Economy

Major Insurance Company Announces Large Raises For Lowest-Paid Employees

CREDIT: AP/Jessica Hill

On Monday, health insurance company Aetna announced that it will increase wages for its lowest-paid workers by as much as a third starting in April.

The increase means that approximately 5,700 employees, or 12 percent of its workforce, will see their base wage increase to $16 an hour. While that represents an 11 percent raise on average, some workers will see a boost as large as 33 percent. The workers will mostly be those in customer service and billing.

The company will also give approximately 7,000 employees access to health benefits next year that should lower their out-of-pocket costs by up to $4,000.

CEO Mark T. Bertolini told the Wall Street Journal that the increase is meant to reduce turnover and lead to higher-performing employees. The company is seeking “a better and more informed work force,” he said, and “I’m willing to make the investment to see whether or not this happens.” The timing of the announcement is partly thanks to increasingly positive economic signs, which could make it more difficult to retain and attract employees “now that there are more places for them to go,” he said.

The company loses about $120 million a year to turnover. The total cost of the wage and benefit changes will be $14 million this year and about $25.5 million next year, and while Bertolini doesn’t necessarily expect them to entirely pay for themselves, the company has projected operating revenue of at least $62 billion this year and operating profit of $2.4 billion.

His bet that the company will see benefits from higher wages is backed up by research. On Tuesday, economists Justin Wolfers and Jan Zilinsky released a new paper reviewing the impact of such a move at major private-sector companies in the U.S. They found that higher wages can increase workers’ productivity and performance, with one study they looked at finding that some companies can “offset more than half of their higher wage costs through improved productivity and lower hiring and turnover costs.” They found “voluminous” evidence that higher wages help attract better job candidates. Higher wages also reduce turnover, which can be costly; enhance customer service; and decrease disciplinary problems.

Other economists have come to the same conclusions. John Schmitt at the Center for Economic and Policy Research found that companies benefit from improved efficiency when they raise wages because employers can push their employees to work harder rather than cut hours to cover the cost. He also found it makes it easier to recruit and retain workers.

There are other ways companies can benefit from higher wages. When low-income people see an increase in pay, they tend to spend it, pumping money into the economy and increasing demand for firms’ goods and services. Those sums can be quite large: The Federal Reserve Bank of Chicago found that a $9 federal minimum wage would increase household spending by $28 billion, or 0.2 percent of GDP, while the Economic Policy Institute found that a $10.10 wage would increase wages by $35 billion and boost GDP by about $22 billion.

Other companies are making the same bet that Aetna made. In February of last year, Gap Inc. announced that it would raise its lowest hourly wage to $10 by June of this year. It quickly reaped the rewards, seeing an increase of at least 10 percent in job applications. In June, IKEA announced that it would increase its average minimum wage at U.S. stores to $10.76 an hour. A hospital in Dallas went so far as to give workers a raise with money originally set aside for executive bonuses.