There’s a lot more to a good job than making money. But for more than 50 million Americans who work in low-wage jobs, pay matters a lot. Low and inconsistent pay wreaks havoc on workers’ lives, leaving no margin for emergencies and increasing stress, which leads to more errors. As a result, many find themselves in a vicious cycle: low pay hurts their performance, keeping them stuck in low-paying jobs. ▶
BY ZEYNEP TON
ECONOMY
In my research and work with more than two dozen companies at the Good Jobs Institute, I’ve seen that companies, too, pay a steep price for low pay. Low pay drives high employee turnover, and in settings like senior living, call centers, warehouses, retail stores, and restaurants, we have seen some companies replace their entire frontline workforce annually. Many executives I’ve met didn’t think costs of turnover were high enough to justify higher pay—but they had never even quantified the full costs of turnover to begin with.
At most companies with which the Good Jobs Institute has worked, employers poured the equivalent of 10% to 25% of their labor budget into replacement costs—the costs to recruit, train, and reach baseline productivity, only to start all over again when employees leave. But those costs pale in comparison with costs from the inevitable poor operational execution that takes place when there is high turnover: lower sales from mistakes, slow service, and customer dissatisfaction; higher product costs from more errors, overtime, and reduced labor productivity.
High turnover also hurts company performance. Managers are always fighting fires, never having enough time to hire and train well. Inevitably, these companies don’t trust their front-liners to do a good job, and they design the jobs for interchangeable pairs of hands rather than humans with brains, wasting so much talent and potential along the way. Understaffing is common, which causes even more problems and creates anxiety for employees and their managers. Overworked managers then leave or ask to be demoted. Expectations become dismally low.
High turnover is not just expensive. It’s ruinous. And a system based on low pay and high turnover is a weak match for what’s coming. With more retirements, it’s not going to get any easier to hire and retain frontline workers. A leaked Amazon memo from 2022 revealed that the company had to change its expansion plans because, given its high tu
