What should an employer do when the state reduces the minimum wage?

While confessing to not knowing any of the back story or local details behind this, I read with interest this piece in the Atlantic about the state of Missouri rollback of the city of St. Louis minimum wage from $10/hour back down to $7.70/hour. The Atlantic piece is solid, if a little long, so if you don't have time to dig in to it the essentials are as follows:

1. The city passed an ordinance which was designed to gradually increase the minimum wage in St. Louis from $7.70 to $11. The wage had hit $10 just three months ago, in May.

2. The state of Missouri, whose governor and state legislature were not in favor of this increase, passed a so-called 'preemption' law, effectively barring cities and other local jurisdictions from setting local minimum wages at a level greater than the state level minimum wage.

3. The preemption law went into effect on this past Monday, reducing or re-aligning the minimum wage in St. Louis back down to the state level of $7.70.

Got all that?

Why this was interesting to me was not because of the politics of it, the local control vs. state level authority issues, or even the economic benefits and/or constraints that minimum wages place on labor markets.

What is interesting is the dynamics at individual employers who just three months ago were forced/compelled to raise wages to $10/hour for anyone earning less than that, and who know are allowed, by virtue of the preemption law going into effect, to cut wages back, as far back as $7.70.

These numbers might seem small, but a cut from $10 to $7.70 is almost a 25% reduction in pay. I don't care what you are earning, if the boss cuts you by a quarter, you are going to feel some pain.

So back to the interesting, (to me) stuff. Employers in St. Louis have three (maybe more, but they would be variations of these), options with respect to the wages of any folks they had to give increases to back in May,

1. Cut everyone who was bumped up to $10 back to their wage level as of May. 

2. Keep everyone at $10 who was given the bump in May.

3. Pick and choose who gets to stay at $10, (the better performers, more essential folks), and bump others back to their May hourly rate, or some other rate less than $10 that better reflects their performance, value, and position relative to their peers.

Options 1 and 2 are the easiest to implement, and for different reasons, the easiest to justify back to the employees. Which is why I would expect that the vast majority of employers will opt for one of these approaches,

Option 3 is harder to effect, requires better understanding of employee performance and value, needs managers that know what is going on and can communicate clearly why decisions are being made the way they are, and could possibly drive better overall performance, as better workers feel more rewarded, and the others see a way to work towards the wages they desire.

Yep, Option 3 is definitely much harder to pull off. Which for some cynical reason seems to me the one that the fewest employers will pursue.

Have a great day!