March 1, 2024

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Time To Escape The Vicious Cycle Of Low Pay And Bad Jobs

5 min read
Time To Escape The Vicious Cycle Of Low Pay And Bad Jobs

A while ago, it was fairly routine for company annual reports to talk of employees as their “greatest asset” — often as they were reducing their numbers through programs described somewhat disingenuously as “downsizing,” “rightsizing” or “offshoring.” Now, all the talk is of skills shortages and a “war for talent.” Besides the fancier language (until the term became so ubiquitous it was meaningless it must have felt good to be described as talent rather than just an asset), nothing much has changed. The war for talent is, of course, a natural result of all those downsizing initiatives and, for the most part, organizations appear to have no more idea about how to hire and hang on to the right people than they ever did.

Just look at what is happening now with the ongoing battle between executives and employees over where work is done. Even with interest rates rising, economic uncertainty growing and a general sense of doom and gloom, many employees are prepared to switch employers if they are not able to work as flexibly as they would like. After years of declining real wages, diminishing job security and increasing stress and other tolls on their work/life balance, employees have seen the remote working introduced in response to the pandemic lockdowns as a chance to redress the balance a little — and they are not about to give it up. This is why more enlightened employers are embracing the new reality; they know that unless they do they will not be attractive to the best candidates.

That said, such an approach alone is not going to deal with this deepening chasm between capital and labour. Organizations have to get away from the idea that it makes good business sense to pay people as little as possible.

A helpful nudge comes in the form of a new book from Zeynep Ton, an academic at the MIT Sloan School of Management and president of the non-profit Good Jobs Institute. The latter organization, which works with companies to improve their operations in ways that satisfies employees, customers and investors, grew out of an earlier book, The Good Jobs Strategy: How the Smartest Companies Invest in Employees to Lower Costs and Boost Profits. The aim of this was to explain how a few companies could offer customers great service at low prices while also providing employees with good jobs and shareholders with superior returns. The answer with which she emerged was that it was a combination of high investment in people and a set of choices that produced operational excellence. The new book, The Case for Good Jobs, is an attempt to turn that theory into reality.

In the near-decade since the original book appeared, Ton has been approached by all sorts of organisations that she says want to get out of the cycle of offering poor wages and working conditions but do not know how. That seems a little generous on her part, because another way of looking at it is to see the “bad jobs” problem as another manifestation of the financialisation of everything so that executives feel they have no choice but to bear down on all costs, including labor. This is not just because their competitors are doing so but because investors are judging them on their ability to do so.

This is the territory of Our Least Important Asset by Peter Cappelli, a management professor at the University of Pennsylvania’s Wharton School and director of the school’s Center for Human Resources. Sub-titled “Why the relentless focus on finance and accounting is bad for business and employees,” the book is — like Ton’s — grounded in extensive frontline research about, as Cappelli puts it, “what is actually happening” in workplaces. But it is also a closely-argued critique of how shareholder value and the practices it encourages are undermining business. Pointing out that financial accounting has risen in importance alongside shareholder value’s increasing prominence, he writes: “Financial accounting is an extremely limited and quirky set of standards when it comes to employees and the workplace. Compared to other kinds of spending, money spent on employees is seen as substantially worse for affecting the value of a company. That leads to the practical goal of minimising everything that involves employment costs, because financial accounting punishes those costs.”

One of the easiest ways for companies to reduce costs is to lease workers employed by outside contractors rather than employ them directly. If you combine this approach with increasing use of technology to check on time keeping and productivity — what Cappelli says looks “like the return of scientific management” — it is not hard to see why workers might become disenchanted.

In employee surveys, a theme that appears consistently is a desire for opportunities for development and advancement. And yet employers — despite all that talk about talent management — continue to reduce their commitment to training. Instead of taking people on at the start of their careers and adding to their skills as changes in the business environment and technology require, they hire people with very specific skills for a certain period of time before spitting them out and hiring another group with different skills. Quite apart from the lack of respect for the people involved, this makes no business sense. As Cappelli points out, “it costs a lot more to hire outside,” and the skills required are often specific to individual companies. This reliance on “hiring from other people” is responsible for those “persistent complaints about skill shortages: it’s because we stopped training.”

There is certainly a logic to Ton’s argument that companies can break out of the low pay for bad jobs cycle by adopting her “systemic” approach of combining investment in people with the four operational choices of focus and simplify, standardise and empower, cross-train and operate with slack. But, even though she has evidence of it working in the highly competitive retail environment, she accepts that business leaders cannot make the change alone. Government, unions, customers, investors, boards and business schools will all have to play their part, she says, adding that if they understand why companies are run the way they are and why jobs and service are as bad as they are they “can help by nudging those companies to change and by supporting the ones that do.”

This may or may not happen, but Cappelli has a more straightforward suggestion. Adding four “reasonably objective measures” to financial reporting requirements would “go a long way to end the distorting effects” of the financial accounting approach to running a business, he says. The four measures are:

  • How much are companies spending on labor other than their own employees?
  • How much is spent on training and other employee development efforts?
  • What is the employee turnover rate?
  • What percentage of vacancies are filled from within?

Requiring companies to provide answers these questions — which should be relatively easy to do— would make it easier for analysts and others to understand how efficient and effective companies really are and might just force executives to confront the truth about why their organizations struggle in what they insist on calling the war for talent.

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