by Zeynep Ton
August 17, 2020
The pandemic’s impact on frontline workers and recent incidents of police brutality have highlighted the urgent need to provide good jobs for people of color. For too long, millions of Americans have been left behind with low wages, few benefits, unstable schedules, and lack of respect and dignity. And for too long, American employers have assumed these conditions as an inevitability of doing business rather than a deliberate choice. Based on her research, the author offers six steps that business leaders should take to help bring about economic and racial justice. They will help their firms competitiveness as well.
Americans are demanding a reckoning. Incidents of police brutality and structural inequities that have caused the pandemic to hit people of color especially hard are sparking calls for racial justice. The precarious conditions endured by poorly paid frontline workers who have continued to stay on the job during the pandemic have generated calls for economic justice. Each of these forms of injustice has distinct drivers, but they amplify each other and often fall hardest on the same people. As Martin Luther King, Jr. reminded us, economic and racial justice are inexorably linked.
To address this critical moment, we need business leaders to emulate the business leaders who, in the midst of World War II, committed to creating good jobs. For too long, millions of Americans have been left behind with low wages, few benefits, unstable schedules, and lack of respect and dignity. And for too long, American employers have assumed these conditions as an inevitability of doing business rather than a deliberate choice. But my research shows that bad jobs are a choice, not a necessity, and that offering good jobs is also a choice — even a profit-maximizing choice — yes, even for companies that compete on low cost.
Here I describe why business leaders should care about having too many employees with low-wage “bad jobs” and six steps to begin transforming those jobs into good jobs.
The Central Problem: Too Many People Left Behind
Even in the pre-Covid world of low unemployment, 32% of the U.S. workforce — that’s 46.5 million people — worked in occupations with a median wage of less than $15 an hour. With Covid-19, we started calling many of these workers “essential.” Yet one wouldn’t know it from their wages. The median wage for a meatpacker is $14 an hour; it’s only $12 for a health aide.
Imagine a single parent working as a bank teller and earning the median hourly wage for that job of $15.02. At 40 hours a week, she would make $2,580 a month — $494 less than her rent, child care, transportation, food, and medical expenses. That’s not even counting personal care, clothing, leisure, cable/phone bills, housekeeping supplies, and unexpected expenses such as a broken cell phone. And remember, many service workers don’t even get 40 hours a week, so their annual pay is much lower. Brookings Institute estimates that 53 million Americans make less than $17,950 a year.
Many live so close to the edge that they rely on government assistance. Twenty-five million working people and families received $61 billion in Employed Income Tax Credits in 2019. Forty percent of Americans, disproportionately Black, cannot absorb an unexpected $400 expense. Such families have no cushion when the full impact of Covid-19 hits, as has been made clear by the long lines at food banks.
This problem won’t be solved by upskilling or improving education — the current focus of the President’s Workforce Advisory Board. Future job growth is expected largely in low-wage jobs such as health aides, food and cleaning services, and laborer occupations. Most of the top 20 fastest-growing occupations — 55% of projected job growth — pay below the median wage. Think of the U.S. economy as an enormous ship with a hole in its hull. Those in the lower decks are at risk of drowning. Upskilling may move some of them to a dry deck, but there isn’t room there for all, and, anyway, the ship is still sinking. We need to fix the hole right now so no one drowns.
In those lower decks, the people most at risk of drowning are Black and Hispanic Americans, who are disproportionally represented in low-wage jobs. Black workers make up 25% and 37% of two of the fastest growing (but low-wage) occupations: personal care aides and home health aides. Company leaders who have spoken against racial injustice, committed funds to address racial injustice, or have hired chief diversity and inclusion officers should look at where people of color work in their company, as employees or contractors, and make sure their jobs allow them to live with dignity.
