Why Are There Jobs Where You Cant Make a Living Wage
The Biden Administration is coming into office with a focus on work, as I've written in recent weeks. But what are the key business and government policy levers for good jobs?
For answers, I spoke with Zeynep Ton, a professor at the MIT Sloan School of Management, author of The Good Jobs Strategy, and cofounder and president of the nonprofit Good Jobs Institute. Here is a transcript of our conversation, edited lightly for clarity:
How do you define a good job?
A good job needs to meet people's basic needs related to pay and benefits, stable schedules that enable them to live a decent life, career paths that enable them to move up to higher-paying positions, and safety and security. These basic needs have to be there, but of course a good job also offers conditions for engagement and motivation. Those are the things that organizational psychologists have been talking about for a long time, meaning a sense of achievement, the sense of belonging, recognition, and creativity, and ability to learn. Those higher-level needs that people have drive engagement and motivation. But without those basic needs, it's impossible to say something is a good job—if you can't feed your family or put a roof over your head.
What percentage of the American workforce doesn't have a good job?
According to the Bureau of Labor Statistics, 46.5 million Americans work in occupations where the median wage is less than $15 an hour, so that's a pretty good estimate. So that comes to about 30% of the overall workforce. Brookings has another estimate that 53 million Americans are in low-wage jobs. But that's just the wage component. Then there's stability, career path, safety and security, which are much harder to measure and assess.
Many managers may think they are treating workers fairly—they pay minimum wage or above, etc.—but I've also spoken to some who realized that despite doing these things, their workers don't all necessarily have good jobs. If I'm a manager, how can I tell if everyone on my team actually has a good job?
I think a lot of executives find ways to justify to themselves that they're doing the best they can, and that they care. Part of the reason is that they're looking at the wrong data. Many companies that we work with will do engagement surveys and say, 'Oh, 90% of the people are proud to work here.' But then they have 85% employee turnover. Clearly, engagement surveys are not telling you because there's a disconnect between what you hear and what your employee turnover is.
Another thing that companies will justify is that while they're paying market wages, if you're in an industry where the median wage may be below the living wage, like poverty level, paying market wages doesn't make you a good employer. You're just benchmarking against equally bad companies. When we work with companies such as PayPal, we do a pay analysis with them. We show them data on their full-time employees, and we show the annual take-home pay for full-time employees and what percentage of them are not making a living wage. They're oftentimes shocked, because they've never looked at those data before. Again, they looked at market data and convinced themselves that they were doing everything they could.
There's also a tendency to conflate things like culture, providing opportunities to show yourself at work, and saying that those are equal to good jobs. Companies say 'We'll subsidize your tuition for college'—and then only 5% of employees take this. Or you can have tattoos, dress however you like, come to work as you are. But again, those things don't put food on the table. I'm not saying that executives are vicious, but they just focus on the wrong things. Many of them are also so disconnected from the day-to-day realities of frontline employees, especially those that are not making enough, and that's also a huge problem.
If I'm a manager trying to determine whether our workers have good jobs, what are the specific metrics you would suggest looking at?
The first business metric that I'd look at is employee turnover. Of course employee turnover depends from setting to setting, but also look at the cost of the turnover. The second metric is annual pay, especially for full-time employees. l'd look at the pay distribution, compared to a budget, to see what percentage of them are making a living wage. Then my third would be what percentage of the frontline are promoted from within, because a good job offers a career path and opportunities. If I'm starting a job, and I know that this company only promotes from within, I have aspirations to go there. Companies that have 100% internal promotion policies like Costco, QuikTrip, a couple of other companies that I've studied, they tend to invest a lot more in hiring the right people.
What are the primary issues besides pay that are necessary for good jobs?
Schedules are extremely important, especially in service settings. A lot of service companies in retail, in restaurants, will offer their employees schedules one or two weeks in advance. Sometimes shorter. I've seen as short as 48 hours, even to the last minute, and employees' hours vary so much from week to week. So employees' hours vary as a result, their incomes vary, but their bills don't vary. They still have to pay their bills, but they don't make as much money. Along with inconsistent and unpredictable hours, the other thing about schedule stability is they don't have adequate dollars. They just get too few hours to be able to make [ends meet.] And that's why we focus on the annual take home pay versus just wage. So schedules are quite important. I also mentioned the career paths. The final thing is being safe at work—physically and psychologically. Knowing that if you do a good job, you have a job. Security doesn't mean that you're lazy, or you don't work hard. I'm not talking about that type of security. But if you work hard and do a good job, you'll have a job. Those are the basic elements.
