What Should Brewers Earn?

Later this week I'll compile the results to my brewer compensation survey. It will be a data-rich report, and I'll put numbers and facts to what American brewers are getting paid. But those numbers don't mean much unless we ask: compared to what? If a brewery pays its shift workers $20 an hour, is that good or bad? Today we're going to dig into those questions and create some context for assessing the brewer compensation numbers when they come out.

While the job of brewer is fairly consistent across the industry, breweries themselves are not. In terms of the employer's ability to pay its employees a good wage, AB InBev, New Belgium, Hill Farmstead, and your half-full corner brewpub are in vastly different positions. New companies have uncertain futures, debt, and minimal flexibility. In some cases, benefits offered to employees can't be revoked, so new companies will be more cautious about offering them until they have achieved some stability. We can't reasonably compare what a shift worker makes at ABI and what one makes at small breweries--which constitute the overwhelming number of American breweries.

The Choices We Make

That said, this week we're not going to be looking at workers through the owner's eyes. In the US, when we consider labor, it is almost always from the perspective of the company (how much workers cost, how efficient they are) or the consumer's perspective (how much a certain good costs). Even workers do this, and are often willing to quickly accede to this perspective, agreeing it's important to consider the health of a company before the workers' needs. My wife Sally, who is a small business owner herself, told me recently that owners are inherently compromised, and the tendency is to favor their own position. "I have to decide whether it goes in this pot or that pot, but one of those pots is me! So I have a vested interest in the outcome."

The cost of this perspective is that we rarely stop to consider what trade-offs we're making by only considering the success of the company. The United States is unusual among free-market democracies in that we prize low tax burdens and low regulatory mandates above social services. In many countries in Europe, for example, health care is provided by the state and is not an employer's responsibility. Europe mandates that all workers receive 20 days of paid vacation a year, in addition to the paid national holidays, which range from eight to 14. By contrast, the US mandates no days off, even on national holidays; the average across all jobs is ten days.

We'll dig into these more, but the point is: these are choices. Different countries make different decisions about how to allocate their resources, but in each case, societies have balanced them differently. It is a common argument in the US to hear that these benefits cripple business. That's flatly not true. In measures of open markets and economic freedom, the US is mediocre or bad. In terms of economic competitiveness, it excels, but so do many European countries.

So for the rest of this post, I ask you to shift your perspective and look at this solely through the workers' eyes. These are the men and women that make the beer at the center of breweries' businesses. They deserve at least the few minutes it takes to consider their perspective without immediately "yes, but"-ing them with the brewery's financial concerns. We spend basically the rest of the year using that lens, so let's see how it affects the workers.

A Living Wage

How do we assess what people need to live? The most common measure is the poverty line, but it's a measure nearly every economist considers well beneath what a person needs to be self-sufficient in the US. A better measure is the "living wage," a metric created at MIT that more accurately reflects that bare minimum:

The living wage model is an alternative measure of basic needs. It is a market-based approach that draws upon geographically specific expenditure data related to a family’s likely minimum food, childcare, health insurance, housing, transportation, and other basic necessities (e.g. clothing, personal care items, etc.) costs. The living wage model does not allow for what many consider the basic necessities enjoyed by many Americans. It does not budget funds for pre-prepared meals or those eaten in restaurants. It does not include money for entertainment nor does it does not allocate leisure time for unpaid vacations or holidays. Lastly, it does not provide a financial means for planning for the future through savings and investment or for the purchase of capital assets (e.g. provisions for retirement or home purchases).

MIT has a wonderful tool that allows you to look at the hourly wage for any county or city (though city data are based on MSAs, so county-level data is probably more precise.) So for example, the living wage for a sample of locations for a single person family (with the state minimum wage in parentheses):

Zieback, SD: $9.59 ($8.85)
Winneshiek, IA: $10.16 ($7.25)
Shelby (Memphis), TN: $10.78 ($7.25)
Cook (Chicago), IL $13.30 ($8.85)
Multnomah (Portland), OR: $13.74 ($11.25)
Suffolk (Boston), MA: $14.65 ($11.00)
Kings (Brooklyn), NY: $16.14 ($10.40)
San Francisco, CA: $19.63 ($11.00)

I encourage you to go click around--not only does it give you the baseline number, but how they came to that figure in terms of the different categories of cost and what the living wage would be for different family configurations. Just to emphasize how low that living wage is--even though as you can see in every case it's above the minimum wage--consider how housing alone factors in.

In Portland, the living wage calculator figures it will cost a single person $11,352 a year in rent; that's 48% of the after-tax income of a person making a living wage. But you're not going to find too many $946 apartments here. In fact, the median one-bedroom apartment cost is $1,133 a month--or 58% of the annual after-tax income for a worker making $13.74. If you'd like to see what an apartment costs in your town, this is a great tool.

Benefits

A paycheck is the minimum a worker can expect--and often all they get. That everything over and above pay is considered a benefit--a bonus, really--is one of those choices we make as a society--and other societies make very different choices. Let's consider the other categories of compensation beyond the paycheck and look at how other countries treat these.

Sick Leave
It's remarkable that a third of the American work force gets no mandatory sick leave, but it's true (and only 46% of service workers receive it). Employers aren't required to offer paid time off when a worker gets sick. In Europe, countries have different approaches. The UK has one of the least generous, where they offer a mere £88 a week--but up to 28 weeks. France offers half a year at 50% of the worker's salary. In the Netherlands, workers may take up to two years of sick leave and receive 70% of their salary. By comparison, in the US, just 62% of production workers receive sick leave at all.

