Blocking the Low Road and Paving the High Road: Management Practices to Improve Productivity
By Heather Boushey and Kevin Rinz
In what is being called the “Great Resignation,” workers across America are leaving their jobs in record numbers. Anecdotal reports suggest that workers—from waitstaff to health care professional to teachers—are frustrated by low wages, irregular hours, or difficult or unsafe working conditions. Over the last year, there were almost 50 million job quits, including nearly 4.4 million quits in February alone. There’s a saying that people join companies and leave managers; in the current strong labor market, many workers may be voting with their feet by quitting when management practices leave them unhappy, underpaid, undervalued, and overworked.
Scratching below the surface of topline data reveals that workers who quit are not leaving the labor force, but are seeking better jobs. This willingness to quit is forcing some employers to grapple with turnover. But it also presents an opportunity for others willing to make compelling job offers. Indeed, some are calling this the “Great Jobs Upgrade,” as workers take advantage of high labor demand and reject employers who take the “low road”—those who do the bare minimum to maintain an acceptable workplace.
Creating a different kind of labor market that favors working Americans could help address this issue. Employers who choose to take the “high road” focus on supporting employees’ on-the-job success by meeting the needs they have in life. Employers do this in a variety of ways: paying higher wages, providing benefits such as paid leave and workplace flexibility, keeping workplaces safe, supporting workers’ development through training, and maintaining respectful relationships with workers. They benefit from this strategy—high road employers are more likely to attract and keep talented and productive workers, which generates more revenue for the firm as they can produce more or higher-quality output in the same amount of time.
Examples abound. A rubber parts manufacturer in Cleveland raised wages so that it could expand its staff, fill more orders, and increase profits. An ice cream shop in Pittsburgh more than doubled its wages, and the flood of applications helped it fill open positions quickly. An amusement park in Sandusky offered higher wages, which brought in enough new workers to keep the park open for longer hours and more days than the owners had originally planned. While raising wages tends to get more media attention, research suggests other high road practices are also important to workers and can be helpful to employers.
Current labor market conditions make it an ideal time for businesses to adopt high road management practices. While they may need to spend more on things like compensation, they stand to lose out if they do not. Job openings are near record highs—nearly 11.3 million at the end of February. This suggests that the low road management approach is limiting many businesses’ ability to staff up fully and thus meet demand for their goods and services. Moreover, with employment still below pre-pandemic levels, the right kind of job offer could induce people who were working not so long ago to return to the workforce. Consider this: according to a survey conducted by the National Federation of Independent Businesses in February 2022, the share of small businesses that are planning to expand employment exceeds the share planning to reduce it by 19 percentage points, but 48 percent of surveyed businesses have positions open that they are currently not able to fill.
This issue brief examines how high road management practices could increase hiring, improve worker satisfaction, decrease turnover, and make workers more productive, benefits that will likely persist when the labor market returns to pre-pandemic conditions. It then outlines steps that the Biden Administration has taken to promote high road employment practices, and concludes with additional policies that could be adopted to further this progress.
Management practices: Evidence in favor of the high road
High road employment practices cover a wide array of policies, from pay scales to human resource management to policies that protect basic dignity. When these policies are implemented together, it can be difficult to identify the effects of any one element in particular. In addition, without a careful research strategy, other employer characteristics can influence estimates of how a given high road practice (or the combination of practices) affects workers or employers. The literature on these management practices is too expansive to summarize in its entirety here and much of the literature likely confounds impacts of high road practices per se with other aspects of employers, so this brief focuses on the most compelling evidence on a few important dynamics—how higher compensation reduces turnover and increases productivity, and how safe, supportive, and respectful working conditions foster higher productivity. These are management practices that focus on encouraging employees to be their most productive and limit punitive practices.
Higher compensation reduces turnover and increases productivity
Research supports the idea that paying higher wages reduces turnover, makes hiring easier, and increases workers’ productivity. As an example, consider San Francisco International Airport (SFO). A living wage ordinance implemented in 2001 raised wages substantially for thousands of low-wage employees of businesses operating at SFO, alongside implementing some training and education requirements as well as some paid time off. These changes provided an opportunity for researchers to study what happened after the policy was put in place. After the policy changes were implemented, turnover decreased in many jobs, including particularly dramatic declines among security screeners and workers who clean the cabins of airplanes. At the same time, employers reported improvement on performance-related measures, even though most had not made changes to their hiring or training practices.
