Outten & Golden: Empowering Employees in the Workplace

"Treating People Decently is Sometimes a Competitive Advantage"

July 25th, 2005 | Paula Brantner

We often quote Paul Krugman of the New York Times in this blog, and include his articles in the Workplace Fairness daily newsletter, In the News (free if you’re not already a subscriber), because his analysis is just so right. His latest, “Toyota, Moving Northward,” echoes a point made a week ago by another Times article about Costco: How Costco Became the Anti-Wal-Mart, which is that “treating people decently is sometimes a competitive advantage.” At Workplace Fairness, we’re not such raging lefties that we think a company has to go bankrupt while bending over backwards to favor its employees, and we applaud the CEOs and politicians out there who feel the same way.

The announcement last month didn’t make too many people here in the United States very happy: a new Toyota plant, producing RAV4 mini-SUV’s, will open in Ontario, Canada, instead of the United States. It wasn’t for lack of trying: many U.S. states had courted the plant with large financial incentives, and made visits to Japan to try to land the deal. (See The Detroit News to read about Michigan’s efforts.) In the end, the decision was made on the basis of two major areas where the Canadians were deemed to have the edge on the US: education and health care.

When it comes to education, the industry buzz is that Canadian workers are better trained than their counterparts. “The level of the workforce in general is so high [in Ontario] that the training program you need for people, even for people who have not worked in a Toyota plant before, is minimal compared to what you have to go through in the southeastern United States,” said Gerry Fedchun, president of the Automotive Parts Manufacturers’ Association, whose members will see increased business with the new plant. (See Canadian Press article.)

You can try to dismiss Fedchun’s remarks by calling him a crazy Canuck, but he’s not the only one saying that. Another article claims that when Nissan opened its assembly plant in 2003 in Canton, Miss., its work force wasn’t as trained as its officials had thought. (See Knoxville News Sentinel article.) And in Alabama, trainers had to use “pictorials” to teach some illiterate workers how to use high-tech plant equipment. (See Canadian Press article.)

As for health care, Toyota’s not the only automaker wishing for the Canadian system of universal health care. Canadian Industry Minister David Emmerson said that Canadian workers on average are $4 to $5 an hour cheaper to employ than Americans, mostly due to Canada’s health care system. (See A Simple Formula.) For every vehicle produced in 2004, GM spent $1,525 on employee health care. That expense adds to the sticker price of each automobile and creates a competitive disadvantage with foreign automakers. (See Times-Tribune article.)

But until we have a system of universal health care in this country, with some questioning whether that will ever happen, the solution is not to provide your workers with no education, training, or health benefits. Companies are starting to find that “it’s better to pay your workers a decent wage and offer them decent benefits because in return, you end up with a more efficient, more productive workforce.” (See A Simple Formula.)

Costco is leading the way, at least among companies willing to talk openly about their business strategy as it relates to their employees. (See New York Times article.) And it seems to be working. Last year, Business Week compared Costco to Wal-Mart to conclude that

[B]y compensating employees generously to motivate and retain good workers, one-fifth of whom are unionized, Costco gets lower turnover and higher productivity. Combined with a smart business strategy that sells a mix of higher-margin products to more affluent customers, Costco actually keeps its labor costs lower than Wal-Mart’s as a percentage of sales, and its 68,000 hourly workers in the U.S. sell more per square foot. Put another way, the 102,000 Sam’s employees in the U.S. generated some $35 billion in sales last year, while Costco did $34 billion with one-third fewer employees.

(See Business Week article.)

Wall Street grouses that Costco is too generous to its employees. Says analyst Emme Kozloff, “He [CEO James Senegal] has been too benevolent. He’s right that a happy employee is a productive long-term employee, but he could force employees to pick up a little more of the burden.” Senegal begs to differ: “This is not altruistic. This is good business.” Stockholders agree: Costco’s stock price has risen more than 10 percent in the last 12 months, while Wal-Mart’s has slipped 5 percent. Costco shares sell for almost 23 times expected earnings; at Wal-Mart the multiple is about 19. (See New York Times article.)

As long as America isn’t investing in its workforce, and our government isn’t working on health care solutions, here’s the outcome we can expect, according to Krugman.

[T]he result of international competition will be to give Canada more jobs in industries like autos, which pay health benefits to their U.S. workers, and fewer jobs in industries that don’t provide those benefits. In the U.S. the effect will be just the reverse: fewer jobs with benefits, more jobs without.

(See “Toyota, Moving Northward.”) We look forward to the day when more CEOs, like Costco’s Sinegal, recognize that the best way to compete in the global economy is to treat workers better instead of worse. But we have to ask, how many jobs must be lost in the meantime?

More Information:

Workplace Fairness: Short-Changed
profits before people: the income gap
critical condition: healthcare

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