The Vicious Cycle of Poverty Hurts U.S. Society and Business
Low-wage workers live in a vicious cycle that prevents them from moving up. Many work multiple jobs. The associated stress undermines mental and physical health. Indeed, that stress lowers cognitive functioning, creating a “bandwidth tax” equal to a loss of 13 IQ points. Performance suffers as it is harder to keep up good attendance, focus on the job, be productive, and do your best for customers or coworkers. Unsurprisingly, these workers find it hard to climb the ladder of opportunity that this country has historically provided.
My research shows that the vicious cycle for low-wage workers is also a vicious cycle for their companies. Poor attendance and high turnover lead to operational problems that undermine sales and profits. Reduced profits, in turn, prevent companies from investing more in their workers, causing yet more instability for the companies and their workers. I’ve observed racial tensions to be worse at companies operating in this vicious cycle. People feel less respect and treat others, including customers, with less respect. Managers are busy fighting fires rather than leading their people. I’ve also observed once-successful companies go out of business at least partly on account of this vicious cycle.
If there ever was a lose-lose for workers and companies, bad jobs with low wages are it.
What we often fail to see is that wages are not just a neutral market valuation of what a job is worth. The wages themselves affect the quality of that work and therefore the worker’s productive value and career prospects. Put a capable person in a position where she must work two low-wage jobs — with uncertainty about her schedule, fear that she will not make rent, and little or no support from management to do a really good job — and she will likely resign herself to mediocre or poor performance.
This vicious cycle can be reversed. We already observe that where the minimum wage increases, workers’ well-being improves — with no negative effect on employment. Workers have fewer unmet medical needs, better nutrition, less smoking, less child neglect, fewer low-birth-weight babies, and fewer teen births. With more income, they spend more money and rely less on government benefits — all positives for the economy. What’s more, my colleague Hazhir Rahmandad and I find that even in low-cost service settings, paying higher wages and treating workers with respect and dignity can be profit-maximizing. Good jobs also create a competitive advantage by enabling firms to differentiate and to adapt better to change.
Here are six steps that business leaders can and should take to address these inequities.
1. Recognize the problem and make a collective pledge to address it. When it comes to the role of businesses as employers, the focus tends to be on upskilling workers through education and public-private partnerships. That’s important, but the inherent assumption that the problem is on the supply side (too few qualified workers) misses the more important problem on the demand side (too few good jobs).
Business leaders need to publicly recognize the problem on the demand side and pledge to create well-paying jobs, without which we cannot maintain and expand a strong middle class. Part of what drove leaders of companies such as GM, GE, Coca-Cola, and Kodak to commit so effectively to creating well-paying jobs during World War II was fear of socialism and communism.
The stakes for capitalism are similar now. Many Americans are losing faith in capitalism and market economies, believing that capitalism inherently drives not only inequality, but also injustice. Even before the pandemic, 70% of Americans believed the economic system was rigged against them.
2. Commit to raise low wages. All large companies should calculate the distribution of annual frontline take-home pay and consider the budgetary needs of their workers. (With so many working part-time or irregular hours, the hourly wage itself doesn’t tell the story.) How many are below the living wage in their area? (When we at the nonprofit Good Jobs Institute share these data with executives, they are often surprised.) How many are single parents or students? How many families have two wage-earners? How many full-timers rely on welfare?
With these data, a company can make commitments that are reasonable but bold — the most it can manage, not the least it can get away with. If profit margins are high and low-wage workers are only a small part of costs, doing the right thing is easy. That’s why, in 2015, after calculating the potential benefits from higher wages (e.g., lower turnover, better customer service from employees who can focus on the job) Aetna could raise its minimum wage from $12 an hour to $16 an hour. Last March, Bank of America raised its minimum wage to $20 an hour.For others, like Walmart, raising wages requires systemic change. But it can be done and, if done right, can help both employees and employers win.
During our current economic crisis, such a change may feel impossible. But these commitments can be made over time. What matters is that companies consider cost of living, not just what others pay. Even more effective would be for large companies (or industry associations such as the National Retail Federation) to encourage other firms in their communities/industries to follow their lead. New research shows that raising wages is less competitively costly than companies may realize because once a large company raises wages, others in the area follow suit.
