Costco: doing well by acting decently

Retail store chains face tough times because of the slow economy and competition from Amazon and other on-line sellers.  But Costco Wholesale’s sales are up, its profits are up and its stock price is up.

What’s noteworthy about Costco, according to Bloomberg Businessweek, is how well it treats its employees.   “If you treat customers with respect and employees with respect, good things will happen,” CEO Craig Jelinek told Bloomberg.

Costco is the second largest retail store chain in the United States, and is fast gaining on Wal-Mart, the largest.  Here are some facts and figures about the two chains.

• Average hourly pay for Costco employees is $20.89 an hour, versus $12.67 for Wal-Mart.
• 88 percent of Costco employees have company sponsored health insurance, in which they pay less than one-tenth of the cost of the premium.  Wal.Mart says “more than half” of its employees have health insurance.
• CEO Craig Jeninek got a base salary of $650,000 a year, plus a $200,000 bonus, plus stock options worth $1.2 million.  Wal-Mart’s CEO got a base salary of $1.3 million , plus a $4.4 million cash bonus, plus $13.6 million in stock.
• While Costco is doing well, Wal-Mart is in trouble

Costco’s stores are no-frills

Costco overall is a no-frills operation.  It has no public relations department, and Bloomberg reporters were able to talk to the CEO directly.  Costco does not hire managers out of business school.  Its managers are promoted from within.

Its prices, according to Bloomberg, are competitive with Amazon, which Costco managers see as its chief competitive threat.  Profit margins are thin.  About 80 percent of Costco’s gross profit comes from its annual membership fee.

Costco is not necessarily an exception, according to Bloomberg.  Nordstrom, The Container Store, Sephara, REI and Whole Foods Market, all know for treating employees well, are also doing well in the marketplace.  It is true that Amazon, which is not known for treating employees well, also is successful, but maybe they could still be profitable if they treated their warehouse workers better.

A lot of people assume that being callous toward people is always realistic and treating people decently is always naive, but Costco’s experience shows this isn’t so.  Treating employees as assets instead of costs can be good business price.  Bertrand Russell once wrote that if human beings all knew what was in their self-interest, most would be better people than they are and the world would be a better place.

Pay vs. productivity growth around the world

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The gap between growth of workers’ productivity and workers’ wages exists in a number of countries, but the gap is much wider in the United States than in other advanced industrial countries.

I took the second chart from an on-line article by an analyst who thinks this is a good thing, not a bad thing.  This analyst thinks it means that U.S. manufacturing is becoming more competitive internationally.

The failure of wages to keep up with productivity could be a good thing if it meant that the profits of U.S. industry were being plowed back into modernizing factories and infrastructure, expanding industrial research and creating new industries.  Do you see any sign this is happening?  Or is this just income being redistributed upward?

Click on US Manufacturing Restores Competitive Vigor for the source of the second chart and an optimistic view by Joseph G. Carson on the AllianceBernstein Blog on Investing.

Click on Signs of Factory Revival Hard to Spot for a skeptical view in the Wall Street Journal.

Who works the hardest, Greeks or Germans?

A friend of mine was a little surprised when I told him that the average Greek puts in many more hours of work in a year than the average German, or the average American.  I promised him I would look up the figures.  Here they are.

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Here is a comparison of countries that includes Greece.

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A country’s economic success depends less on the hard work of its people than on the technology that makes their work productive.   Here are international comparisons of productivity.

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Click on the following two links for more interesting charts and even longer lists of countries.

BBC News – How hard do you work?

BBC News – Where are you on the global pay scale?

Be warned.  Every country measures these things in its own way, so these charts only give general indications, not exact comparisons.

In my next post, I’ll look at the relation between productivity and wages.

Economic and criminal justice in Bangladesh

In a just world, business owners and executives would face criminal charges for their business-related violations of law, just like anybody else.

The indictment of Mohammed Sohel Rana, owner of Rana Plaza, the garment factory where more than 1,100 people were killed last month when the roof collapsed, is a step in the right direction.   Based on what I know, he deserves to be charged with negligent homicide.  He did not commit premeditated murder, but, in demanding workers go to work in a building whose walls were seen to be cracking, he evidently acted with reckless disregard of human life.