The experience of SFO is not an aberration. Higher wages have also been found to increase productivity in settings from the Ford Motor Company to the warehouses of a Fortune 500 retailer to New Jersey police departments.
There is evidence that higher productivity can be achieved through broad-based wage increases, such as the living wage ordinance at SFO. One recent study based on general compensation policies at a large online retail company indicates that higher wages for warehouse and call-center workers increased productivity more than dollar for dollar. Another study finds that minimum wage increases led to increased productivity among department store sales workers. Previous work has also shown that higher wages can lead to reduced turnover. These effects are not specific to retail, as more generous pay policies have reduced separations across sectors, with these effects being especially pronounced in manufacturing and professional and business services.
High road employers achieve these productivity gains through, among other things, reducing turnover. Lower turnover stabilizes the firms’ talent pool, improves their staff’s on-the-job experience, and reduces the costs of recruitment, hiring, and training, all of which adds up to significant savings. One review found that the cost of replacing an employee ranged from about five to 20 percent of annual salary for occupations with less intense educational requirements—such as administrative assistants, home health workers, support staff, manual laborers, or store clerks—to between 34 and 97 percent for more specialized occupations—such as pilots, nurses, teachers, or physicians.
Compensation includes more than wage or salary income; it is the full package of pay and workplace benefits. Benefits contribute to the “efficiency wage” dynamic that can produce the productivity or turnover gains associated with higher wages . Research indicates that workers highly value some non-monetary job characteristics, like scheduling certainty, the ability to work from home, or freedom to pursue work they think is important. Evidence shows that, as with higher pay, employers who provide access to benefits like paid leave or the ability to work remotely can see improved outcomes, including reduced turnover and increased productivity.
There are also some specific workplace benefits that research shows directly contribute to higher productivity. Paid sick leave can improve productivity by both reducing absenteeism and presenteeism (showing up to work, but working ineffectively) among workers who are sick. It can also prevent additional employees from becoming sick by enabling workers suffering from contagious illnesses to stay home. Giving employees the flexibility to work from home or to live and work wherever they choose can also be productivity enhancing. Survey evidence suggests remote work policies can increase job satisfaction.
Safe and supportive working conditions contribute to retention and productivity
While workers care about pay and compensation, they indicate that safety and supportive working conditions are also important. Workers feeling unsafe or unsupported can contribute to higher turnover and lower productivity. Dissatisfaction on this front has led to a variety of labor actions, including strikes, over the course of the pandemic. Insufficient protection against COVID-19 led nurses and other hospital workers, fast food workers, retail workers, and delivery workers to go on strike or otherwise walk off the job. In some cases, pandemic-related working conditions contributed to workers’ desire to join unions, including at the Buffalo, NY Starbucks that in December 2021 became the company’s first store to unionize.
The most basic supportive workplace policy is whether employers maintain adequate safety standards. Safety standards benefit both the employer and employee. Workplace injuries and illnesses can be expensive for both employees and employers, and in some cases can lead to separations. They can also reduce productivity by reducing the quantity and/or effectiveness of time spent at work. A study of randomized inspections by California’s Division of Occupational Safety and Health suggests that attention to safety in high-injury industries can meaningfully reduce injury rates and associated costs without reducing employment, sales, or business survival rates. The COVID-19 pandemic has also demonstrated how allowing employees to work remotely when possible, in addition to producing the benefits discussed above, can help address workplace safety concerns in the face of an infectious disease.
Employers can also support workers by providing opportunities for them to develop and apply their skills in a way that benefits both them and the business. Research suggests that workers who have access to training opportunities are less likely to leave their jobs. Moreover, providing access to on-the-job training or support for workers’ other educational pursuits can directly develop their skills, making them more productive. Participating in registered apprenticeship programs is another way to take advantage of this dynamic. Workers are paid while learning skills on the job, gain experience in a firm and industry, and are ready to be hired upon completion. Case studies point to positive internal rates of return on apprenticeship programs in a variety of industries.
