CURT NICKISCH: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Curt Nickisch.
Imagine a world where it’s so hard to find enough delivery drivers that a restaurant pays its customers to pick up their own food. That’s the reality for Domino’s Pizza. Thanks to the labor shortage, the U.S. chain started giving customers a $3 tip for choosing carryout instead of delivery.
That might sound like just another creative way of filling in the gaps in operations and supply chains due to the pandemic, but Domino’s started doing that in 2022. And new research out of Harvard Business School shows that the shortage of low-wage workers has less to do with the shock of the pandemic than people think, and more to do with how companies view and treat those workers, which is something they can actually do something about.
Joining us today are Joseph Fuller, a Professor at Harvard Business School, and Manjari Raman. She’s a Program Director at HBS. Together, they wrote the HBR article “The High Cost of Neglecting Low-Wage Workers.” Joe and Manjari, thanks for coming on the show.
JOSEPH FULLER: Delighted to be with you, Curt.
MANJARI RAMAN: Thank you for having us.
CURT NICKISCH: For your research, you looked at some broad data on jobs and wages. You also surveyed executives, and you also surveyed more than a thousand low-wage workers. Why did you kind of put that combination of pictures together, and what did that help visualize for you?
JOSEPH FULLER: Well, Curt, what we’ve done in our project on a number of occasions is to try to understand simultaneously the way business leaders view of an issue or a problem and also the way employees or job seekers see that same problem. And what we’ve consistently found is they’re very often significant misconceptions, almost always rooted in the business community, about how the labor market works, about the attitudes of workers, about what causes workers to respond to anything from offers of training, to quitting their job, and that by amplifying the opinions of workers, we can help inform decision-makers in ways that broaden their understanding of an issue, cause them to make different decisions.
Give you a quick illustration. Most employers assume that when a low-wage worker quits their job, they’re primarily motivated by the ability to make more at a different job. And that is a consideration about 40% of the time, but the dominant consideration when a low-wage worker quits a job is our transportation issues. How easy is it for me to get to and from work? That’s almost two-thirds of the explanations are, “It’s easier for me to get through this new job than to my current job.” Employers are just not aware of that.
CURT NICKISCH: So let’s describe these workers some more. Who are we talking about here?
MANJARI RAMAN: We’re really talking about a rather large population of the U.S. workforce. These are about 40 to 44% of the U.S. workforce, which could come as a surprise to many. These are workers who were at or below the 200% of the poverty threshold, which quite simply translates into jobs and positions that had them earning, they were all early wage earners earning less than $20.
Now, $20 sounds a lot; when we are talking about a metro like Boston and San Francisco with high expenses, it’s not that much. But we also looked at many, many workers, a majority of them were earning below $15, below $10, and even $7 per hour. What we saw, and the pandemic highlighted actually, was that these workers were essential to the business model of most companies and most industries.
We were able to see that a large number of women are overrepresented in low-wage workforces, and that has big implications for how we want to think about this. Also we saw that not all the folks in low-wage positions were less educated. There were folks who even had four-year college degrees who were in low-wage positions. The other thing we did, which was very interesting, which was pre-pandemic, was we looked at a database of more than 180,000 job resumes of low-wage workers, and we compared them between 2012 and 2017, and we found that over five years in that period, 60% of workers were trapped in these low-wage positions, even if they had moved in a job.
CURT NICKISCH: Yeah. You wrote in your article about how hourly wage increases were kind of a short-term solution, and that may underscore the misconception that people are leaving for better pay, that it’s really pay is just the simple motivating factor here for a low-wage worker.
JOSEPH FULLER: I think it’s rooted in the logic that employers apply to low-wage work. Low-wage workers are not really the subject of investment by companies. Many of them don’t have career paths for low-wage workers. Often, low-wage workers are in fairly large work groups where there’ll be 15, 20, even more than 20 workers per every supervisor.
Meaning that the next leg up in the ladder is pretty hard arithmetically to achieve because that supervisor’s got to retire or leave, and you have to be picked out of this group of 15, 20, 25 workers to get elevated to that role. I think the fixation on wages really betrays the fact that most companies think about this purely through the economics.