Sohel Rana is not a member of the global elite nor, evidently, the economic elite of his own nation, and he is an individual owner, without the option of hiding behind corporate person-hood.  So the significance of his indictment is limited, but it is still a good step forward.

Garment companies who outsource production to Third World countries such as Bangladesh have signed a pledge to set safety standards for their subcontractors.  Wal-mart (big surprise) and The Gap are major holdouts.

It is good to have laws and regulations protecting worker safety, but laws are not self-enforcing and tend to be ignored when they conflict with strong economic incentives in a competitive market.

The best thing is to have strong labor unions in Bangladesh and elsewhere, so that a worker is in a position refuse to enter a building on the verge of collapse and not risk being blacklisted for employment for the rest of his or her life.

More diversity, less equality: why the tradeoff?

During the past 30 or 40 years ago, the United States has come closer than ever before to equal opportunity, not only for African-Americans and women, but also GLBT folks and the physically handicapped.

At the same time a huge gap has developed between a tiny elite, who gather a greater share of American wealth and income year by year, and the vast majority of Americans, who are either falling behind or struggling as hard as they can to keep even.

Samuel Goldman, writing in The American Conservative recently, said this is no paradox.  He wrote that the tradeoff between diversity and equality is a result of a tacit grand bargain between the New Left of the 1960s and 1970s and corporate America.

… The stories of greater social equality and economic inequality are far from “unrelated”.  Rather, social inclusion has been used to legitimize economic inequality by means of familiar arguments about meritocracy.   According to this view, it’s fine that the road from Harvard Yard to Wall Street is paved with gold, so long a few representatives of every religion, color, and sexual permutation manage to complete the journey.  Superficial diversity at the top thus provides an moral alibi for the gap between the one percent and the rest.

via The Spiritual Crisis of the Bourgeois Bohemians.

Rod Dreher, also writing in The American Conservative, put it this way.

From a contemporary progressivist point of view, non-rich social conservatives who vote Republican do so out of false consciousness, or mindless bigotry.  But how many liberals would vote for a politician who proposed to stick it to the banks and the oligarchs, and who endorsed a broadly progressive economic agenda, but who openly opposed gay marriage and abortion, and endorsed religious piety?  (Basically, your pre-1970s Catholic Democrat).  Very few, I would imagine.

The culture war is in some ways class war by another name. Whenever you see some middle or upper class person gabbing on about the importance of diversity, you shouldn’t expect that they mean actual diversity — because then they would be eager to include, say, white working-class Republican Pentecostals — but rather diversity as what Goldman calls a “moral alibi,” which entails one’s ability to conceal one’s own real motivations from oneself.

via Culture (War) Is Everything.

I think there is a lot of truth in this, and it explains a lot.

It explains how Silicon Valley billionaires can avoid taxes, export jobs to some low-wage Third World country and shrug off the problems of middle-class and working-class Americans, and still be considered liberals and good friends of President Obama.

And it explains how President Obama can still be considered a liberal as he tries to undermine Social Security, attack teachers unions and negotiate trade treaties that lock in the corporate agenda.

When I worked for Gannett, CEO Al Neuharth ostentatiously promoted the advancement of African-Americans, women and gay people, which made him bullet-proof against criticism for offering sub-standard pay and benefits and crushing labor unions.

Our “diversity training” sessions always seemed to me to be part of a policy of divide-and-rule. I remember that at one session, a gay white man got up and said that gays, African-Americans and women in the newsroom should unite against the straight white men—not a view that would improve morale or teamwork.   He was not rebuked, and was later promoted.

The tipoff as to management’s aims was in the fact that they refused to agree to a clause in the union contract calling for non-discrimination based on sexual orientation.  The company wanted GLBT people, as well as African-Americans and women, to look to management, not to fellow workers, for their rights.

Of course acceptance of diversity is a good thing, not a bad thing.  It is a good thing that Ursula Burns, a black woman, can become CEO of Xerox, but not everybody can be a CEO or wants to be one.   Some people are content with an honest day’s pay for an honest day’s work, and what’s wrong with that?

