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Ideas Made to Matter

Compensation

Get ready for the low-wage worker revolution

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The headlines tell the story: The minimum wage is rising in states red and blue alike; retail giants like Amazon and Walmart tout careers, not just jobs, to woo hourly workers; unions take on inequality and gain new relevancy — and members.

Across the country, low-wage workers are finding their voice and finding purpose, after long simmering in silence. And savvy business leaders are keeping an eye on these developments while revamping their policies to keep this significant chunk of their workforce engaged.

Among U.S. adults 25 years or older who are not self-employed, 16% earn less than $12 per hour.

“The low-wage labor market is sizable,” said Paul Osterman, a professor at MIT Sloan who for decades has studied employment patterns and practices.

According to Osterman’s assessments of data from the Bureau of Labor Statistics and U.S. census data, among U.S. adults 25 years or older who are not self-employed, 16% earn less than $12 per hour, and 28% earn less than $15 per hour.

“Neither of these comes close to a wage that could support a family,” Osterman said. Nor have these numbers changed much in recent years. In 2000, the figures were 18% earning $12 per hour and 31% earning $15 per hour.

At the same time, evolving economic pressures such as the gig economy, and emerging technologies like robotics and artificial intelligence threaten many of these same jobs.

Combined, these pressures make for a low-wage labor market in turmoil, and raise the question: How can companies, in collaboration with the government and workers themselves, maintain profits while paying a living wage and creating good job opportunities?

30 years in the making

How did we get here? Osterman described a number of fundamental changes throughout the past several decades that have exerted powerful influence on employment practices and prospects.

  • The regulation of labor markets has been greatly weakened in recent decades with resources for enforcement dwindling in parallel. In 1948, for example, the Department of Labor’s Wage and Hour Division, which enforces labor standards, employed 1,000 investigators to protect 22.6 million workers. By 2014, it employed 1,100 investigators to monitor 135 million workers.
  • Economic pressures to outsource work that was once done internally have both spawned an immense sector of contract workers, and created a race for the cheapest contracts, ultimately producing intense downward pressure on contract workers’ wages.
  • Unions have witnessed an unprecedented collapse in member numbers — and therefore, power — with private sector membership declining from 16.8% in 1983 to 6.5% in 2017.

“The primary challenge facing workers and the economy is how to end the 30 years of wage stagnation and reverse the income inequality that is holding back economic growth,” writes Thomas Kochan, a professor of work and organization studies at MIT Sloan, and co-director of the Institute for Work and Employment Research.

In short, wages and benefits that were once good and then became bad must be made good again.

Technology enters the equation

A 2013 study declared 47% of jobs will be vulnerable to automation by 2033. The threat robotics poses to the workforce and to low-wage workers in particular, has become a steady drumbeat in the media. Osterman believes these threats are “considerably overblown,” but said companies that depend on the low-wage labor market nonetheless need to think carefully about how they adopt new technologies. It’s tempting for firms to view technology as a way to cut people out of the process. After all, machines and software demand no wages, no health insurance, and no paid time off.

“But there is ample historical and current evidence that simply viewing technology as a labor cost-saving tool leads to overinvestment and weak returns,” Kochan writes. “Just ask General Motors what it got for investing nearly $50 billion in robots in the 1980s in its futile effort to catch up with Toyota’s more efficient production and labor relations systems.”

Not much, is the answer.

Taking a page from Toyota, GM eventually learned that the highest returns flow from integrating new technology in a way that supports new work practices — deploying robots that can lift heavy objects and make workers’ jobs easier, for example.

Central to this idea is that frontline workers should be consulted when installing new technologies, and they should be free to voice opinions on how to improve operations.

Zeynep Ton, adjunct associate professor of operations management at MIT Sloan, researches retail and other service operations, where technology adoption often has the potential to directly impact customer experience.

Consider a robot that cleans the floor of a retail space. This helps the company because it no longer employs people at, say, $20 per hour to sweep and mop. It helps those employees because they can avoid drudgery and focus on higher-level tasks, and it helps the customer because employees have more time for them.

“Companies are always looking for ways to improve the productivity of their people, but they can’t do it if it compromises the customer experience,” said Ton, co-founder of the Good Jobs Institute. That makes the case that businesses can improve both jobs and the bottom line when workers are properly supported.

“Good Jobs companies are very clear about which technologies add value to the customer and to the organization," Ton said.

Helping workers be more efficient

Beyond the thoughtful rollout of new technologies, Ton’s research shows how companies can support workers and gain efficiency by thinking through the ways in which corporate-level decisions impact the productivity of store employees.

Buyers at Costco, for example, coordinate product introductions so that new items are released at staggered times, smoothing out workloads at stores. Mercadona, a Spanish supermarket chain with nearly 80,000 employees, works with vendors to create shipments that can be quickly shelved and, through its logistics department, give stores delivery windows of 15 to 20 minutes so that receivers know exactly when to be ready — and save time.

The best employers also offer workers paths to develop new skills and move up the ranks. For example, Costco and QuikTrip, a gas station and convenience store chain, promote almost exclusively from within. Creating a career path for employees is a powerful method for attracting and retaining better workers who are likely to be more engaged and stay longer.

The role of the private sector

Beyond those specifics, organizations should open new and broader channels of communication to allow workers to express concerns about the working conditions and performance of their enterprise, Kochan said.

In a recent survey, 60% of workers experience a difference between expectations and reality when it comes to expressing their voice in the workplace. Closing this gap can reduce employee frustration while infusing the company with novel ideas for innovation and improvement. This open communication, Kochan said, ultimately presages the necessary first step toward a new social contract.

Though not presently in a state of rebellion, many low-wage workers today are clearly and forcefully expressing their agitation with the failure of policy to address their problems. Both the government and the private sector can play a key role in listening to workers and responding to their needs.

So why take on the challenge? First and foremost, research shows that good labor policy can earn better returns. Beyond that, “the high levels of anger we’re seeing, and the political instability that flows from it, likely has to do with the size of economic inequality today,” Osterman said. “I would argue the business community has a self-interest in worrying about these issues.”

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