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How to Make Service Sector Jobs Better

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The Financial Times had a forward-thinking comment by Richard Florida, director of the Martin Prosperity Institute at the University of Toronto’s Rotman School of Management. It argues that investment in technology and better management can turn many now low end service sector jobs into better paid and higher quality work.

One key aspect, which the piece glosses over a bit, is that though the 1970s, the benefits of productivity gains were shared among workers, management, and investors. Increasingly, from the 1980s onward, they have increasingly been diverted to upper management and investors/financiers. For Florida’s suggestions to have their intended effect, we need a shift in practice on how profits resulting from productivity gains are whacked up.

From the Financial Times:

Consider this simple fact: the US economy remains on track to generate 15m new jobs over the next decade… half of 15m newly created jobs – 7.1m of them – will be much lower-paying, low-skill work in the routine service sector: among them are 835,000 home health and personal care aides, 400,000 new customer service positions, 400,000 food preparation workers and 375,000 retail sales clerks. More than 60m American workers already do this kind of work, or 45 per cent of the workforce.

Although some such jobs, at call centres for example, have proven vulnerable to offshoring, a great many are not: it is impossible to cut hair, serve food or care for the elderly from Bangalore or Mexico. The problem is that on average, service workers earn only half of what factory workers make – and only a third of what professional, technical and knowledge workers are paid. The key is to upgrade these jobs and turn them into adequate replacements for the higher-paying blue-collar jobs that have been destroyed.

It has happened before. Yet the blue-collar jobs we pine for were not always good jobs: we made them good jobs. When my father came back from the second world war, his poorly paid factory job had been transformed. He was able to buy a house, put his two sons through college and participate fully in the American dream. Some of this was due to the power of unions. Most of it was because of the enormous improvements in productivity wrought by improved technologies and management techniques.

The same thing can and must happen in the service sector. It is starting already. Companies such as Wegmans, Whole Foods, the Container Store, Best Buy and Zappos already account for a fifth of the top 100 best places to work in America. A typical hourly worker at the Container Store earns about $30,000 a year, not nearly as much as a GM factory worker but about 50 per cent more than the average for hourly-wage retail workers. Retail outlet Trader Joe’s mandates that full-time workers earn at least their community’s median household income, while its “store captains” can make six-figure salaries. These companies recognise that better conditions lead to better customer experiences – and an improved bottom line….

In our own day programmes such as the Malcolm Baldridge Award for Quality and ISO certification initiatives help to spread ideas throughout the manufacturing sector. Service jobs are the last frontier of inefficiency, providing abundant low-hanging fruit for the innovation and productivity improvements that can undergird higher wages. Yet they have no comparable assistance.

Thousands upon thousands of corner stores, dry cleaning shops, day care centres, restaurants and hair salons open and close every year. But while governments bend over backwards to help high-tech start-ups and university spin-offs, they do next to nothing for new service companies. This is part of the reason such companies have a high rate of failure.

Last fall, the City of Toronto and the Martin Prosperity Institute organised a summit with representatives from the public, private and non-profit sectors to develop new strategies for upgrading service work. President Barack Obama should now do the same thing on a national scale. Such an agenda could push measures that would help service businesses learn what it takes to succeed – from advice about business planning, to budgeting and sales, to quality management and marketing, to efforts to engage employees and develop their skills. Such a movement is badly needed. Without it, those who warn of a jobless future in America are much more likely to be proved right.

Yves here. When I lived in Australia, the minimum wage there (A$13 an hour) was a living wage. Frankly, it produced a much more pleasant society to live in, and workers at low-end retail jobs seemed much happier about their work. And prices were not out of line either in local currency terms (except for technology, don’t get me started on that, but that was largely a function of a cheap Australian dollar then). So this isn’t as crazy an idea as it sounds, but investing in productivity and improved business operation will make it far more viable to blaze a path to higher quality jobs.

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22 comments

  1. Greg

    I completely agree with the sentiment, but there are headwinds.

