairness. With the feeling of unfairness, they may not work as hard as they would normally, they may quit and find employment elsewhere. IKEA’s challenge here is to inform the employee to know about the living wage and what it is supposed to accomplish. Even though IKEA is not going to raise their prices to compensate for the increases in payroll costs, other companies that utilize the living wage rates, may not be able to. So this is a challenge that companies will face. If they raise their products or services rates too high they will no longer be competitive in their market, thus losing revenue. This may lead to unemployment for the employees or closing of the business itself because they could not meet the needs of their

Get Access