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Defenders of proposed tax reform legislation in the US, a corporate boondoggle being hashed out in Congress, insist tax cuts for business will ultimately be good for labour, since some of that money would trickle down in the form of more jobs and higher wages.
As I have pointed out in previous columns, there is no evidence to show that this has happened in at least 20 years.
However, it is also untrue to think of gains for business and gains for labour as a zero-sum game. The key to serving both is not to cut taxes on business and hope the savings “trickle down” but to invest in workers in such a way that productivity percolates up, in the form of dramatically improved labour performance that drives more revenue and higher profits.
“The only way to create good jobs is operational excellence in businesses, and operational excellence is driven by investment in people,” says Zeynep Ton, an MIT Sloan School of Management professor. Ms Ton last year started the Good Jobs Institute to push the idea that by creating jobs with better than average pay, regular schedules, worker training and opportunities for progress, companies will become more competitive.
It is a point that seems obvious to everyone but economists. Yet like many other such ideas, it runs counter to the strategies of most major multinational companies in the US and to a slightly lesser extent the UK.
Particularly over the past 30 years, labour has been viewed not as an asset but as a cost on the balance sheet, something to be managed tightly and offloaded to cheaper venues abroad or to technology where possible.
But even before the post-second world war expansion of US multinationals, American business was at odds with labour. One of the country’s first management gurus was Frederick Winslow Taylor, whose ideas of “efficiency theory” held that workers were more or less a lazy and stupid bunch who needed to be given rigid, narrow tasks and closely controlled if business was to thrive.
“One of the very first requirements for a man who is fit to handle pig iron as a regular occupation is that he shall be so stupid and so phlegmatic that he more nearly resembles in his mental make-up the ox,” wrote Taylor.
And we wonder why our labour relations are so contentious.
Needless to say, Anglo-American views are quite different than the attitudes of German companies, which have workers’ representation on corporate boards, or Japanese groups that depend on regular labour input as part of the kaizen process of continual improvement. Germany and Japan have leveraged labour in higher-wage sectors such as manufacturing most successfully.
But “good jobs” are possible in faster growing service industries, too. Consider retail, a sector which in the US employs about 9m but on a median wage of $10.37. Anyone who has spent time in a mid-market restaurant chain or a big retail superstore knows how that is translated into low quality service that makes you dread the experience. This, coupled with the ease of online shopping, is one reason that 6,300 bricks-and-mortar stores closed last year in the US.
Those that survive, says Ms Ton, are those that have invested in people, not only by raising pay but by shifting the working environment to allow workers to have more time and control. This in turn raises their game. There are various ways to do this. For instance, by employing more hours of labour than needed for the expected workload, companies allow workers to serve their customers better and allow them the room to come up with solutions that improve corporate performance. These are the small-scale kaizen style improvements that add up.
Ms Ton says companies like Costco or the Four Seasons hotel chain, which are industry leaders, tend to give workers a lot of freedom to solve problems in their own way. This amounts to training on the job across many tasks and skills, which can raise the productivity, pay and status of workers, not to mention their happiness. In November, US productivity hit a three-year high but the overall trend has been for growth to slow, making programmes like this all the more important.
She cites, for example, QuikTrip, an Oklahoma-based gas and convenience store chain that has strong financial performance and high wages, where the typical starting salary for clerks is $40,000 per year. “One of my research students followed employees around and she could barely keep up, they were doing so much,” says Ms Ton.
It is interesting that what little wage growth we are seeing in the US is coming from lower-wage sectors. There are many reasons for this, such as state-by-state minimum wage increases and more labour tightening in those sectors. But another under-explored reason seems to be that at least some retailers realise that treating workers better, including giving them higher pay, can help answer another of their problems.
We cannot have a sustainable recovery in an economy built on close to 70 per cent consumer spending without higher wages. Tax policy may be pushing us in the wrong direction but, if business leaders start thinking of labour as an asset rather than just a cost, it would help set things right.