The Long-Term Failure of Short-Term Thinking

Businesses have used a range of strategies to hold down wage growth -- outsourcing, subcontracting, avoiding union organizing and more. What's more, an "easy hire, easy fire" policy has led to diminished worker productivity and innovation.
11/19/2015 07:29 pm ET Updated Dec 06, 2017

By Maureen Conway

Maureen Conway is a vice president of the Aspen Institute and Executive Director of the Institute's Economic Opportunities Program (EOP). Ms. Conway founded EOP's Workforce Strategies Initiative and has headed up workforce research at the Aspen Institute since 1999. She leads a team of researchers and consultants in a variety of initiatives to identify and advance strategies that help low-income Americans gain ground in today's labor market.

The American workforce started out as the goose that laid the golden egg for American business, but now it is suffering a death of 1,000 cuts. Americans work harder than almost anyone else in the world, putting in more hours per week and more weeks per year than workers in most other developed countries.

This hard-working, well-educated workforce contributed to successful and prosperous American businesses in the post-war period and beyond. But from the late 1970s into early 1980s, the economic growth America's workforce powered stopped benefiting many workers.

Market forces that normally kept prices in check were now helping to drive down wages.

Businesses used a range of strategies to hold down wage growth -- outsourcing, subcontracting, avoiding union organizing and more. Technology allowed companies to pit workers in disparate locations around the globe against each other.

Work was and is increasingly organized in ways that add stress to working people's lives. Companies often tightly control hours, leaving working people with erratic and unpredictable schedules (and incomes). Employers sometimes reclassify segments of their workforce as contractors in order to avoid the costs of disability and life insurance, paid sick or vacation time and other benefits that can be critical sources of economic stability for a working family.

As corporations lower their compensation costs by holding down the cost of employee benefits, they increased employee alienation, weakening trust and dampening enthusiasm for the work. Research bears this out, noting that an "easy hire, easy fire" policy leads to diminished worker productivity and innovation.

It doesn't have to be this way. First, there is a range of research that is now getting attention that looks at how investment in workers can pay off for companies in the long term. Zeynep Ton's book The Good Jobs Strategy details how four retailers -- who compete fiercely in their segments and seek to keep prices low -- succeed by investing in their workers. This investment can mean:

• Training workers so they are well-prepared to contribute
• Offering compensation packages and schedules that workers perceive as fair and that give their employees a measure of economic stability and security
• Empowering workers to make decisions, solve problems for customers, and contribute to the business in meaningful ways.

The Hitachi Foundation has documented many firms, especially in the healthcare and manufacturing sectors, that outperform their peers but still manage to provide quality jobs. These firms believe in the old adage that people are their best assets, and in turn they invest in their people. As a result, they see a strong return on that investment.

The founder of Kyocera Corp., Kazuo Inamori, entrepreneur, management guru and Buddhist priest, believes in putting employees first. "If you want eggs, take care of the hen," he says. "If you bully or kill the hen, it's not going to work." Inamori's success is based on a view diametrically opposite the prevailing business philosophy on Wall Street. "At times company management has to say no to shareholders' selfish requests."

Meanwhile in Seattle, Dan Price, the CEO of Gravity Payments, turned heads when he announced that the minimum wage at his company would be $70,000. Six months after the announcement, revenues have grown at double the previous rate. Profits have also doubled. Gravity's customer retention rate rose from 91 to 95 percent.

Even in the restaurant industry, a bastion of low-wage work, an alternative business model centered on maximizing human capacity, rather than minimizing labor cost, can produce great business results. Paris Creperie in Brookline tripled its operating margin when it adopted a business strategy that engaged employees, trained them in the business, and shared the success.

These "case studies" demonstrate that human-centered strategies can build long-term value for a firm. These business models offer the kind of benefits Americans believe in: the businesses are profitable and prosper, they provide opportunities for their employees to develop their skills and potential, they innovate and provide important products and services to customers, and they create the kinds of jobs that support individuals, families and communities.

We need more of these "pioneer employers" to lead in business. We need a sea change in business practice aligned with a more vigorous public policy and an engaged effort from our social sector to put America on the road to sustained growth that lifts the fortunes of companies and the people who make them run. We're seeing now that we can't have one without the other.

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