Workers value being treated with fairness and respect
Maintaining a respectful workplace in which workers are treated fairly can also help keep turnover down and productivity up. Being treated with respect can make workers more productive, while feeling disrespected or treated unfairly can make workers less likely to perform at their best. One well-cited international study points to good relations with both management and colleagues as important contributors to job satisfaction. If those relations break down, workers may look to make a change, or their work may suffer.
Some commonly used workplace practices can undermine a fair and respectful workplace culture. For example, one study indicates that the average worker would be willing to give up a substantial share of their wages to avoid having their employer set their schedule on short notice. Avoiding this practice can directly benefit employers: when Gap, Inc. experimentally implemented consistent, predictable scheduling practices at stores in San Francisco and Chicago, productivity increased by about five percent.
Non-compete agreements in employment contracts can also leave employees feeling a lack of trust. While these may be effective at reducing turnover, they also impose costs on workers and reduce the value of the jobs to which they apply. In particular, asking workers to sign non-compete agreements after they have accepted jobs, which happens in about 30 percent of cases, is associated with lower job satisfaction. More generally, these agreements function largely by creating fear of enforcement among workers, even when state laws exist that do not permit them to be enforced.
Finally, employers who misclassify their employees as independent contractors may generate dissatisfaction among those who are misclassified, especially if some similarly situated workers are considered employees. At the very least, this practice makes workers ineligible to access protections under the Fair Labor Standards Act and often leads to lower pay and lack of access to benefits, along with the lack of ability to choose to bargain collectively.
Policy can help facilitate broader adoption of high road management practices
The research evidence indicates there are many economic benefits for businesses who adopt high road management practices. Because the adjustments involved touch on many different areas of a business and depend in part on generating a favorable response from workers to be worthwhile, implementing high road management practices comprehensively may be more effective than trying to change particular practices on a one-off basis. For example, if treating workers with respect and compensating them well makes them more invested in their jobs and less likely to leave, managers can reorient business processes and adapt job content to get more out of their employees.
A key finding from the research literature is that the most successful high-road employers adopt a slate of policies, rather than individual elements in isolation. Just raising compensation may not pay off as much if jobs aren’t reconfigured, and reconfiguring jobs may not work out if compensation isn’t high enough to retain workers. A wide variety of jobs could incorporate more engaging or complex tasks if, for example, workers were cross-trained in different types of work or allowed to use discretion in carrying out their work within certain parameters. Setting up processes to reduce errors and eliminate waste can also help make sure that employees’ labor is as productive as possible. Case studies indicate that, when implemented thoughtfully, high road approaches can succeed in sectors ranging from manufacturing to retail.
Even so, many businesses for whom such practices may actually be cost beneficial have failed to act on their own. It may be that they do not understand the evidence or do not know how to train their managers to adopt high road practices. Public policy can influence employers’ decisions to use high road employment practices. In some cases, policy changes at the Federal, State, or local level may prohibit some low road practices or incentivize the high road. In others, worker advocacy through collective bargaining and unionization can lead to the adoption of high road practices.
The Biden Administration has proposed and taken several steps to improve labor standards and make high road employment practices more prevalent. Via executive order, President Biden has raised the minimum wage for workers on Federal contracts. The Bipartisan Infrastructure Bill passed by the Senate would apply prevailing wage rules to work on energy-related projects. As part of the President’s broader economic agenda, the Administration has proposed increasing funding for labor law enforcement, tying funding for home care and child care services to improvement in labor standards, and creating a national paid family and medical leave program. The administration also supports passing the PRO Act, which would help workers form unions to advocate for the improvements in working conditions that are most important to them. By blocking the low road and paving the high road, policy can make it easier for employers to adopt employment practices that support workers.
Conclusion
Research indicates that adopting high road business practices can benefit both workers and employers. Workers stand to gain from improved work environments and increased compensation. Many employers stand to see increased productivity and reduced turnover. These changes could contribute to easing any hiring difficulties an employer might be facing. With the labor market and broader economy still recovering from the pandemic-induced economic shocks and adjusting to related changes in worker and consumer preferences, now may be the time for some employers to consider leaving the low road behind.