They don’t think about attachment to work. Low-wage workers or people who are capable of making great commitments to companies, loyal to companies want to stay where they’re currently working. More than half of low-wage workers’ aspirations is to grow with the company they’re currently working with. That took many, many business people by surprise, who assume that a low-wage worker thinks about this in a mercenary way, which unfortunately, largely is the way most employers think about it.
MANJARI RAMAN: A lot of these low-wage workers are actually dealing with many, many challenges. It’s not simple and easy just to get to work. There’s financial insecurity, there’s food insecurity, there could be homelessness, and few companies think about what is happening to the lives of their workers outside the company.
CURT NICKISCH: Yeah, that word security jumped out at me, you know you said in the article that it’s not just more pay that these workers are looking for. They’re looking for security, which is a different concept, but that also gives businesses more flexibility of what they can offer to those workers.
JOSEPH FULLER: The nuanced picture that comes out of this research, I think puts low-wage workers in context, that they do face, as Manjari was saying, challenges in their lives that are familiar to all of us, that you’re taking care of a parent or a child, that you have to have reliable transport because you’ve got to be home, because your kids coming back from school and you don’t want them to be alone.
But that low-wage workers, once they get in an environment where they feel that they’re being productive and they feel that they’ve got a supervisor that maybe isn’t dedicated to advancing them, but is a decent person, isn’t a sexist, isn’t a racist, low-wage workers skewed to women, skewed to ethnic minorities and racial minorities, so I’m in a community where I’m being productive, I’ve got some friends here, I’ve overcome that learning curve effect of both learning the role, but also learning basic things like how we do things around here, and where do we all get lunch?
Once people get settled in a comfortable environment like that, they will actually go to pretty great lengths to avoid putting themselves at risk by going to another unfamiliar environment where the workers, there might not be receptive to them coming on board, where the supervisor might demonstrate behaviors that are objectionable or frightening or otherwise demotivating to people. The notion of low-wage workers as people who are prepared to invest in building their future in a company, if opportunities are provided them, is something we very much want to impress on businesses. Most low-wage workers’ aspiration, over 60%, is to stay where I am if there’s some opportunities for me to advance.
MANJARI RAMAN: The irony is that most companies have convinced themselves exactly in the opposite direction, which is high churn is a result and a constant phenomena in our low-wage positions. It’s almost as if managers are telling themselves, “We know these jobs are, we are under-investing in these jobs, we are not helping support these workers, so let me just accept the idea that there’s going to be a tremendous amount of churn.” The research actually shows that people are keen to stay, and if you were to invest in them, they would stay even longer and be more productive, which is then how they earn more, and it’s not just about paying $1 more, it’s about paying $1 more linked to higher productivity.
CURT NICKISCH: So you’ve got a little bit of a self-fulfilling prophecy here, where if you view them as mercenaries, they may end up acting like that, rather than estimating the goodwill that those workers have. I’m curious why you think companies have misjudged this so much?
JOSEPH FULLER: In many instances, it is a self-fulfilling prophecy, as you suggested, Curt, that the policies and procedures of the company are honed, they’re understood by everybody, and the basic assumptions underlining their original design are not being questioned. Let’s say I’m running a retailer, and I regularly experience 70% turnover in my frontline retail staff.
That’s an eye-watering number, and so now I’m saying, “How do I think about the job design of an entry-level retail worker?” Well, it’s got to be very simple, ’cause it’s regularly occupied by somebody who’s new to the job. “Am I going to make it more complex?” “Am I going to train that new worker up?” Well, why would I invest their training when 70% of them leave every year? It’d be a foolish investment. I’d just be training my competitors’ future workers or some other company’s future workers.”
And that whole logic is embedded how we hire, what skills we value when we evaluate applicants, what type of feedback we create, what types of attributes we value in that worker, what types of advancement opportunities we offer them. By having this logic, we create the very high level of turnover that we blame for imposing on us, the company, the obligation to have large numbers of low-skill, low-paid workers.
It’s so embedded in the thinking of management and their business models that undoing that fundamental logic is something that never occurs to them.
MANJARI RAMAN: It was quite hilarious, actually, when we did a whole number of interviews with business leaders, and there were those who got it and had the right logic, and saw that there was much to be gained by investing in the three most important practices, which is provide mentorship to low-wage workers, help them figure out their career pathways, either inside the company or even outside the company, and thirdly, give them guidance on the learning and development and the skills that they needed. Most companies who get it figure out that the math on that works out much better than the hidden costs of high churn, high turnover, constant hiring, low morale, on and on and on.
