In 2013, Quest Diagnostics, a clinical lab company that conducts diagnostic tests in the United States, Mexico, and Brazil, consolidated its 20 call centers into two, located in Lenexa, Kansas, and Tampa, Florida. The change was intended to reduce overhead costs. The two cities were chosen because the cost of living in them was comparatively low; Quest wanted to pay its call-center employees as little as possible.
It didn’t work. By 2015, the pay was $13 per hour, which was slightly above the market rate. But the job required such a high level of familiarity with laboratory work, coupled with an ability to empathize with patients who called in, some of them seriously ill, that a $13 hourly wage was not high enough. So the call centers were understaffed. As a result, callers’ wait times routinely exceeded two minutes, and, once answered, the calls were transferred to overworked supervisors about 12 percent of the time. Turnover rose from the low teens to 34 percent, which cost Quest $10.5 million in lost productivity and hiring and training costs.
None of this will probably strike you as strange or unfamiliar. Lousy service is the norm at call centers, because the priority is on keeping labor costs down and settling for a level of service that’s just barely good enough to get by.
But for Quest Diagnostics, mediocre service didn’t cut it because the product was often-vital information about the customer’s personal health. When word got back to doctors about Quest Diagnostics’ lousy service, doctors often responded by taking their business elsewhere.
Quest was learning that cutting labor costs is, paradoxically, expensive. That’s because it lowers employee morale, increases absenteeism, and shortens the length of time a worker will stay with the company. Customers get fed up and, when they can, they take their business elsewhere.
To repair the damage, Quest raised hourly pay from $13 to $14, with scheduled increases at three months, six months, and one year; increased staffing; established a clearer career path to rise in the company; and routinized feedback from the people working the phones to managers. It worked. Within two years, turnover dropped to 16 percent, absenteeism fell by two-thirds, calls transferred to supervisors dropped to 9.5 percent, internal promotions tripled, and nearly all calls were answered within 60 seconds.
I draw this success story from a 2017 case study at MIT’s Sloan School of Management led by Zeynep Ton and from Ton’s new book, The Case for Good Jobs. Since 2014, when she published an earlier book on this topic (The Good Jobs Strategy), Ton has advocated better pay and working conditions for frontline workers, not because these things make ours a more just society (though they do) but because they improve the bottom line.
Not a lot of top executives want to hear this. Many, she notes, don’t even bother to track turnover, figuring it’s an inevitable cost of doing business. One executive whom Ton declines to identify, when presented with a breakdown of wages at his company, said, “I had no idea we were paying that little.”
I believe him. Responsibility for maintaining frontline employees in poverty or near-poverty, under working conditions that may violate labor laws, makes many top executives so squirrelly that they take them off the payroll. Instead, they use temp agencies or staffing agencies to outsource the work, or they operate on a franchise model. Whatever inefficiencies low wages and lousy working conditions create become the contractor’s problem. (In the case of gig work, the contractor and the worker are the same person.)
Brandeis economist David Weil, who was wage and hour administrator under President Barack Obama and wrote an influential 2014 book on this phenomenon (The Fissured Workplace), calculates that at least 19 percent of the U.S. workforce maintain (or more accurately are forced to maintain) an arms-length relationship from whatever company they more or less work for by working for a contractor or franchisee or operating as an independent contractor (which means you don’t have to be paid even minimum wage). For lower-wage workers, I’d guess the “fissured” proportion is at least half.
When a company’s spending threatens to outrun revenues, the favored solution—especially among the private equity firms that seem to be swallowing the economy whole—is to reduce labor costs, not expand them (except at the very top, where the sky’s the limit). That’s pretty much the story of the past 30 years. SUNY Buffalo’s school of management tracks private-sector job creation monthly according to whether it’s above or below the average weekly wage, calling the result the Job Quality Index. According to that index, since 1990, job quality has fallen more than 10 percent. It fell gradually until the 2008 financial crisis, then cratered, bottoming out in 2012. The Job Quality Index rose a bit after that, but never came anywhere close to its pre-2008 level. To put the matter bluntly, the economy has about 10 percent more crap jobs today than it had in 1990.
