How to attract better-skilled employees for lower wages
I have recently written a rather sheepish post on the link between the perceived morality of a company and the wages a company has to pay. Back then, I showed that companies that are perceived as immoral have to pay higher wages to attract qualified employees.
But if you turn the logic around, it could lead to an interesting insight for sustainable businesses. If a business is more sustainable and perceived as more sustainable, more people might be interested to work for the business and the business might get away with paying less. If employees value job security and the ability to be proud of the business they work in, they might be willing to give up part of their salary in return for these nonmonetary benefits.
The problem with this thesis is that it is really hard to test. You would need the employment data (including wages, educational attainment, etc.) from a large set of employees not just of one company but a wide range of companies across different sectors. And while you might be able to convince one or two executives to hand over anonymised employee data, it is unlikely that you can do that for dozens of companies.
Enter my favourite country for studies like this: Sweden.
I have written before about the fact that Sweden has the most transparent society in the world, with the additional benefit of a twin registry going back about 150 years. Because every tax return in Sweden of every person is publicly available, it is easy to match employee wages with the company they work in. And you can do much, much more, especially if you use the help of surveys of Swedish people that will give you other vital information as Philipp Krueger, Daniel Metzger, and Jiaxin Wu have done.
They found that companies that are more sustainable can attract more qualified candidates and at the same time pay between 10% and 20% lower wages. More importantly, they could exclude reverse causality. It isn’t that companies that do well invest more in ESG and hence appear to attract more talented employees. No, the employees join sustainable companies out of a natural preference for a safer job and a more ethical workplace. And it is this desire to work for sustainable firms that allows these firms to reduce wage costs and as a result, become more profitable. The employees come first, profitability and higher firm value follow.
My guess is the same as the one the authors of the paper formulate. The Millennial and Gen Z generation that has joined the labour force in the last decade have different values than previous generations. They value job security and ethical businesses more than their parents and grandparents. And who could blame them If your first decade in the labour market was marred by high unemployment rates and the insecurity of the gig economy, you’d give a lot to get a sustainable and stable job. And this provides a big opportunity for sustainable businesses to attract talented people at a discount. In the end, both sides win.