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Businesses can't continue to
bet the region's beauty
will attract workers despite bargain-basement wages |
By Al Jones
for Headwaters News |
| We've all known for decades
that our wages out here generally seem to be about 20 percent
less than national averages. Yet our actual cost of living
is typically at the national average or even above.
Once you factor out the cost of local housing, just about
everything else we buy operates on national prices, and the
difference is a very real "price of the West."
Looking at skilled manufacturing jobs in a trade magazine's
comparison, I found Montanans were paid about half what their
Californian counterparts earned, and California's median wage
has long been about the same as a Montana household with two
workers and two or three jobs. Yet having met many Californians,
I haven't found them to be more productive, skilled or knowledgeable
to that degree.
Yet the work force, at
least here, is unusually literate, numerate, and considerably
better educated than in many states, although this mostly
goes unrewarded in the workplace.
We do congratulate ourselves on a workforce
that often sticks to a 35-40 hour week to leave time for outdoor
recreation, invests little personal time in continuing education
or developing new work skills, and is too often complacent
about mediocre job situations.
I work with hundreds of employers and employees, and this
has become a common thread, while the ones espousing our hard-working,
flexible workers are often referring to the dwindling pool
from farms and ranches, or to fresh graduates.
Yet the work force, at least here, is unusually literate,
numerate, and considerably better educated than in many states,
although this mostly goes unrewarded in the workplace –
despite the claims of the education establishment.
As a fourth-generation manager, I tend to blame management
more than workers, and having worked with perhaps 2,000 workers
over the past two decades, here are some reasons why.
Managers are 20 percent of the workforce and their compensation
has grown five-fold over the past 30 years, while the other
80 percent of workers have seen declining real compensation.
Relative negotiating power, then, seems to be more responsible
for wage differences than productivity, performance or scarcity.
Too many managers out here are still essentially untrained
in virtually any aspect of business or management, so they're
a lot less effective, consistent, productive or aware than
they should be. An untrained manager, desperate to keep others
from realizing how over his head he is, tries to hire people
who won't notice or question his incompetence.
His or her counterproductive actions drain initiative, innovation
and energy from a workplace, resulting in the typical argument
that "there just isn't the money to pay people well in
this business at this time."
If labor is relatively cheap, it conceals inefficient management,
while expensive labor forces managers to do far more of everything
to make the business work. That's the hidden side to productivity
gains by high-cost workforces and the hidden side to outsourcing.
One study found it took five Brazilian steelworkers to equal
the output of one U.S. steelworker, but because the wages
were so low for the Brazilians, five of them cost less than
one in the U.S. It's an arithmetic game that actually rewards
poor management.
There are many examples in any of our communities of well-run
businesses that are the exception to the "rule"
of paying low wages.
I've worked with more than 1,000 of them, and I have lost
faith in the "tough times" argument, because no
matter how good the local or regional economy gets, the same
mantra keeps wages suppressed – it's a reflection of
managerial competence, not labor demand or productivity.
An odd factor is, managers of many businesses I've seen believe
inflation ended sometime in the Reagan years, rather than
recognize that it rolled back to 1 percent to 4 percent annually.
Those managers, unless they deal with unions that regularly
ask for cost-of-living raises, have adjusted their wages little.
So over the past 20 years, that small, compounding inflation
rate itself accounts for a scary loss of purchasing power
in what might have been a livable or good wage in the 1980s.
Look on the Internet for a Consumer Price Index calculator
for wages and you'll discover that your serious adult wage
may well be little different from your college or entry-level
wage of 20 years ago, in real dollars. It's tempting to say
that Westerners don't understand inflation, and many of our
ag commodity prices would support that belief, but we all
buy cars, houses, insurance and health care, and those costs
should be tipping us off to a long-term rise in the cost of
living.
One of the strangest thing about working in state government
has been annual or bi-annual salary adjustments in recognition
of the impact of inflation, while my most recent private sector
time was in a company that didn't realize that 10-year-old
wages and prices were no longer accurate.
If managers benchmarked wages and prices against industry
norms, strived for continuous improvement, allowed training
for everybody, and instituted quality-management practices,
they would go a vast distance in resolving this gap. There
are plenty of Western firms that have shown what a difference
they make.