The crapification of America’s labor market quite obviously takes its biggest toll on underpaid workers. Less obviously, and less quickly, it also takes a toll on the bottom line. Lower pay means higher turnover and lower productivity. Ton calls it “workers’ vicious cycle.” Fissuring your workforce provides employers a way out, but that won’t continue if the Labor Department and the National Labor Relations Board ever perfect their (so far) halting efforts to reassign responsibility for workers back to the big companies that pretend not to be their employers.
Ton offers her good jobs strategy as a commonsense alternative, but she won’t go so far as to suggest that it represents an inevitable reversal of these unwholesome trends. “The trouble is,” she writes, “mediocrity is profitable.” It’s also easier. “The playbook,” she writes, “is simple—pay as little as you can, make the job as easy as you can, and hire anyone who is willing to work under those circumstances.” To implement the good-jobs strategy requires managers who are competent and willing to take risks, and those can be hard to find. Mere mediocrity, by contrast, can bump along fine with risk-averse managers of middling ability.
Ton’s modest expectations are appropriate to her method, which is to write upbeat books and to host workshops at her nonprofit, the Good Jobs Institute. I’m all for her jawboning corporate America to create better jobs, but that will only get you so far. Real progress will require four additional changes that Ton is not much interested in discussing, probably because she doesn’t want to scare off her corporate constituency. Because I’m an optimist, I think all four of these changes will occur, most of them in the next 10 years.
The first and most obvious factor is an increase in union membership. The word “union” appears only three times in The Case for Good Jobs and only four times in The Good Jobs Strategy. That’s a peculiar omission, but pretty obviously a deliberate one. Ton makes vague noises urging bosses not to oppose union organizing, and at one point she urges unions to “do their part” in making corporations more hospitable to labor. (Uh, that’s their whole job.) The reality is that without unions, the good jobs strategy won’t rise much above the level of platitude.
Even the good-guy companies Ton writes about are unlikely, without a union, to sustain over the long term their commitment to acceptable working conditions and a living wage. That’s because visionary corporate chairmen don’t live forever and their successors often have different ideas. Ton doesn’t mention it, but her good-guy companies tend to be unionized. Mercadona, a Spanish supermarket chain, has an agreement with Spain’s Unión General de Trabajadores. Costco last October signed a national contract with the Teamsters. Quest Diagnostics workers out West have lately been affiliating with the United Food and Commercial Workers, as have a few Trader Joe’s stores (though management at Trader Joe’s is pretty hostile to unions). Unions don’t appear to have played much role in getting these good-guy companies to embrace Ton’s good jobs strategy, but they will play an essential role in sustaining it.
The obvious problem is that only 6 percent of private-sector workers are unionized. There are many reasons for labor’s decline worldwide, but in the United States a particular obstacle has been the Taft-Hartley Act, passed in 1947 over President Harry Truman’s veto. The law, conceived in reaction to a series of wildcat strikes following the end of World War II, created a variety of legal barriers to union organizing, many of which will be reversed if Congress passes the Protecting the Right to Organize bill sponsored by Representatives Bobby Scott of Virginia, a Democrat, and Brian Fitzpatrick of Pennsylvania, a Republican. The bill has no chance of clearing the current House. But with public opinion about labor unions on the rise, it will, I expect, become law sometime in the next decade.
A second necessary factor is stricter antitrust enforcement. As the Quest Diagnostics example shows, businesses that treat their frontline workers poorly end up treating their customers poorly. But companies worry less about lousy customer service in industry sectors with few competitors, because customers don’t have many other places to go. These monopolizing sectors are proliferating. For example, according to the Open Markets Institute, CVS controls 58 percent of the drug business; Google controls 94 percent of all mobile and tablet searches worldwide; and Whirlpool controls 50 to 80 percent of all U.S. sales of washing machines, dryers, and dishwashers. Such companies achieve dominance by being unusually attentive to their customers (and, usually, to their employees), but once they reach it such concerns become secondary.
Antitrust enforcement has been weak since Ronald Reagan became president, but there are signs that’s starting to turn around. The Biden administration is pushing a deliberately more aggressive antitrust policy, and in Congress antitrust enjoys growing support from an increasing number of Democrats and even from conservative Republicans like Senator Tom Cotton of Arkansas and Representative Ken Buck of Colorado. It’s anybody’s guess how far this will go, but it’s likely that antitrust enforcement will be tougher over the next decade than it was during the previous four, even when the president is Republican (though Democrats, obviously, will do more).