Do companies not in front-line or services industries, or highly profitable companies in industries such as technology, still fall short in creating good jobs?
This is where it will be interesting to look at your contract workers, or your lowest-paid workers. Most companies have call centers where they have reps. And if they were to look at the pay distribution of their frontline reps they might be surprised. Also, what types of jobs do they outsource and how much are those companies paying?
Some employers argue that if they pay people better, they won't be able to create as many jobs. By their logic, it's better to pay people less, but then employ more people. How would you respond to that?
The future of work has been on the mind of my colleagues at MIT for the last couple of years; our task force just issued a report. The fundamental challenge in our economy is not the number of jobs going forward, it's the quality of jobs. In fact, my colleagues argue that there will be plenty of jobs in the future, but unfortunately the economy is generating bad jobs. So our focus should not be on maximizing the number of jobs that we create, like replace computers with typewriters—there are lots of other problems with that.
Another thing about higher wages requiring fewer people is that companies that pay their workers higher wages tend to have much higher labor productivity. That's true. But there are many other opportunities to use people to increase sales, lower costs, involve them in improvements. So I don't worry much at all about the number of jobs. If the minimum wage increase is done carefully and probably not drastically—we have $7.25 as the federal minimum wage. I'm not an economist, so I can't say how high it will or should go, and there are lots of cost of living differences across the United States. I'm not willing to take a position on that yet, but it has to be done carefully.
The cost of living varies by geography, but isn't it also possible to calculate what a living wage is by geography?
Yes, it might be. There are certain counties where for two parents, both working with a child, $12 or $13 would make a living wage. That's why I was pausing about the how high the minimum wage should go. But that calculation has already been already been done, thanks to my colleagues.
I've linked to the MIT Living Wage calculator before, and suggest that people use it. Can you talk about how you design the work to enable a given role to be a good job?
In my work, I studied a group of companies that were paying their employees a lot more than their competitors, so higher wages or providing more benefits, more stable schedules, etc, while having outstanding performance and low prices for their customers. Not charging the customers more for that. I asked, what did they have in common? The economist's answer will be about how if you pay more, you attract a better talent pool, and then they work harder and that's the outcome. But what I found in my research was the answer was a little bit more complicated than this. These companies designed the jobs in a way that enabled their employees to be more productive and contribute more to the company's success. That design has lots of elements—and it's a system.
The systems part is really important. Last year I was running a workshop with a huge retailer, and we were talking about Mercadona, a Spanish supermarket chain, and how they design work in a way that increases productivity and contribution. One of the things that Mercadona does is it empowers the employees to make decisions. Frontline employees can order merchandise. If a customer has a problem, they can resolve that problem without asking their supervisor for help. So that type of empowerment benefits customers, because the employee now is generating higher sales and can contribute to lower costs. If they identify improvement opportunities, you can pay them more because they are worth more. It's better for companies because there's an upside in sales and lowering costs.
So we're talking about these benefits. Then one of the executives raised his hand and said look, a few years ago we empowered our cashiers and lost tens of millions of dollars. And I'm like, yep, I can totally see that. Why is that? Because empowerment has prerequisites. So you can't empower people if you operate with high turnover, or if you haven't paid high enough so that people are staying with you. Or if your environment is too complex: there are so many products, so many promotions, so many services that people can't be knowledgeable and make the right decisions. You can't empower people if you don't have clear standards, clear boundaries—you can't empower people if you don't give them the time. So simplified work, empowered standardization, giving enough time, which I call operating with slack, and cross-training are all part of a system that enables people to shine and be a lot more productive and contribute higher. But you can't just do one and not the others.
What are some of the specific companies you've studied that have had success creating good jobs?
The most familiar is Costco. I think the average wage right now is $24 an hour, which is double the median wage for a salesperson in the United States. QuikTrip is a convenience store chain with gas stations. Convenience stores are not places we associate with good jobs, right? If you start working at QuikTrip as a full-timer in Tulsa, Oklahoma, on your first year you could make $40,000. Again, it's not just pay. The other company that I studied is Mercadona, Spain's largest supermarket chain. I focused on companies that compete on the basis of low prices. I want to show that if you can do it when you're competing on the basis of low cost, then you can do it anywhere.
Can all jobs be good jobs?