    We have been indoctrinated with the idea that wages are in proportion to productivity; and productivity requires automation. Take nursing care, and care in the community for two examples (there are many others):

    “Nothing Eileen Oldaker tried could calm her mother when she called from the nursing home, disoriented and distressed in what was likely the early stages of dementia. So Ms. Oldaker hung up, dialed the nurses’ station and begged them to get Paro.

    Paro is a robot modeled after a baby harp seal.

    After years of effort to coax empathy from circuitry, devices designed to soothe, support and keep us company are venturing out of the laboratory. Paro, its name derived from the first sounds of the words “personal robot,” is one of a handful that take forms that are often odd, still primitive and yet, for at least some early users, strangely compelling.

    For recovering addicts, doctors at the University of Massachusetts are testing a wearable sensor designed to discern drug cravings and send text messages with just the right blend of tough love.

    http://www.nytimes.com/2010/07/05/science/05robot.html?hp

    Paro does part of the job that a human caregiver used to, providing some soothing interaction for bored or distressed patients.

    And:

    “A robotic rest home caregiver called Charlie may be the start of a lucrative … healthcare industry.”

    http://www.nzherald.co.nz/technology/news/article.cfm?c_id=5&objectid=10656303

    (One can see the attraction of robots from the clients’ point of view. A robot will never gossip about you, and will never judge you morally, whatever your physical condition or lapses.)

    The jobs will be better paid, but there will be fewer of them.

    1. anon

      Most service jobs aren’t needed and could be replaced with machines if we set our minds to it, but people often want to be served by other people, not by machines. I think for every new technology invented and/or service job that gets replaced by a machine, we’ll see many new types of services emerge for people to do. The only limit on the service sector is the limit of our imaginations. Over 80% of the US economy these days is in the service sector. I can see that number rising to 99% within a generation.

      A large part of our daily needs are already highly automated in agriculture, energy production, and manufacturing. Yet it’s still cheaper to rely heavily on immigrant laborers and outsource to poor countries because of the cost of the fossil-fuel energy that goes into the production, maintenance and operation of machinery. However, we possess the know-how to move beyond energy scarcity and fossil fuels — including for the mass production of bio-plastics and synthetic fertilizer — if we but set our minds to its application. Energy is all around us. The universe hasn’t given us a bad deal on energy.

      But as to the question of maintaining nearly 100% employment, why must people work in order to earn the right to exist and survive? It’s highly stressful, putting people in an almost perpetual state of fight or flight. Is there some fear that humans will devolve into mindless animals if they aren’t threatened with the whip of unemployment and destitution and kept busy working 40 hours per week for money to buy food and pay their mortgage, car loan, insurance and utility bills? I think that’s nonsensical FUD. Most non-sociopathic people will do creative and helpful things that they love and find ways to be of service. They won’t just sit there grazing like cows and reproducing like rabbits, even if that’s a technical possibility. If the latter *does* happen, then you have a deep cultural and education problem in a severely sick society.

      I doubt that we can indefinitely pursue capitalism based on a rapacious consumerism that generates mountains of garbage and toxic waste. The service sector will grow while consumer demand simultaneously diminishes as people become more environmentally conscience about their consumption. Something like a basic income guarantee (BIG) may be the next logical step. A BIG would ensure that people can be of service in ways that they love, even if there isn’t a high demand for their service, and human expression would be allowed to flourish in niche economies, as compared to forcing people to compete over a limited number of widely in-demand services. Of course, we’ll still have inequality reflected in people’s incomes, but no one should be left homeless or want for education, food, medicine, or basic health care. We’re not doing it right if people are living in fear.

      I believe we have the ability to make life more enjoyable for everyone on the planet while also maintaining an economic system with sustainable growth — i.e. growth according to increasing technological efficiency. We just need to change some of our systems and tweak some of our values.

      1. Jojo

        I like this BIG idea!

        None of us ever asked to be born in the first place. Most people are not happy with the work they are required to do. Why must we be shackled to work we hate (or grow to hate) for 40-50 years of our time on this planet?

  2. koshem Bos

    The ideas sound great. My non expert expectations, however, aren’t high. Small businesses tend to be owned and run by individuals narrowly focused on the bottom line today. I don’t see my corner taco place join the effort.