Nearly everybody under-prices much of what they sell, so coupled
with poor productivity, there isn't the profit margin there
should be to pay fair compensation. Business owners who work
100 hours to take home 20 hours' wages are far more the norm
here than the exception. It's a major reason why half our
businesses barely sustain the owner and have no employees
(other than free, drafted family members).
The perceived lack of competition allows almost no investment
in marketing, which is the key to profitability and growth,
if done right, so that sabotages everybody's potential compensation.
Incredibly inefficient selling practices destroy profit margins,
growth and predictable sales on which to base compensation.
Hiring anyone, let alone giving them a raise or health insurance,
is essentially a gamble on whether the sales and profits to
pay them will be there for years to come.
When sales and profits are unreliable, unexamined, and often
unrepeatable transactions, paying people as little as possible
becomes a survival skill for business owners and managers.
Finally, everyone needs much better information about what
the going rates really are for their work and their skills.
The employees are guessing when they negotiate, and combined
with low perceived negotiating power, are at a pretty deadly
disadvantage.
Many employers really don't know their own finances or sales
well (I work with them on this on a daily basis, and it's
much fuzzier than anyone would expect), let alone what competitors
here and beyond are paying for any given skill set, attitude,
potential, energy level, diligence or other employee attribute.
This makes for nearly random and indefensible ranges of compensation
within the same company, which is the real reason why most
keep compensation as the greatest secret in the company; everyone
would be appalled if they knew the truth.
Nancy Kelly's lively contrarian book, "The Divine Right
of Capital," suggests that since people add virtually
all of the ongoing value to a business (investors add a one-time
infusion that, in effect, is a high-cost loan), we should
publish compensation data like we do stock prices. That would
balance pay scales with reality, rather than leaving human
capital in the dark.
Much of this information is already collected by state and
federal agencies, but it's often aggregated for other purposes,
so that it loses much of its informative power.
An example of how powerful it can be is look at the Davis-Bacon
Act's current measures of what specific construction jobs
pay in your region. If this was published in the local newspaper
like the stock index, it would inform every carpenter, electrical
journeyman and concrete laborer what his or her wages should
be.
What if an engineer, a retail cashier, a route salesman, a
nonprofit executive director, or an LPN, as well as their
employers, could readily check the quarterly wage rates online
or in the paper, so the negotiation focused on that employee's
skills and the employer's needs?
In the meantime, any manager can take fairly easy and decidedly
cheap steps to improve his or her ability to pay workers more:
- Improving marketing to reduce selling
costs and increase margins.
- Pricing accurately, serving fewer unprofitable
customers, applying the Toyota Lean Production Model, applying
Deming quality management approaches.
- Using open-book accounting to drive
down hidden costs.
- Using internal rate of return/economic
value added instead of return on investment or "bottom-line"
measures of success.
- Dominating market niches instead of
the usual messy client mix.
- Really looking at operating costs,
or using activity-based costing.
- Cutting turnover with career paths.
- Training everybody 40-80 hours a year.
- Deterring pilferage and theft (which
can equal most firm's net profit).
There are many ways to substantially improve
and sustain operating margins and net profits, and they don't
cost much at all to implement if a manager just does some
reading and thinking.
Those managers in the West who continue to believe they don't
actually compete in the national labor markets and so can
pay half or less of the national rates are already experiencing
a much tighter labor market for nearly all skilled and competent
workers.
Recruiting regionally and nationally continues to build steam.
Relying on skilled workers to move here for the amenities,
but who are increasingly unable to afford the nationally indexed
amenities such as cars, health care, insurance and tuition
is a doomed strategy – even if one just considers workforce
population dynamics, as the Baby Boomers retire (they start
hitting 60 in two years) and the much smaller Generation X
cohort becomes the bulk of the workforce.
In the West and Midwest, where we've been losing 40 percent-plus
of Generation X to the coasts for 20 years now, the existing
skilled labor shortages are just going to get a whole lot
worse for companies that don't match or beat the national
wage rates.
Ask the folks in Napa Valley, Sun Valley, Aspen and Vail,
or a National Park Service employee, how the scenery discount
on wages has been working out for their employee retention
and attraction.