Nor is there any logical reason why diversity and equality should be tradeoffs.  The U.S. labor union movement has long ceased to be a movement primarily of native-born white men.   Trade unions recognize that they can’t win unless they stand together, regardless of race, gender, sexual orientation or anything else.

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[AFTERTHOUGHT 5/25/13]

As I see it, one link between social liberalism and economic inequality is a widespread meme that sees society as an arena of competition and social justice as a guarantee of fair rules and a level playing field.

If you see society in this way, rather than as a means for people to co-operate for mutual benefit, then justice demands that you do your best to assure equal opportunity for everyone, regardless of race, ethnicity, gender, sexual orientation, immigration status, physical handicap or anything else that isn’t under control of the individual.   But these meme does not give the wealthy any obligation toward the non-wealthy.  It would be like demanding that the winner of a high-stakes poker game return some of his winnings to the loser.

 

Why good people can’t find jobs

The U.S. Bureau of Labor Statistics finds in its surveys that there are about 10 people looking for work for every three jobs that are open—more than twice the proportion of job-seekers before the recession.  Yet many employers say there is a labor shortage.  They say they have jobs that they can’t find people to fill.

Peter Cappelli, director of the University of Pennsylvania’s Wharton Center for Human Resources, says that the problem is not unqualified job-seekers.  The problem is bad  hiring practices.

First, he says, when employers advertise for employees, they cast too wide a net.  They get a tidal wave of applications, more than anyone can possibly consider, and so they have to look for reasons to thin out the applications.

Some throw out all applications that use certain buzzwords, or omit certain buzzwords.   Some throw out all applications which indicate that the person is older than a certain cutoff point (even though this is illegal) or that are worded so as not to reveal the person’s age.   Many throw out all applications from people who don’t have the exact skills required, and many throw out all applications from people not currently employed.

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So if the only person you are willing to hire is someone already doing that exact same job for some other employer, and you don’t want to pay that person a premium wage to lure them away, then, yes, you are going to have trouble filling that post.   I’m exaggerating to make a point, but what I hear from my friends who are looking for work confirms what Cappelli says.  Many employers have arbitrary filtering systems that reject job applications from good people.

Another problem, as Cappelli sees it, is that employers don’t want to hire people they would have to train.  They don’t want to spend the money to train people because they’re not confident that the trainee will stay with them long enough for them to get their investment back.  In fact, the better trained someone is, the better chance the person has of getting a better job elsewhere.

Job-seekers these days spend their own money trying to acquire qualifications they think employers want, but often those qualifications are a mismatch.

According to the theory of how a free-market economy is supposed to work, this isn’t supposed to happen.  According to economic theory, if there is a shortage of workers to fill a certain type of job, then wages for that job will rise until supply equals demand.  The fact that this isn’t happening suggests that theory doesn’t always apply to the real world.

Part of the reason employers are so slow to fill job openings is that the reason they advertise for new workers is merely to appease their over-worked existing staffs.  As long as they are going through the motions, they can tell their exhausted existing workers that they are doing the best they can.

Cappelli has ideas for making things better, including the following:

• Have employers work with community colleges and vocational high schools to provide training to qualify employees to do specific jobs.  Most American cities and counties want to attract industry and jobs.  This would be a better way to do it than offering tax abatements and other special privileges.
• Promote from within.   An employer’s best workers are more likely to stay with a company if they have hope of a future within that company.  Taleo Corp., a “talent management” company, reported that, in recent years, two-thirds of all job openings, even in large companies, were filled by hiring from without.  A generation ago, all but 10 percent of openings were filled by promotion or transfer from within.

Cappelli also suggests giving new hires a learner’s wage while they receive on-the-job training.  This could be good, but it offers possibilities for abuse.   Unscrupulous employers could hire cycle after cycle of learners and never give them full pay.  In this age of widespread wage theft, this is a realistic concern.

Click on Why Companies Can’t Find the Employees They Need for an article by Cappelli in the Wall Street Journal.   In fairness to him, his tone is less strident than mine is.