    A serious campaign by the administration to raise the income of service workers augmented by monetary incentive may change that. I don’t see Obama doing anything about it unless he, like a small business owner, gains tangible results right away.

    1. Yves Smith Post author

      I think the official definition of small business is something like <50 employees. So you do have quite a few businesses (10+ people) where automating or better management can help. Look at restaurants, the difference that order-recording software makes.

  3. Doug

    These are important issues raised by Richard Florida — issues that need to be put in practice. To do so, though, demands both private sector initiative and govt initiative.

    Note, e.g., his comment about his father:
    “When my father came back from the second world war, his poorly paid factory job had been transformed. He was able to buy a house, put his two sons through college and participate fully in the American dream. Some of this was due to the power of unions. Most of it was because of the enormous improvements in productivity wrought by improved technologies and management techniques.”

    Yes, agreed regarding productivity improvements. But, let’s not forget the GI Bill and home mortgage deduction: government action. And, Yves’ comment about ‘living wage’/minimum wage also demands BOTH govt action AND private sector action.

    Moreover, without govt involvement, we also run the risk that private sector productivity improvements continue the pattern of the past 30 years where, as Yves notes, the surplus generated goes to corporate profits and executive pay instead of to labor.

    Last point: It would be helpful to see what empirical evidence and research there is for how small business owners behave on these issues. I’m guessing we all know some pretty selfish small biz owners… but also I’m guessing we know others who have a better track record than that. What’s the proportion of each group?

  4. Lanye

    In this age everything is hardtimes at the moment.Businesses do not know what to do ,laided off workers,less paid will not solve issues. creates strife,hungry americans,homeless people,Fighting,negative aspects for some,Separated families,less transportation ,higher fuel,less Teachers in education,Less business,higher taxes in some states,less funding for necessary situations,We are lost in being one Nation under God. Are we REALLY EMPTY? (WHAT GOES AROUND COMES AROUND)Karma.-Lanye S.

  5. Peripheral Visionary

    Interesting.

    “The key is to upgrade these jobs and turn them into adequate replacements for the higher-paying blue-collar jobs that have been destroyed.”

    And why were they “destroyed”? Where did they go? What happened to all of those past-tense blue-collar jobs, anyway?

    “Yet the blue-collar jobs we pine for were not always good jobs: we made them good jobs.”

    How good can jobs be if they no longer exist?

    “The same thing can and must happen in the service sector.”

    What, ensure that all the sector’s jobs disappear in a frenzy of well-intentioned but hopelessly misguided initiatives that do nothing but convince businesses to go elsewhere?

    “A typical hourly worker at the Container Store earns about $30,000 a year, not nearly as much as a GM factory worker but about 50 per cent more than the average for hourly-wage retail workers.”

    And GM workers wouldn’t be making one thin dime if it weren’t for massive taxpayer support. And that is to say nothing of the shoe factory workers, the garment factory workers, the toy factory workers, etc., who are now making nothing, being unemployed.

    “When I lived in Australia, the minimum wage there (A$13 an hour) was a living wage.”

    Reality check: Australia has some of the tightest immigration restrictions in the world, including mass deportation of illegals. It also has an economy that is built largely off industrialized farming and mining, both of which have seen wages as a portion of expenses decline dramatically in recent decades. They can afford a high minimum wage, because they have an intentionally limited labor pool and high demand. Economies with high minimum wages that are built more around services, like Greece’s and Spain’s, simply see much of the economy go underground as employers pay immigrant workers under the table. In our country with our current immigration situation and lack of enforcement, it is perfectly clear what the likely outcome of much higher minimum wages will be.

    But to the economy, services cannot (easily) be offshored, but then again, neither can they be exported. We will never service-economy our way out of our current situation; the myth about the town where everybody does everybody else’s laundry is a myth for a reason.

    At some point, we will have to buy goods from other countries, and at some point, those other countries are going to want something in exchange other than IOU’s. If we are to have an effective export sector, that means we will need to make goods at a price that is competitive with that of the developed world, which has direct and stark implications for the direction wages are headed. We need to face that reality, no matter how unhappy it may be.