The third necessity is to increase the federal hourly minimum wage above its currently measly level of $7.25. Congress hasn’t voted to raise the minimum wage since George W. Bush was president. Old arguments that minimum-wage hikes always increase unemployment have been discredited (largely based on observation of the same reduced turnover and other productivity increases that Ton discusses in her books). But congressional Republicans insist on putting themselves wildly out of step not only with American voters in general but specifically with Republican voters, who favor an increase of some kind, if not all the way to $15. Eventually this dam will break, as it always has in the past, and Congress may even legislate automatic increases in the future—an idea favored by, among others, Republican Senators Tom Cotton of Arkansas and Mitt Romney of Utah.
The fourth necessity is to put a regulatory choke chain on private equity (the contemporary euphemism for what we once called leveraged-buyout firms). Since the 1980s, private equity has been systematically destroying businesses. In their new book, These Are the Plunderers, Gretchen Morgenson and Joshua Rosner report that private equity buyouts increase the likelihood of bankruptcy by a factor of 10 and that nursing homes owned by private equity firms—private equity has lately been moving aggressively into health care—record 10 percent more deaths.
The impact on labor has been especially harsh. A 2020 Government Accountability Office study cited by Morgenson and Rosner identified large employers in nine states with the largest number of workers receiving food stamps. Walmart and McDonald’s figured prominently, of course, but so did two firms you probably haven’t heard of: Roark Capital, which owns Dunkin Donuts and Sonic Drive-In, and Cerberus Capital, which owns the Safeway supermarket chain. In February, too late for Morgenson and Rosner to include in their book, the Labor Department fined a meat packer $1.5 million for employing 102 underage workers, some as young as 13, to work overnight shifts to clean head saws, backsplitters, and other slaughterhouse machinery. The company, Packers Sanitation Services, is owned by the Blackstone Group, the richest private equity firm on the planet.
There’s no single way to rein in private equity, but certain actions would help. Medicare can stop reimbursing health care facilities owned by private equity firms. (I’ve argued previously that for-profit hospice care should be denied Medicare reimbursement.) Pension funds and university endowments, which Morgenson and Rosner say furnish private equity firms with “their oxygen,” can be pressured by ESG activists to cut them off. Congress can finally close the carried-interest loophole, which makes private equity investment more attractive. And the Securities and Exchange Commission can compel private equity to operate with more transparency, exposing these firms to harsher criticism from shareholders and others.
Curbing the depredations of private equity will be more difficult to achieve than the other three obstacles discussed here. But as with antitrust, there are the beginnings of a left-right alliance that, if properly watered, could overcome the industry’s legendary lobbying clout.
Encouraging growth in labor unions, expanding antitrust enforcement, increasing the minimum wage, and shutting down the abuses of private equity don’t rank high on corporate chairmen’s favorite things to think about. That’s why they get little play in The Case for Good Jobs. Give Ton credit, though, for taking more notice of private equity than she does of these other factors; she tattles to readers on an operating partner at a private equity firm who lived up to his occupational stereotype by telling her that “his firm didn’t sweat over how well the work was done at the restaurant chain they owned.” (That’s one of several moments reading this book when I wished Ton were a journalist, not an academic, so I could find out who this jerk was.) On the other hand, Ton also reports that a private equity firm called Two Sigma Investments wants to work with the Good Jobs Institute to improve the quality of its frontline jobs. I’ll believe it when I see it.
Perhaps it’s because I covered politics and government before I started paying much attention to the private workplace, but it’s a pretty basic fact of life that ordinary people don’t get treated decently because more powerful people act kindly toward them. It happens because there’s some mechanism of accountability. Eventually folks realize this and organize themselves or their government to create such a mechanism. In the future, workers won’t be treated well because their bosses wish it. They’ll be treated well because their bosses won’t dare do otherwise. The good-guy companies Ton profiles can congratulate themselves on getting a head start, but much harder work lies ahead. The good news is that it’s begun, and, over the long run, I believe it will put the necessary muscle behind Ton’s worker-friendly corporate strategy.