3. Provide career paths for low-wage workers. Companies such as Costco and QuikTrip — which offer careers, not merely jobs — aim for all frontline managers to be promoted from within. Committing to such a policy forces them to invest in the development of their workers. Equally important is entering gender and race into promotion decisions. In retail, for example, 18% of cashiers and 12% of salespeople but only 10% of frontline supervisors are Black.
4. Disclose pay and turnover data. Revealing annual turnover and the annual take-home pay distribution — not just the average or median — by race and gender might be uncomfortable but will help drive conversations with the board and investors. (Intel is one company that discloses annual take-home pay buckets by race and gender.) Such transparency will show who’s operating in the vicious cycle described above. Quantitative benchmarks can help create peer pressure and enable customers, communities, and investors to track change at different companies. Benchmarks can also help people such as my students, many of whom seek employers that take care of their workers, decide where to take their considerable talents when they graduate.
5. Involve workers in technology decisions that affect their work. Too often, the people who do the work are excluded from such decisions — to the detriment of companies. Workers with frontline knowledge can help companies be smarter about choosing, deploying, and scaling technologies. They can also help identify technologies that would complement people rather than “so-so” technologies that replace people but don’t even improve productivity. Companies that commit to Step 2 can justify higher wages by making better use of the talent that they already have.
6. Drive public policies that improve workers’ well-being and the economy. Some business leaders are already recommending higher minimum wages. Benefits such as paid sick leave, smart-scheduling legislation that can improve stability for workers and companies, and government-sponsored child care for low-income families could also improve workers’ well-being and the economy. Changes to tax code to favor investing in workers rather than automation would reduce incentives to invest in “so-so” technologies. Business leaders should be seen and heard advocating for them.
Even so, history shows that we can’t rely on business leaders alone. They need a context that pushes for good jobs. Apart from worker power and smart public policy, investors and business schools have important roles.
Investors. Since I’ve started working with companies, I’ve seen how infrequently their leaders take a long-term view. Even after believing in the financial and competitive reasons to offer good jobs, some shy away from investing in their employees. Why? They fear a dip in profitability. “Anything that doesn’t yield a return in a year doesn’t make it,” I hear.
This short-term focus is driven, in part, by executives’ short tenures (the median CEO tenure in public companies was five years in 2017, the most recent data available) and, in part, by their fear that investors will punish them. Indeed, when Walmart began investing in its workers in 2014, its stock price took a hit. If investors were less quick to punish a company for “profit-draining” labor investments and more interested in really profit-draining employee turnover (and in the drivers of turnover such as take-home pay, schedule stability, and career paths), we’d see more companies prioritizing investment in people — and doing better.
Business schools. For decades, schools taught that the corporation’s duty is to maximize shareholder value. It is time to teach how to make a decent profit decently. When it comes to exemplary CEOs, we should celebrate those like Costco’s Jim Sinegal, who created a competitive business without sacrificing the financial well-being of frontline employees.
We should also provide students with an opportunity to develop compassion for the people they will lead. While teaching at MIT’s Sloan School of Management and Harvard Business School, I have seen plenty of programs that allow students to spend time with business and political leaders but none that encouraged them to spend time in a low-wage job. That would help them see past the stigmas of low-wage work and workers, witness how poor corporate decisions get in the way of delivering value to customers and good jobs to employees, and cultivate respect for the challenging work that takes place across all levels the company.
The problem is vast, but the first step is for the job creators to reevaluate their assumptions about the jobs they create. It is easy to create a job that treats people like robots and justify it with the assumption that workers lack skills and abilities. But as we have seen, that attitude sows social unrest and puts a ceiling on the prospects of hardworking Americans and their communities.
If we are to live in a just world, we need to remember what Martin Luther King, Jr. told the sanitation workers in a crowded Memphis church in 1968: “So often we overlook the work and the significance of those who are not in professional jobs, of those who are not in the so-called big jobs. But let me say to you tonight, that whenever you are engaged in work that serves humanity and is for the building of humanity, it has dignity, and it has worth.”