    1. Jojo

      “At some point, we will have to buy goods from other countries, and at some point, those other countries are going to want something in exchange other than IOU’s. If we are to have an effective export sector, that means we will need to make goods at a price that is competitive with that of the developed world, which has direct and stark implications for the direction wages are headed.”
      ————
      Maybe we will just provide services to other countries? Finance, vacation, accounting, something? We really don’t have much expertise in the area of manufacturing anymore!

      1. call me ahab

        joj0

        c’mon- think about this a bit- our own companies offshore their own call centers- why?

        because it is cheaper-

        so- what would be the reason another country would use us for services? So they can pay more?

        the reality is- they won’t – sure specialized services that maybe are not available- but how long would that last? Only as long as it takes for them to figure out how to do it themselves-

        accounting is accounting anywhere- pretty basic stuff- and vacations? There are travel agancies in every country I have been too- which are quite a few-

        but maybe your point is that we can be the new Costa Rica- and develop the tourist trade for our livlihoods-

        I’ll pass

        1. Jojo

          OK. How about we turn the land back to the Indians and then we can all work in the casinos? Or how about medical marijuana vacations? Tour guides?

          We better find something or there are going to be a whole lot of under/unemployed restless natives looking to break into the gated communities of the rich and famous and do some scalp hunting and guillotining…

  6. PeonInChief

    I’m distinctly unfond of Richard Florida, believing that he is a mouthpiece for the corporate interests that fund his work. His current anti-homeownership argument, for instance, is more support for a transient work force than for people making good decisions about how they want to live and what makes sense for them. (And he doesn’t advocate for more tenant protections, which would make renting a less onerous burden.)

    So what’s most interesting about his current position is that even the corporate interests have become concerned about the problem that a large number of low-wage jobs create in our economy.

  7. dr

    Well, we might see labor unions come back.

    The upcoming workforce of Generation Y is composed of close to 50% minorities who traditionally work in most of these low paying jobs. I’ve rented in a few working/illegal class areas and believe me these people are angry and feel exploited by the perceived Anglo-capitalist class. To avert a class war the US might be forced to increase wages.

  8. RPB

    “He was able to buy a house, put his two sons through college and participate fully in the American dream. Some of this was due to the power of unions. Most of it was because of the enormous improvements in productivity wrought by improved technologies and management techniques.”

    It would seem fair to also mention a very large part of the world’s industrial capacity was also smashed by war – as was a substantial portion of human capital.

    One may also contend that the Australians do not have the same wage pressure we experience due to immigration, both legal and illegal. (except for the H1-Bs, many firms pay them higher than other entry level employees)

  9. call me ahab

    wow-

    if we just pay the service sector workers more- than they can buy more and our economy will expand-

    let’s see- how does that work- the barber gets paid more so the haircuts cost more but the dude getting hair cut can afford it because he got the same raise at the retail store he works at-

    hmmm . . .where is the benefit- someone has to get the short end of the stick for this to work

    1. call me Ish

      No. Instead of some guy in a hedge fund pocketing $100 million which he uses to buy a van Gough from some sheik in the UAE, 1 million people get $100, which they use to buy the necessities of life, thereby improving the bottom line of thousands of businesses.

      1. call me ahab

        dude-

        that is ridiculous- if everyone in the service sector gets a raise- then it’s all a wash-

        how can everyone get a raise and not have the cost of the things they were buying from each other increase as well?

        total wash- what does the dude in the hedge fund have to do w/ it-

        the marginal increase in the service is insignificant to him

        c’mon Yves- come clean- this is all nonsense-

        why not pay everyone in the service sector $500/hr- then they’d all have the good life- right?

        lol

          1. call me ahab

            this from a fucking retard who spells “van Gogh” as “van Gough”-

            also- re economics- you obviously don’t know shit outside of the idea that if we all just make more we can spend more-

            not the case dumb ass when everyone gets the same raise-

            but what can you expect from someone that is is below a “dull normal” on the bell curve

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