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The High Cost of Neglecting Low-Wage Workers

Here is an excerpt from an article written by Joseph Fuller and Manjari Raman for Harvard Business Review and the HBR Blog Network. To read the complete article, check out the wealth of free resources, obtain subscription information, and receive HBR email alerts, please click here.

Credit:  Brian Finke 

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There arev six mistakes that companies make—and here’s how they can do better

Despite all their efforts since the summer of 2021 to bring frontline workers back into the fold, companies are struggling to rehire and return operations to a prepandemic normal. As a result they have failed to deliver products and services, lost revenue, and disappointed their customers. Supply chains remain snarled, with warehouse and delivery operatios woefully understaffed. Grocery stores and pharmacies are unable to keep their shelves stocked. Restaurants can’t find enough cooks, cleaners, and waiters. Hotel chains can’t book to their full capacity, because they don’t have enough housekeeping staff. Airlines have been forced to ground hundreds of flights.

In 2021 companies convinced themselves that the labor shortages they were experiencing were a passing phenomenon, and in response they trotted out the standard short-term fixes: raising wages by a few dollars an hour, awarding signing and referral bonuses, and even offering more flexibility in working shifts. But none of those measures were particularly effective. So in 2022, with the labor situation worsening, some companies resorted to tactics that ran counter to their core strategies. CVS and Walgreens began closing stores earlier or shutting down on Sundays. Domino’s, unable to find drivers, reversed its focus on deliveries and instead offered customers a $3 “tip” if they picked up their own orders. Others took extraordinary measures to fill frontline jobs. When it didn’t have enough baggage handlers, Qantas begged senior executives to volunteer to sort, scan, and transport baggage for three months.

Companies blamed everyone but themselves for the labor shortages: The pandemic was a once-in-a-lifetime shock to the system that had provoked the scarcity. The government had exacerbated the problem by issuing stimulus checks. High rates of churn were a fact of life in the world of low-wage work.

But that thinking was misguided. After studying this topic for several years, as part of Harvard Business School’s Project on Managing the Future of Work, we have concluded that the real problem lies in the way that organizations mismanage their hourly workers: They are underinvesting in those employees and harming their own strategic interests.

This pattern of denial and neglect hurts workers in ways that have profound societal costs. No matter how hard or how long they work, many low-wage workers cannot climb out of poverty. We studied the fortunes of 181,891 workers who started low-wage jobs in 2012, and we found that five years later 60% of them remained stuck in such positions. People who had managed to escape those jobs had most often done so by quitting industries such as hospitality, food services, and retail, which are classic low-wage traps. Across industries, women were overrepresented in low-wage jobs and most likely to stay impoverished.

The pattern also inflicts all sorts of direct and indirect costs on companies, including lower retention and higher absenteeism, more overtime, a reliance on staffing agencies to provide temporary workers, constant recruitment and training of new employees, a lowering of morale, a loss of institutional and process knowledge, a decline in customer goodwill, a damaged reputation among job seekers, stagnant or lower rates of productivity—and less revenue.

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Here is a direct link to the complete article.

Joseph Fuller is a professor of management practice and a faculty cochair of the Project on Managing the Future of Work at Harvard Business School.
Manjari Raman is a senior program director and a senior researcher for Harvard Business School’s U.S. Competitiveness Project and the Project on Managing the Future of Work.
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