Health Care
Here the US really is an outlier. Health care systems vary, and depending on how you define it, more or fewer countries have universal health care. By even restrictive definitions, most democracies have them. The US does not. Instead, we have this ancient system where businesses are expected to cover their workers. The Affordable Care Act (Obamacare) improved access to healthcare, but doesn't act as a public health care plan like European countries have. One of the most important ways it differs is that it's not portable. In Europe, workers don't have to consider whether they'll lose health care if they switch jobs as they do in the US.

Depending on which plan they adopt, providing full coverage to employees adds $2.58 an hour to total compensation on average. (It of course depends on the plan the company offers.) The cost for employees buying health insurance on the open market is a good deal more expensive, however. Group plans are cheaper, so the same plan will cost an employer less than an individual. More importantly, if a worker has to pick it up herself, it will come out of after-tax income. When I ran the numbers on what a silver plan in Oregon would cost a single male earning $30,000, it came out to $230 a month. Again--that's in after tax income. Silver plans are, of course, quite a bit less coverage than national plans in Canada or the UK.

Vacation
Once again, the US doesn't mandate that workers get any paid time off. The US seems to be unusual in offering "PTO"--paid time off--which employees can use at their own option for either vacation or sick leave. This somewhat muddies the water in terms of time off, since vacation and sick leave are in entirely separate categories of benefit. Nevertheless, the US is far less generous than Europe, where workers can expect to get four weeks of paid vacation, in addition to 8-14 days of national holidays. American workers, by comparison, average ten days in paid vacation and receive on average six paid national holidays. Surveys have shown that American workers are less likely to take this time off as well, fearing penalties for being absent, and also spend more of their off-hours checking email and doing work.

Child Care and Maternity/Paternity Leave
In the US, parents are allowed to take up to 12 weeks off with the birth of a new child, but none of that is paid. Maternity leave varies in Europe, but mothers are paid during time off and the interval is generally longer (14+ weeks) than the federal FLMA program provides for in the US. Fathers may receive time off in Europe and in some cases it is paid time, but the benefits are substantially less than for mothers.

The EU has set goals about paid child care, but member states have done better or worse jobs achieving it. At the high end, countries in Scandinavia and Britain pay for child care, while other countries try to offset costs. The US lags particularly far on this measure (tellingly, the Bureau of Labor Statistics doesn't even track it). The cost of child care varies wildly by state--from $4,800 a year in Mississippi to over $22,000 in DC.

Retirement
In recent decades, US companies have shifted their focus from a model of offering workers a "defined benefit" package to "defined contribution." That means they agree to put some money in an account like a 401K, but offer no promises about what workers receive when they retire. This is one of the many ways risk was shifted from employer to worker. Fortunately, the US does offer federal benefits to retired workers in the form of Social Security and Medicare. For three out of five retirees, Social Security accounts for half or more of their income, and Social Security is based on lifetime earnings, so low-paid workers can expect to be low-paid retirees.

What Should Brewers/Workers Get Paid?

All of the choices we make as a society have had the effect of squeezing workers. Since about 1980, wages for blue-collar workers have been flat in inflation-adjusted dollars. During that same time, the GDP has continued to rise. The result, according to the Harvard Business Review, is that “Labor’s share of income is no longer constant, but has fallen from nearly 65% in the mid-1970s to below 57% in 2017.”

Breweries are just tiny pieces of the American economy, and they are victims of the system as much as participants in it. Nevertheless, their workers are more vulnerable and dependent on them than ever to achieve self-sufficient lives. This is especially true for brewers, who have a limited working life of hauling grain sacks and kegs, and whose bodies break down faster than (ahem) guys who sit behind computer screens.

If you are a brewery owner, you have to take all of this into account as you consider what to pay your workers. Most of you will need to offer around $12-15 an hour just so your employees can afford the bare necessities. Beyond that, you will have to consider what benefits to offer to give your workers a decent life. According to the Bureau of Labor Statistics, this is how comparable companies treat their workers:

62% of production workers: get paid sick leave.
87% of production workers get paid vacation.
90% of production workers get paid national holidays.
81% of production workers received health care benefits. Only 15% of those plans were paid entirely by the employer, however. On average, those who had to pay a portion of their health care paid 21% of costs.
23% of private-industry workers received some kind of bonus (end-of-year, profit sharing, holiday).
Two-thirds of private-industry workers had access to some kind of retirement plan, though only 42% in the lowest 25% of employees. Only 18% of private-industry workers have a defined benefit plan (a pension that pays a set amount).

Each brewery will be in a different position. But it's good to have a look at this list and see what the average company does. If you're below average, consider what this means to the lives of your employees. If your company is too small or too new to offer these benefits, use them as benchmarks to shoot for. A living wage should be considered the bottom salary you offer any employee. Finally, it's worth noting that 79% of polled workers said they would prefer better benefits to a pay raise. When you consider what to pay your employees, remember--it's not just pay, it's total compensation.

The reason we're where we are is because we don't spend the same amount of time thinking of workers as we do thinking of owners. I have no doubt that many or most of you reading this post were thinking "that's ridiculous!" to many of the benefits offered by European countries. But the reason they have those benefits is because they have spent recent decades attending to worker needs in balance with company/shareholder needs. US workers are given far less in pay and benefits than their counterparts in other democracies. It's not unreasonable for them to expect something more than just not starving. A lot of lip service is paid to the wonders of the brewing industry, and this is one way to begin to deliver on that talk.

We'll see how well American breweries are doing on that score in the next couple days.

The Business of BeerJeff AlworthSeptember 4, 20186 Comments