Zeynep Ton, Professor at MIT Sloan School of Management recently held a talk on the challenges faced by low-income workers. Ton examined low-income workers, job design and business leaders’ attitudes towards increasing pay gap inequality.
“There is an obsession amongst businesses to look at the market to determine the rate of pay. Whilst that might work for certain job titles, for those workers on minimum wage, really what is happening is that businesses are not truly valuing their labour as an economic input. If we examine other economic inputs such as goods versus supply, we see that prices rise to reflect the shortfalls. Yet, this does not apply to people and their labour as wages are stagnating. Businesses are not willing to raise wages as dramatically as prices.” explained Ton.
When examining the lowest-paid workers of an organisation, it is clear that they are disproportionately diverse and so too is their pay. Ton explained, “When an employee’s pay is low, that is, below a sustainable level, it impacts their quality of work. Low-income employees are more susceptible to physical and mental health problems and experience a decline in cognitive capacity, losing on average 13 IQ points. This has a knock-on effect on their work performance. They are unable to show up on time, focus on the task at hand or display good work behaviour because of the financial problems in their life. As such, wages affect the productive value the employee makes to their organisation. At the end of the day, workers are human beings and there is a need to break down the stigma around using the market rate to determine pay.”
Countless research has shown the negative impact that poor working conditions and low pay has on not only employees but businesses as well. High turnover, loss of revenue, frustrated customers are some of the things that come with a low-pay culture. As Ton puts it, “Business leaders need to prioritise employee pay and working conditions otherwise, how can they differentiate themselves from their competitors and adapt to changes in the market, Nowadays, the minimum wage cannot sustain any single person in any part of America. It is the responsibility not only of business leaders but also the government and the media to play their part in shifting perceptions. It is about much more than wages. At the end of the day, it is about people.”
The pandemic has resulted in a shift towards stakeholder rather than shareholder capitalism with many organisations redesigning job functions to motivate employees. Ton noted that progress has been made and for the first time it is possible to see a wage increase in the lower economic segment. Despite more companies talking about changing their ways, there remain many that are not taking firm, decisive actions. Ton suggests, “Leaders should take a look at their lowest-paid workers and think – what percentage actually make a living wage? They should then look to creating internal career paths breaking down barriers for different races and gender. In order for these changes to be long-lasting, there needs to be a drastic shift in the way business leaders think. It is human beings that drive performance and as long as leaders view workers as a cost to be minimised then things will not change in the long term.”
Take discount powerhouse Costco as an example, where the minimum wage is USD $24 per hour yet offers low-cost products to its customers and performs extraordinarily for shareholders. Ton assents, “Costco is successful because they have leveraged their human capital investment. They have empowered employees to make decisions for customers, redesigned workflows and tasks so employees are engaged and productive and have made cost-cutting concessions elsewhere. The key for leaders is to see the power in investing in people.”
Ton pointed to upskilling employees to address this issue, “The problem is, there is not a shortage of skilled people capable of filling organisational demands. The problem is there are too many poorly designed jobs. Though learning and development and promoting access to education should not be discouraged, especially to those fringe demographic groups, if all low-income employees upskill there is not enough room for everyone to move up. Upskilling employees is the easy way out so to speak rather than addressing the bigger underlying issue.
Business leaders looking to address low-income issues should first recognise the problem at hand and view it from a competitive and financial context. Despite corporate profitability, they should realise they are only profitable until they are not. Ensuring that each employee has access to a well-paid good job can help them to win with customers and adapt to changes.
Those leaders who have made substantial changes spend significant amounts of time on the frontline. If every leader took this approach, they might be shocked to hear how many of their employees are worried about small issues. As it stands, many leaders remain out of touch and fail to motivate staff with out of touch benefits such as discounts on activities or products that are not useful for people counting pennies. Leaders tend to underemphasise money but when you make so little, money is everything, when you make enough, money is nothing.”
Paul Arkwright
Publisher
