Rebuilding the Economy Around Good Jobs

Rebuilding the Economy Around Good Jobs

by Zeynep Ton - May 22, 2020

In countries hit by the Covid-19 pandemic, customer-facing service businesses don’t just face a tough two to three months; they face a tough two to three years. Because people will still be nervous about catching the disease until a vaccine is widely available, demand is likely to be depressed, while costs - due to measures needed to keep employees and customers safe - will be higher.

Making the challenge even tougher, many of these businesses rely on a “bad jobs” model for frontline workers whose hallmarks are low wages, low productivity, high turnover, and difficulty adapting to changing customer needs and technologies. Now more than ever, they need a new labor approach. They need a “good jobs” system that combines investment in people with operational choices in order to maximize employee motivation, contributions, and productivity.

Bad Jobs = Bad Performance  

As the tussle over federal pandemic assistance in the United States has made clear, many service companies, even those whose financials looked fine, were already in trouble. A big part of that trouble was a focus on labor-cost minimization, which led to low wages and benefits, inadequate staffing, and as few full-time positions as possible. In this “bad jobs” system, frontline employees are inadequately trained, often underequipped, and disrespected. They can’t focus on the job when they constantly worry about paying medical bills or putting food on the table. They leave when there’s another job that pays $1 more an hour. Unit managers are busy fighting fires due to high turnover and operational problems, with too little time to develop staff and really manage the business. This bad jobs system keeps customers underserved (and, in some contexts puts them at risk), deprives the company of a compelling value proposition and prevents it from adapting to changing customer needs. Combined with a weak balance sheet these reasons drove many bankruptcies, including Borders, Toys “R” Us, Sears, and most recently Neiman Marcus, J. Crew, and J.C. Penney.

For retailers, there is an extra layer of post-pandemic danger. Lockdowns have forced a massive shift to online shopping. Some customers will go back to store shopping once they can, but many will have established new shopping habits. When stores reopen, retailers will need to adapt quickly to a new intensity of e-commerce, which comes with many operational challenges.

Further, the in-store experience will need to provide clear value that the customer cannot get online. That value requires capable and motivated workers whose work design enables them to serve customers well. The more their company invests in them through a good jobs system - with higher wages and benefits, more training, more hours and a regular schedule, a work design that maximizes employee productivity and contributions, and sufficient staffing - the more they will repay that investment through higher in-store sales and customer loyalty and improvements in products, services, and work processes. A bad jobs system that was muddling through before the pandemic may well fail under these new stresses.

A Moment for Change

The widespread use of the bad jobs system has long been a costly (and sometimes fatal) problem, but the pandemic offers a unique chance to do something about it. Why?

For a little while, there is a spotlight on frontline workers because so many have kept working - even at risk of their own infection - and kept so many useful parts of the economy running. At the same time, news coverage of strikes at meatpacking plants, Whole Foods, and Amazon has made customers aware of widespread bad working conditions. Customers may now find it unacceptable to buy from companies that treat their workers poorly - especially if there are competitors that offer just as low prices but also good jobs.

The bad jobs system is now going to prove fatal to many hard-hit companies if they don’t change. They’ll need their front lines fighting for them, working hard to serve every customer as well as possible, to improve every product, service, and process as much as possible, and to identify new ways to attract customers. They’ll need to be adaptable because so many things are going to be different in ways we can’t begin to predict.

One thing we can predict: Customers who are struggling economically will be looking more than ever for good value. This will give the companies that start building a good jobs system a competitive advantage over those that don’t. After the financial crisis of 2008, Mercadona - Spain’s largest grocery chain and a model good jobs company - reduced prices for its hard-pressed customers by 10% while remaining profitable and gaining significant market share. Hard work and input from empowered front lines had a lot to do with it.

The pandemic is likely to accelerate the ongoing shakeup of U.S. retailing. The United States has 24.5 square feet of retail space per person versus 16.4 square feet in Canada and 4.5 square feet in Europe. This is almost certainly too much and the mediocre - the ones that don’t make their customers want to keep coming back - will not survive.

The pandemic is likely to speed up the adoption of new technologies. Although typically seen as a way to reduce headcount, adopting, scaling, and leveraging new technologies require a capable and motivated (even if smaller) workforce.

There is an alternative: A good jobs system that has already proven successful. Long before the pandemic, there were successful companies - including Costco and QuikTrip - that knew their frontline workers were essential personnel and treated and paid them as such. Even in very competitive, low-cost retail sectors, these companies adopted a good jobs system and used it to win.

There’s a strong financial case for good jobs. Offering good jobs lowers costs by reducing employee turnover, operational mistakes, and wasted time. It improves service, which increases sales both in the short term and - through customer loyalty - in the long term. All these improvements can more than make up for the large investments in better wages, benefits, training, and scheduling. Indeed, in a recent paper, Hazhir Rahmanidad and I show that above-average wages can be a profit-maximizing approach even in low-cost service businesses. In addition, a good jobs system makes a company more resilient and more adaptive, as companies like Costco, Mercadona, QuikTrip, and H-E-B demonstrate. These qualities will be much called upon during and after the pandemic.

It Can Be Done

But is it possible to offer good jobs - to seriously increase labor spending and improve work - when companies are already in a financially precarious situation and when demand won’t snap back to normal for a while? Yes, it is.

An extended period of low demand will actually make it easier to make and then tinker with operational changes with less risk. A period of low demand will also be a period of low performance pressure; Amazon, for example, just announced that it will likely make no money next quarter. These may be just the circumstances in which CEOs and boards can undertake a transition that will not boost earnings in the next quarter or two and explain why.

Granted, like most change efforts, it takes time to implement a good jobs system and to reap the benefits. But as the recent good jobs journey at Sam’s Club shows, smart sequencing of the changes can allow a company to make significant wage investments without raising prices or lowering profits. Sam’s Club raised the wages of thousands of employees from around $15 an hour to as high as $22 an hour. At the same time, they simplified operations by reducing their product variety by as much as 25% and redesigning work processes to make employees more productive and customers more satisfied. This is what made the higher wage investments possible for a retailer that already has tight profit margins. Mud Bay, a regional pet retailer, raised employee wages by 30% and significantly improved employee benefits while operating with less than 2% profit margins.

At a moment when trust in businesses and institutions is particularly low and when many criticize the gap between executive pay and workers’ pay, this is the time for more leaders to have the courage and commitment to rebuild their businesses with good jobs. We know now that they already have great people working for them.

Zeynep Ton is a professor of the practice at MIT’s Sloan School of Management and co-founder and president of the nonprofit Good Jobs Institute. She is the author of The Good Jobs Strategy: How the Smartest Companies Invest in Employees to Lower Costs and Boost Profits. Follow her on Twitter at @zeynepton.