This is my work-in-progress answer to this question: There are three things that might make it difficult for a company to adapt a good jobs system. One would be, if the context is so simple that you can pre-specify everything, if people don't need to make any judgment calls, and there's no way that employees can evolve in continuous improvement. Working in a toll booth is an example of that. Those are the settings where it's so hard to design the work for higher contribution. Those are the settings where we should let robots take over those jobs.
Then there's another context, which is maybe less intuitive—I need to find examples of these contexts because as an operations professor, I hope that these are only a very few settings—but it could be that even if you create operational excellence, you don't get enough sales upside, like customer satisfaction doesn't lead to more customers. Or if you reduce your costs, it still doesn't make a difference enough for you that you can prioritize a good job system. Again, it's hard to find these contexts but they might exist.
Then the third place is if the growth is exponential. If you have this tendency, you grow fast, you break things, management doesn't matter. Like all we care is fast growth. You can't create operational excellence and hence good jobs, especially for frontline employees in those types of settings, because that fast growth doesn't lend itself to good unit managers, good leaders. It's just very hard to do that.
If you look at delivery and transportation startups such as Uber and Instacart—they're super fast growth, low wage, no benefits. I think you're talking about operational excellence in terms of managers, but actually those companies create jobs that have horrible benefits and pay as well.
And how can you be selective in hiring, if you're growing that fast? How can you make sure that everybody goes through the right onboarding training, if you're growing that fast? Who do you promote to become managers? How do those managers become people who can really develop people and own and improve performance? Those things are not going to happen in those fast-growth settings.
Business people like the idea that you can 'do well by doing good.' Can you be more profitable by making jobs into good jobs?
We have a paper that just came out last year in Organization Science. In that paper, we show that you can be just as profitable paying high wages or low wages. You can maximize profits in two different ways. I know we love saying 'this is better than this' for pure profit maximization, but so few companies use profit maximization as their framework.
One thing I'll say is that companies that provide good jobs and do so through operational excellence, they have competitive benefits in addition to making just as much money, if not more, than the ones pursuing bad jobs. One of the competitive benefits is that now you can differentiate yourself from your competitors in the eyes of your customers. When I talk about Costco, everybody knows you're getting the best prices—and their customers are fans—who's not a fan of a low-cost place? Or Trader Joe's, which again offers much better jobs than its competitors. It has the ability to differentiate.
We saw this at Toyota. If you look at the auto industry, where the good jobs are just as relevant for manufacturing, as it is in service industries—Henry Ford had this saying, why do I need to hire a whole person that all I need is a pair of hands? But what Toyota showed us is that treating people as just a pair of hands is not the best way to make cars. Because if you invest in your people, if you invest in your processes, you can provide lower prices, lower costs, and higher quality. So that's one strategic benefit.
The other strategic benefit is that these companies are able to adapt to changes faster than their competitors. These changes could be economic crises, could be coronavirus. You don't hear as much about Costco or QuikTrip during Covid about being able to implement certain practices; you hear a lot more about some other companies, where their workers were protesting. And they were saying, "we're not safe." People are not adhering to protocol and changes related to technology, or even regulations. One of my cases is about economic crisis and how Mercadona, when the economic crisis hit Spain in 2008 and 2009, just like here, was able to use their good jobs and operational excellence to cut prices 10% the next year. When you cut prices that much, you reduce what people spend and it increases your market share and lets you leverage the economic crisis.
The Biden administration is focused on worker conditions. How optimistic are you that this will move America's workers toward good jobs? And what would be the key policy components of that?
I guess I have to be optimistic, otherwise I don't know what would drive me to go to work. If last year with the pandemic and with the racial injustice, if that hasn't highlighted the importance of economic justice—we saw how essential these low-wage workers are to the functioning of our economy. We also saw that many of these workers tend to be people of color, immigrants, women. If this crisis hasn't let us know about how important these workers are, I don't know what will. This administration comes at a point where consumers are very aware of this; the American public is very aware of this. Just Capital does surveys with Americans and job quality and pay tend to be the most important factors for customers in terms of the justness of companies.
So I am optimistic, and the fact is that this could be a driver of productivity growth in the United States that would benefit companies in the long-term. It would benefit consumers, and it would benefit our society by lifting up the working poor and enabling them to spend a lot more money. I'm hopeful that this administration will make changes that will move us in the right direction. Exactly what those changes are, which ones of them will be effective, we shall see. The fact that our federal minimum wage is at $7.25 is ridiculous. That needs to go up. I would look into scheduling legislation, but do it carefully, with company participation, to make sure that it ends up benefiting the workers and companies. Because there are good ways to do that, and there are ways that are not good.