CURT NICKISCH: So let’s talk through some of those things that companies can and should be doing. When you talk about providing mentorship to a low-wage worker and having career advancement discussions, what can that look like, and maybe we can talk about some companies that have some success stories here?
JOSEPH FULLER: The best practices are, first of all, that there’s a supervisor that’s giving regular, actionable feedback. The feedback’s got to be regular chronologically, not strictly limited to when there’s an annual performance review cycle, and it’s got to be comprehensible and actionable for the listener, for the worker. “Don’t do it this way, do it that way. Let me show you,” or, “If you had knowledge of these two additional processes, did you know that you might get promoted?,” or, “We’re going to be changing the work environment here, let’s say adding a new technology. Here are some ways for you to get familiar with that before we make the changeover.” It’s very important also that companies have some set of pathways for people to advance, to become more productive, to be worthy of earning more, or to be qualified for a promotion when opportunities exist or when the company expands.
Now, those pathways, they can’t just exist in a binder. They have to be communicated regularly in a way that the workers understand both that they’re there, what they require, how to access them. If you do those things, you’re signaling that worker that you’re committed to their improvement, that you care about their outcome, and you’re providing workers with specific mechanisms for being in a position to deserve to earn more, to be earning more because they’re more productive, they’re more flexible, they’re a worker that is adding more value to the enterprise.
One thing that we found that was quite startling in the research, Curt, is that when you ask executives, managers, and frontline supervisors, they have very different understandings and beliefs about how effectively their company implements the types of policies I just talked about. The C-Suite is absolutely adamant that they do a very good job, but what they’re really saying is, “We have policies, we have practices, we have binders.”
“We tell supervisors to give good feedback,” but when you get closer to that shop floor and you’re actually asking someone to execute those policies, the fall off is dramatic, and that disconnect between intentions and implementation is a big driver of the high turnover, low-wage cycle that actually damages the prospects of workers and their employers simultaneously.
MANJARI RAMAN: It’s ironic, but a lot of times, these practices are being implemented in the company for higher skills, higher wages jobs, and the implementation is weak for low-wage workers. In our interviews, we often heard, we interviewed workers who had grown within the organization in the last three years and those who hadn’t, and the ones who grew were folks where somebody, a mentor on the shop floor reached out and said, “I think you can do this. I think you’re capable of doing this.”
Even a little piece of positive feedback and a little bit of guidance went a long way. Many managers, on the other hand, said, “Well, if a low-wage worker wants to grow within the organization, why don’t they just speak up?,” but it’s actually very difficult to speak up and ask for a promotion or a pay raise if you’re living day-to-day, check-by-check and you’re petrified that you lose the job you currently have.
So one of the key things that we need to fix in all of this is break down the assumptions that let people ask us, just like higher-skill, higher-wage workers would do it. No, I think in this case, you have to work top-down and create the mechanisms, as Joe pointed out, for feedback to be given, for input, for the worker to be inspired and taken down a pathway of career enhancement.
CURT NICKISCH: Are there companies or businesses that have successfully overcome this perception gap and have done good things that you think are good examples for other companies to look to?
MANJARI RAMAN: Well, yes. We are starting to see that very large employers, companies like Disney, Walmart, and Amazon are putting in a lot of effort in terms of thinking about how they attract low-wage workers, retain them, train them while they are in employment for better positions, either within the organization or outside the organization.
Disney, for example, has partnered with Valencia Community College in Florida, and imagine you have Haitian housekeepers. Now, housekeeping is a very difficult job and usually has very high turnover, but Disney will offer such a person the ability to perhaps take English courses to learn the language better, perhaps take front office management courses, and so they have created pathways where you might see a housekeeper move on to a front office customer-facing position, which is no longer an early position, and actually pays much better benefits and wages.
JOSEPH FULLER: It’s also, we’re seeing some innovations, Curt, that are very encouraging from small and medium enterprises as well. Smaller companies and medium-sized companies, management is closer to the workers literally and physically, and they have a better appreciation often of the stories behind the job description and the paycheck.
