The tricky problem of sticky wages

Rick Hartenstein is the Pharmacy Director at Ochsner Clinic Foundation in New Orleans.  He writes me with a question:

An article in our local paper this morning discussed the phenomenon of  sign-on bonuses at fast food restaurants.  Since this will almost certainly drive up wages in the area, and hospitals are highly dependent upon low wage jobs, I was wondering what you would advise our Human Resources VP to do.  I am an almost daily reader of MR and really appreciated the blogs during the hurricane (I was here at the hospital for 8 days).  Any other observations on wages and prices for us?  One thing is sure – the areas of the city that housed the majority of lower wage workers are obliterated.  We have massive vacancies in these types of jobs as do other employers. 

My response was as follows:

The rise in wages is a good sign because it means that employers are trying to draw workers back to New Orleans.  If employers were packing up and leaving then wages would be falling so there is some hope.  For the hospital Human Resources VP I would suggest that the situation is probably temporary so rather than higher wages he or she may want to follow the lead of the restaurants and offer "signing bonuses" and/or bonuses to be paid after say 6 months on the job.  The reason for this is that it may be very difficult to reduce wages later on – reducing wages typically causes a lot of discontent.  Furthermore, if you keep the wages of older employees constant but, as wages fall, offer newer employees lower wages you will have two people doing the same job being paid different wages.  That is not good for morale either.  In addition, to signing bonuses the hospital might want to think about what it can offer in terms of relocation services, housing, transportation and so forth.  Again, these would be useful temporary measures to draw workers to the hospital without creating a permanent expectation of higher future wages.

Comments are open if you have other suggestions for Rick.