The $70,000 Minimum Wage Experiment Reveals a Dark Truth
*Note — This post has been updated and revised to reflect new information and developments
In 2015, a small Seattle-based payment processing company made headlines when its then 31-year-old CEO made a rather jarring change to the company’s pay structure: Gravity Payments would pay all employees, at a bare minimum, $70,000 annually. It was met with a variety of reactions, ranging from those who hailed CEO Dan Price as a working-class hero, to those who thought it was a reckless and foolhardy move.
The reasoning behind Price’s actions, as he has explained, were that he had read a study that said the optimal level of happiness can be achieved with an income at around $70,000, and decided that he was in a position to make a difference. So he acted on it — by cutting his own salary by 90%.
Several months after making the change, we were in a position to see what happened as a result of Price’s decision. At that time, in the summer of 2015, a slew of articles and media attention focused in on Gravity Payments to see what had happened. At the time, most of that attention wasn’t very positive.
“A Company Copes With Backlash Against the Raise That Roared,” reads a New York Times headline. “CEO counting cost of £45,000 minimum wage decision,” says another, from The Telegraph. Many others circulated as well, all spelling doom for Gravity Payments, with Price’s new minimum wage policy as the chief reason for the company’s issues. Those articles accurately explained that the company did, in fact, lose business from clients anticipating fee increases, and others who didn’t want to be associated with what they felt was a political statement, or PR stunt.
But those pieces did overlook the fact that Price’s experiment wasn’t really a failure. In fact, Gravity Payments was, and still is, chugging along. Even though the company did lose a handful of clients, it actually signed on even more — so many more that it had to go on a hiring spree.
There have been some further revelations that need to be taken into account, however. Price was taken to court by his brother, who also had an ownership claim in Gravity Payments. He has also admitted that he wasn’t ready for the backlash his actions would cause — though it did give his company plenty of attention and publicity.
Aside from a few lost clients, Price’s minimum wage policy had another unintended consequence: Gravity Payments lost two of their rock star employees (possibly more by now, but this was during the summer of 2015, in the direct aftermath of Price’s decision), both of whom reportedly thought it was unfair that other employees (those making less than $70,000) were getting big raises, while not necessarily contributing as much to the company’s success. That’s a completely fair assessment on the part of those employees, and they evidently felt that their value to the company had been diminished.
It’s easy to sympathize with that point of view — we’re seeing similar sentiments pop up all over the country as calls for $15 minimum wage start to gain momentum, and actually be signed into law in certain areas. There is a reason for concern with higher minimum wages, as higher wage floors do lead to higher prices, and lost jobs. So, the public’s concern with raising wage floors is not completely without merit.
But in this case, the case of Gravity Payments, we’re talking about one specific company. And Price’s actions impacted a very small group of people: it doubled the salaries of 30 workers, and 40 others received raises, according to Slate. The ultimate cost? $1.8 million, paid for through Price reducing his own salary.
You might think it’s a great idea, or an encroachment of socialist ideals. But either way, the point is this: it’s really not that big of a deal. One guy made a move, sacrificing his own salary for the good of some of his workers, and was condemned for it.
This is the “dark truth” at the heart of the matter. That may be a hyperbolic way to put it, but there is something about this story that rubbed a lot of people the wrong way, when there’s really not reason for it. Price may have had ulterior motives, but in a world where corporate scandals are actually taking lives (General Motors, BP) and impacting millions of people (Volkswagen), Price handing out raises to 70 people shouldn’t rank highly as something to be upset about.
Most people work their entire lives and never end up making $70,000 per year. Reading about Price’s decision is likely to ruffle feathers, to be sure. The argument sways to whether Price’s employees are or were deserving of such a high wage, and the meritocracy — the foundation on which America’s economic system is based — is called into question. That’s fair, but in a world of Martin Shkrelis and ever concentrated wealth, the signals of a crumbling meritocracy should have been seen long before Price’s wage hike.
And given that Gravity Payments is fighting in a labor pool for talent with the likes of Amazon, Microsoft, Google, Facebook, and others — all with offices within a short drive of Gravity’s — Price likely would have ended up raising wages anyway, just to attract and retain talent. But he did mess with the market, and it caused a stir.
Still, attacking Price and his employees only speaks to one of the uglier sides of human nature. You may not like his decision, but it doesn’t impact you, in all likelihood. If Price’s decision was wrong, then the market will make him pay for it. But to consider his experiment a grand misstep, at this point in time, isn’t accurate. This, of course, is assuming that no new allegations against Price come into play — which they very well could.
For everyone on the sidelines? Try not to let a change in the wage structure at one small company bother you too much — even if you’re still making way less than Gravity’s team of receptionists. Most people are. Heed the words of Theodore Roosevelt, who once said, “comparison is the thief of joy.”