An Ohio Factory Test: Will Higher Wages Help More Than They Hurt?


CLEVELAND — Charlie Braun has long questioned whether paying higher wages would reduce staff shortages at his rubber parts factory, or simply put it in financial difficulty. The Covid-19 pandemic provided a rare opportunity to experiment.

With a forgivable loan of $ 879,000 from the federal paycheck protection program as a cushion, Mr. Braun has raised some employees’ salaries three times this year. The starting salary for machine operators, the most difficult position to fill, jumped from $ 4.55 to $ 18.25 an hour, and to $ 19 for the night shift.

The first signs seem favorable, even if they are initially bumpy. The workforce of Custom Rubber Corp. went from 91 to 124 in July to the end of January. Profit margins have hovered between 5% and 6% in recent months, roughly double the 3% the company expected in a good year.

Labor costs, including taxes and benefits, now account for about 17% of sales, up from 12% eight years ago. But the additional manpower has helped CRC fill more orders, and sales are up nearly 50% in the first seven months of 2021 from a year earlier. This allowed for better use of equipment and other capital assets, to a degree that surprised Mr. Braun.

The higher margins are good for him, and the employees also benefit from the company’s incentive plan. Eligible employees received $ 355 in the second quarter of this year, the highest amount the company has paid since 2012.


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