Click on Why Good People Can’t Get Jobs—What You’re Up Against for a review of Cappelli’s book, Why Good People Can’t Get Jobs:  The Skills Gap and What Companies Can Do About It.  I haven’t read the book.

NYC fast food workers report wage theft

New York Attorney General Eric Scheiderman has begun an investigation into wage theft from fast-food workers in New York City.   The alleged crimes include paying less than minimum wage, failure to pay overtime, failure to reimburse employees for work-related expenses and falsifying payroll records.

These things are not just bad labor practices.  They are crimes, just as much as picking somebody’s pocket is a crime.  And the victims are hard-working people at the margins of economic survival.

There is every indication that these practices are widespread, not just the actions of a few bad apples.   And to my mind, franchisers—McDonald’s, Burger King, Domino’s and the rest—have just as much responsibility to set standards for obeying labor laws as they have for setting standards of cleanliness and customer service.

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Click on the following links for details.

State Said to Be Reviewing Pay for Fast-Food Workers in the New York Times.

New York City fast food restaurants find a lot of ways to steal from their workers on Daily Kos Labor.

When Your Boss Steals Your Wages: the Invisible Epidemic That’s Sweeping America by Lynn Stuart Parramore on AlterNet.

Workers fight closing of their factory by buying it

The videos above and below tell the story of how workers at Chicago Window and Door fought the closing of their factory by buying it, and starting a new business, the New Era Windows Cooperative.

I wish them good success, because such enterprises have to face a lot of skepticism and a lot of opposition.  People in the Mitt Romney class—the holders of financial assets—want us to believe that we need them to be job creators.  Their power is threatened if workers can be their own job creators.

What the New Era workers have going for them is that the enterprise can draw on the initiative and knowledge of all of them, versus the standard business enterprise in which you have a few decision-makers and the rest supposedly just following orders (although in fact no organization could function if employees did no more than follow orders)

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Click on New Era Windows Cooperative for the New Era home page.

One big problem that worker-owned businesses have is financing.  They can’t sell stock, except to each other, and most lenders have no experience with or interest in such businesses.  New Era got help from The Working World, a non-profit micro-credit organization, which provides small loans to worker cooperatives.  Click on The Working World for Working World’s home page.

The employees of Chicago Window and Door were members of the United Electrical Workers, a union noted for militancy and rank-and-file democracy.  The support of the UE surely must have helped.  Click on United Electrical Workers for the UE’s home page.

Mexican workers take over and run their factory

This Real News broadcast tells the inspiring story of how workers in Mexico successfully fought a closing of their factory, took it over and now run it successfully themselves.

It is a stirring story that ought to be better known, because worker-owned businesses lack the support network that investor-owned or government-owned businesses enjoy.  I don’t know of any colleges of business that train managers of cooperatives, or banks that specialize in providing credit to worker-owned businesses.

The extremely slow U.S. economic recovery

The Dow Jones average is back to where it was before.   The American job market still has a long way to go.

There is less to these charts than meets the eye.  Stock prices and jobs are rebounding, but investors are not doing all that well, and job-seekers are doing worse.

The Dow Jones average for the past six years has not kept up with inflation, even though the rate of inflation is extremely low.   And the bottom chart shows just how slow the rebound in jobs has been compared to previous economic recoveries.  Just as the stock market ought to keep up with inflation, the job market ought to keep up with population growth.  In other words, even when the number of jobs gets back to what it was in 2007, we’ll still be behind.

The official unemployment rate for April was 7.5 percent.  Economist David F. Ruccio pointed out that this means there are 11.6 million Americans still looking for work, four years after the supposed beginning of the economic recovery.

The Bureau of Labor Statistics reports its U-6 rate of unemployment, which includes jobless people who’ve given up looking for work, and part-time workers who want to work full-time, is 13.9 percent.   This is 21.9 million Americans, roughly one in seven eligible workers.

Click on Why Good People Can’t Find Jobs — What You’re Up Against for a good report on why it’s tough to find a job.

Click on occasional links and commentary for David F. Ruccio’s web log, which is crammed with good information.