Some of the other policies about subsidies for child care, these are things that everybody would agree on for encouraging more companies to move into this direction. I think tax incentives, too—right now, we are providing tax incentives for companies to spend money on technology automation, but not on increasing wages. Creative ways to offer those types of incentives could help. And I don't know if this will ever happen, but I wish that our government could also ask companies to disclose data on how much are they paying their employees. What is the distribution? Some companies are already doing this, as with how Intel discloses data by race and by gender. So having companies disclose pay data, turnover data, and percentage of managers promoted from within, those could all move the needle for workers and for our society.
If I'm a middle manager and I want my team to have good jobs, what should I do?
It depends on how much the middle managers have a say in how much they can pay. In some contexts, like a client manager or a unit manager, they could make certain changes and they don't have to ask for permission. If you're managing a call center and you can make decisions related to pay, then maybe you can do this on your own. But in so many other settings, I find that it's hard for middle managers to implement the good job strategy. What they could do is they could make the case for change—quantify all the costs associated with bad jobs, quantify the cost of turnover. Describe what happens when you operate in a high-turnover environment and how managers can't manage. They can't develop people. Turnover has costs way beyond the direct cost that companies oftentimes talk about. Articulate the competitive case. And at a minimum, respecting people is free. Respect is something that everyone could do starting tomorrow for the people who work for them.
My sense is that you don't see automation as a primary concern. People often think that automation makes it harder to have good jobs.
I work at MIT, right? I see operation automation as a great enabler of good jobs. Because if you can take out those routine tasks that can be done by robots and use people to really use their heads and their hearts and make a difference to improve performance—that would be awesome. Ten years ago, I went to Mercadona's 100% automated warehouse and it was amazing. It was great. They didn't lay off anyone because they were growing. They use all their employees and they taught them to work in those automated facilities. When I asked them why they automated, the reason was that people were hurting their backs. It's a very tough job to work in a fulfillment center or in a warehouse. They said, we don't want to ask a man to do what a machine can do. I think we should embrace that.
There's one thing about automation though that concerns me, which is the coolness. A lot of vendors try to sell companies solutions related to software or robots. And those solutions don't necessarily create more value for the customer or create more productivity. They just take labor out. It just substitutes, it doesn't add value. That's dangerous because executives can only focus on so many things—now that becomes one of those things. As a result, you can't do many other things that are more important. So I'm not saying that all automation is great.
The economy is really challenging for a lot of businesses and workers right now, but you also have businesses saving on facilities and travel and generating pockets of money. Is this a good moment or a bad moment, then, to enact good jobs?
For some companies, this is an awesome moment because they have made more money during this period, and now they can justify it. For others, I'm going to focus on the positives again—investors expectations seem to be lower. There's so much uncertainty about the future that making bets is in some ways easier now, because nobody can forecast what the next couple of quarters will be like. And in fact, some companies already have just stopped giving guidance. That makes it the right moment to make some courageous changes. Courage is something that I see lacking a bunch among c-level executives.
Is there a correlation between higher executive pay and worse jobs?
I don't focus so much on how much executives are paid, but what I will say is that executives' obsession with the short-term is one of the reasons why we see so few companies with good jobs. I've been in contexts where executives have been convinced that there's a financial and competitive upside for good jobs. And then they'll say, 'but in the short term, things may get worse before they get better.' And given how short their own tenure is, they're not willing to go through anything that might hurt the short term—either their sales or costs, they're unwilling to do it. This is where we can be a little bit more creative perhaps in encouraging executives to focus more on the long-term.
Companies like the Body Shop and Greyston Bakery have open hiring , where they just hire whoever applies for the job. What do you think of that approach?
There are ways to reduce biases without being random. One of the things that I have found in my work is that a company can't be all things to all people. To be able to create good jobs, they have to focus their customer offering, not be all things to all people. Any specific company is not also a great place to work for anyone. There needs to be a good fit with what the company needs, the attributes that matter most and who works there. Not in terms of gender, race, but the attributes that matter most. If you have to be on your feet, if you have to make decisions at QuikTrip, you have to calculate change. If you can't do numbers in your head, you can't work there. So you have to hire the right people and you have to set the right conditions for them to thrive.
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Why Are There Jobs Where You Cant Make a Living Wage
Source: https://www.charterworks.com/good-jobs-may-be-less-common-and-better-for-businesses-than-you-realize/
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