Can Normal Companies Provide Good Jobs? Yes.

In Race Against the Machine, Erik Brynjolfsson and I  highlight that median household income in America has actually declined in recent years, even as total US GDP has risen a great deal. Our explanation for this phenomenon is that the average worker is being left behind in our economy, due to technology, trade, and other factors.

We are hardly the first to point out that a lot of workers, even those with full-time jobs, aren’t keeping up. There’s a great tradition of work, both scholarly and journalistic, looking at the lives and jobs of the working poor and lower middle class. I’ve learned a lot from Jason DeParle’s American Dream, Barbara Ehrenreich’s Nickel and Dimed, and Don Peck’s recent series of articles in The Atlantic, including “Can the Middle Class Be Saved?

The best scholarly book I’ve read on the topic is easily Good Jobs America by my MIT colleague Paul Osterman and the late Beth Shulman. It’s a dense but readable overview of the facts along with a set of policy recommendations. And let’s be clear: many of the facts are grim.

  • In 2010, 24% of working adults (27.8 million people) in America made less than 2/3 of the median wage, and 19% were below the poverty line for a family of four.
  • These percentages are essentially unchanged since 1983.
  • 39.1% of all workers, and 67.5% of those below 2/3 of the median wage, had no employer-paid health insurance.

Is this really the society that we want? I can’t accept that it is. As no less an authority than Adam Smith wrote, in The Wealth of Nations

Is… improvement in the circumstances of the lower ranks of the people to be regarded as an advantage or as an inconvenience to the society? The answer seems at first sight abundantly plain. Servants, laborers, and workmen of different kinds, make up the far greater part of every great political society… No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labor as to be themselves tolerably well fed, clothed, and lodged. (emphasis added)
Few of the recommendations proposed by Osterman and Shulman for improving the situation they describe are managerial. In other words, they don’t seem to have a lot of faith that many companies by themselves will start providing their workers with better jobs — ones with higher pay, more predictable hours, better benefits, and greater opportunities for advancement. They portray most companies as feeling relentless pressure to reduce costs, with labor costs looming largest.

The authors do highlight that some companies take pain to provide good jobs for their front line workers, but then assert that most of these companies are idiosyncratic, and so lessons from them can’t easily be generalized. In particular, many of them have been owned by deeply religious people who apparently take seriously the biblical admonition that

Thou shalt not oppresse an hired servant that is poore and needy, whether he be of thy brethren, or of thy strangers that are in thy lande within thy gates.” Deuteronomy 24:14 (1611 King James Bible)

My colleague and great friend Zeynep Ton, however, finds something different and encouraging. She finds that a number of retailers in different sectors are providing good jobs to their front line employees not because not because the Bible tells them to, but because the bottom line does.

In her recent Harvard Business Review article “Why ‘Good Jobs’ are Good for Retailers” she shows how companies as diverse as Costco, Trader Joe’s, Mercadona, and Quiktrip have converged to a common business model, one that treats front line employees as critically important assets instead of variable costs to be minimized. They pay their people well, give them predictable schedules, provide a lot of training, and promote from within.

This business model also features low prices, reduced product variety (which customers seem not to mind too much), standardized work practices, relentless focus on the elimination of waste, and decisions made in the field instead of at headquarters. All of these mesh with well-paid, well-trained, motivated front line employees to create what Ton calls a ‘virtuous cycle’ of retailing that generates lots of sales and profits.

I won’t try to summarize the article further here, because I’ll get a lot of it wrong and you really should read it for yourself. I do want to highlight her insightful conclusion, which is that

Several decades ago, there was an intense debate about whether it was possible for low-cost products to be high quality. Many academics and practitioners argued that investing in quality would increase costs. But some companies, starting with Toyota, showed that this was a false trade-off: investing in people and processes actually drove quality up and costs down.

Today many retail managers believe that there is a trade-off between investing in employees and offering the lowest prices. That, too, is false.

If cutting-edge research, advice from one of the greatest minds of capitalism and economics, and the exhortations of the Judeo-Christian deity together aren’t enough to cause you to think differently about providing good jobs to front-line workers, I fear you may be a lost cause.

In which case, shame on you.