Two years ago, just before Labor Day, the Cambridge Hyatt hotel fired its housekeepers and replaced them with lower-wage workers recruited through a temporary help firm. The Massachusetts political establishment erupted in outrage and polls suggested widespread public condemnation. Yet now, two years later, Hyatt has never rehired those housekeepers, and operates with impunity. What does that tell us about job opportunity in America?
The debt-ceiling crisis may have come to a close, but for many Americans, the jobs crisis continues to fester. And the Hyatt situation showcases what has become standard operating procedure for too many companies: reduce wage bills by outsourcing jobs. This strategy is increasingly common in low-wage work such as housekeeping, security and building service work, but it echoes trends in higher-wage work such as computer programming and law.
The story goes far beyond outsourcing. Over the past several decades, firms have developed a set of strategies aimed at lowering compensation and benefits. Outsourcing is just one tactic. Another is keeping employees at less than full-time status to avoid paying benefits. Aggressive union avoidance is yet another. Instead of investing in training frontline employees and creating career paths, many companies rely on a high-turnover employment model.
It is tempting to view employers simply as the enemy of good jobs and to demonize them. Some firms view employment law violations, such as evading overtime pay, as just another smart business practice. However, more employers see little choice but to squeeze their employees, even if they hate doing so. In an effort to survive and grow, with tremendous competitive stress and pressure from financial markets, companies look for the path of least resistance. Unfortunately, this has often involved pushing labor costs down as far as possible.
Ironically, there is solid evidence that when employees are paid better and given more opportunities within a company, they respond in ways that help offset the additional costs. For example, a study of home health care aides in Los Angeles found that a $1 dollar increase (from $8 an hour to $9 an hour) reduced turnover by 17 percentage points. Adding health insurance reduced turnover by 21 percentage points. But companies typically lack incentives to shift their policies and, in today’s volatile economy, most are too risk averse to experiment.
This is where public policy could help. Americans have long believed there should be a floor under which job quality does not fall — that’s why Hyatt’s actions spurred such outrage. There is widespread support for upgrading standards. Since 2006, six states have moved forward ballot initiatives to raise the minimum wage, including more conservative states such as Montana and Arizona.
Employment standards do not just raise the floor. They also provide incentives to firms to upgrade their employment practices in order to reap productivity gains that help offset additional costs. Such standards should be thoughtful, transparent and not overly burdensome.
Good public policy should also help firms improve policies as well as standards. There is now substantial experience and evidence from effective programs, often termed “intermediaries,” that help firms increase the training they provide employees and create career paths for them. By upgrading workers’ skills, productivity gains can be attained that justify better wages and benefits. Project QUEST in San Antonio is nationally known success story, as is the Wisconsin Regional Training Partnership, union-management joint training programs in New York City and Philadelphia, and many other efforts supported by the National Fund for Workforce Solutions.
The anger that greeted Hyatt’s policies reveals public support for better jobs and wages. The success of minimum wage ballot measures around the country demonstrates this extends into the voting booth. A set of tested policies, from more effective employment standards to training and career ladders, could make a real difference. What’s needed now is a level of political leadership to translate more of this public sentiment into concrete action.