AT A GLANCE

  • Despite the tight talent marketing, many hiring managers think in terms of the bottom line and offer lower salaries, which can lead to higher costs on the back end
  • When companies offer wages that are too low, they have trouble attracting qualified candidates which means that, over time, companies are spending more on recruiting costs
  • Many studies have shown that low wage jobs have high turnover, which affects productivity and leads to additional training and recruiting costs

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January 01, 2016

The High Cost of Low Wages

The determination of how much to pay a worker is a key factor in any company’s employment considerations. When it comes to attracting skilled workers, areas such as talent brand, job description, and candidate experience play an important role; however, for most candidates, the most important consideration is the wage. Savvy companies are starting to recognize the need to pay workers wages that are competitive with market rates and that meet worker’s expectations. However, many hiring managers think in terms of the bottom line and offer lower wages. However, sometimes by offering lower wages on the front end, companies are paying for it on the back end a hundred times over.

Recruiting Costs

When companies are offering wages that are too low, they obviously have difficulty attracting qualified candidates. This means that, over time, the company is spending more on recruiting costs. Often hiring managers, not having success with internal recruiting sources, turn to staffing agencies. While staffing agencies have certain economies of scale and will likely bring in a few more candidates than the hiring manager is able to, they still won’t be entirely successful due to the overall low wage being offered. In the case of replacing a worker for a vacant slot, the longer it takes to fill the position means the higher the cost in lost productivity. Additionally, interviewing costs are a consideration since it takes time to sort through resumes, conduct formal interviews, and determine who the best candidate is, especially when it’s likely they will not accept the job due to the low wage.

Turnover

Countless studies show that low wage jobs have high turnover. In some entry-level settings, this is normal, but when it comes to running an efficient workplace, it takes a toll on productivity. High turnover means training costs that add up for each new worker, along with the cost of lost knowledge. Additionally, there are the costs of recruiting and interviewing due to turnover, and the cost of lost productivity while the position is vacant. According to an article from Forbes, for mid-level employees, it costs upward of 150 percent of their annual salary to replace them.

Reputation and Talent Brand

In the world of job seekers, when a company is offering lower-than-average wages, the word spreads quickly. This takes a toll on the reputation of a company as an attractive place to work. Also, if skilled candidates are wary of applying for a job with a company that offers low wages, it increases the difficulty of recruiting, which leads to the additional costs discussed above.

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