A very innovative program in western Michigan, called The Source is a good illustration of this. The Source is a confederation of local employers that have banded together to create essentially what amounts to case officers, who can help the low-wage workers that work for those companies access all the various services that are available to them in Western Michigan. They could be services offered by a not-for-profit or a social entrepreneur. They could be state or local programs, but it’s designed to help workers solve problems that the HR department isn’t equipped to solve, doesn’t understand, doesn’t have the resources to address. So if you go to the HR manager of your factory and say, “I think I’m about to get evicted,” what are they going to say? “I feel badly for you.”
But if they can say, “Here’s a local social entrepreneur that both helps people avoid eviction, but also helps people who are about to be evicted, find a place to make a smooth transition to stable living circumstance,” that, of course, is very much in the interest of the employee, but this is doing well by doing good for the employer, because that worker isn’t sleeping in their car. That worker isn’t spending all their time on the job, being worried about their kids having nowhere to go anymore after school. That worker isn’t preoccupied by having the sheriff come up with an eviction notice, and so a lot of it has to do do with companies saying, “I understand these workers where they are, what their life is like, where the role work plays in their life, and I can get a more productive worker, more likely to stay, more likely to speak well of me in the community, more likely to be anxious to perform well if I make investments that really speak to their needs and their ambitions.”
CURT NICKISCH: I mean, one thing you found in your research is that companies sort of disregard the strategic importance of what we’ve called here essential workers, which is counterintuitive, right? It’s essential, but they’re overlooking the strategic importance of this labor force. Do you think that companies need to sort of step back and approach this as kind of like a war for low-wage workers that they have underestimated up until this point?
MANJARI RAMAN: That’s a great point. The war for talent is a zero-sum game where everybody’s fighting to get to the bottom of the barrel. What we are saying is you’ve already got the talent in your companies. Find a way to retain them, grow them, encourage them. They will put word out that you’re a great place to work and bring in more friends, families, neighbors applying to your open positions, because if you don’t do that and you have open positions, you have hotels that don’t have housekeepers, you have airlines that don’t have baggage handlers, you have restaurants that have to shut down early, you have pharmacies that can’t deliver, basically, you’re not able to deliver your business model. So instead of going to war, it’s much better to think about this in a constructive way in peace times and say, “What could I be doing constructively to retain the talent I already have, the workers who have already signed up and say they want to work with me?”
JOSEPH FULLER: As a manager, it’s a safe assumption that any process that you’re supervising is perfectly designed to create the outcomes it regularly creates, not the outcomes you want it to create, so if companies are very satisfied with 70% turnover, with low levels of engagement with workers, with poor performance on diversity, equity, and inclusion, they should just keep executing their current policies because that’s what they’re getting, but if they want to get a more engaged workforce, if they want to escape the war for talent.
What they need to start doing is engaging the workers where they live and where they are, and they need to be revisiting fundamental elements of the policies and procedures they use to hire, retain, train, upskill, manage low-wage workers.
Low-wage workers are a disproportionately diverse, so they’re an instant pool of talent for responding to DEI challenges. They already know your company. They already have shown commitment to your company, so rather than go into the spot, market for labor to meet your needs, invest in upskilling who you’ve got, and you’re going to have better all in economics than the churn and burn model you’re currently operating with.
CURT NICKISCH: Joe and Manjari, thanks so much for coming on the show to talk about your research and sort of open our eyes here.
MANJARI RAMAN: Thanks a lot.
JOSEPH FULLER: A pleasure to be with you, Curt.
CURT NICKISCH: That’s Joseph Fuller, a Professor at Harvard Business School and Manjari Raman, a Program Director at Harvard Business School. Together, they wrote the HBR article, “The High Cost of Neglecting Low-Wage Workers.”
We have more episodes and more podcasts to help you manage your team, your organization, and your career. Find them at hbr.org/podcasts, or search HBR in Apple Podcasts, Spotify, or wherever you listen. This episode was produced by Mary Dooe.
We get technical help from Rob Eckhardt, our Audio Product Manager is Ian Fox, and Hannah Bates is our Audio Production Assistant. Thanks for listening to the HBR IdeaCast. We’ll be back with a new episode on Tuesday. I’m Curt Nickisch.