Al Jones is a second-generation Montanan.
He has been a business owner, sales manager, commission salesman,
union laborer, nonprofit executive director and an employee
of state government, providing marketing and financial technical
assistance to more than 1,300 businesses ranging from Fortune
500 to start-ups.
The above are his personal opinions, except for the wise ones;
those he got from extensive reading and smarter people's observations. |
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Author's blog:
Crisis looms
When you think about the consequences
of paying Westerners 20 percent to 50 percent less for work
they do competently, then trusting that either the employees
will never realize this or that they’ll never move under
the mistaken impression that everywhere else is worse, it’s
a scary assumption won which to base businesses or communities.
Our own history in the West shows us
that when the mines closed, the farms and ranches consolidated
andmechanized, the dam-building finished, World War II manufacturing
plant building ended and the Cold War’s impact on our
bases in the West faded away, skilled workers moved immediately
and the community’s economy mostly left with them.
More recently, a surplus of underpaid skilled
workers, mostly a legacy of Baby Boom labor surpluses of eight
applicants for every good job, meant employers could easily
find people who lived here or would move here who would put
up with a lot to learn and keep a good job. But that ended
five or more years ago, and it's just becoming obvious. Why?
Take 83 million Baby Boomers, mostly in the workforce, have
had 20-40 years to develop skills, get degrees, climb career
ladders, go through apprenticeships and often military training,
and in most cases try five to seven different careers for
an average of five to seven years each. With ferocious competition
all their lives for every good job, they've developed definable
skills, relevant experience and educational prestige.
But now the 23- to 40-year-olds, the Generation X workers,
are only about 42 million people, about one person for every
two existing jobs. Now if the Baby Boomers all discover that
they can’t retire, ever, for financial reasons, that
could keep things at the status quo. But assuming that Baby
Boomers do retire, scale back to part-time, or die rather
than all work full-time into their 80s, we’ve got a
huge shortage of just employees, as many employers can already
attest.
The more subtle impact is that the profusion of jobs means
that workers can skip training and apprenticeships to get
many jobs but then lack the training to grow in them, something
I run into in the field all the time, where most of the workforce
is actually too unskilled and too unproductive, and the handful
of skilled workers are burning out trying to do all of the
difficult work themselves.
While we hear bewailing about the lack of good-paying jobs,
getting people to buckle down and learn those jobs such through
apprenticeships, online courses, or traditional courses is
unbelievably difficult. So at this point, the Gen X pool is
going to have a lot fewer skilled, educated workers, particularly
in trades. Luckily everyone’s going to be working in
high-tech jobs or as coffee baristas in hip joints like Richard
Florida hopes.
Many of the skilled jobs at power plants, phone companies
and railroads, mechanics take 10 to 30 years of seasoning
to do well, but many of the electricians, plumbers, heating
and cooling technicians, refinery operators, heavy equipment
mechanics and machinists (those are just the ones I’ve
already run into directly) are at or near retirement right
now. Tthe clamor for skilled workers for critical jobs is
going to get really ugly this next decade.
Many of these jobs are physically demanding, require long
hours, are subject to fast-changing technologies and are essential
for keeping our economy and quality of life running. Heck,
the average farmer is 58, as is the average volunteer firefighter,
and we will we still need food, fire protection, running water
and electricity, as well as mall retail stores and franchised
restaurants?
Since this is a national problem, the race for the remaining
and younger skilled workers is going to get intense and nationwide.
As we’ve already seen in Montana with skilled welders,
when companies elsewhere offer people national-level pay,
national-level benefits, better equipment and a career path,,
suddenly the scenery discount becomes a very real burden a
family no longer has to bear.
Most Westerners actually live in cities rather than in the
rural areas, a fact true for the past 20 years, although it’s
heresy in most discussions.
We’re the most urbanized region of the whole country
-- everywhere else has more people living on farms and in
small towns. So the daily scenery looks more like suburban
sprawl, highways, big box stores, modern houses and ubiquitious
chain businesses than spectacular vistas of untouched nature
out your backdoor, as we pretend with the scenery discount.
Even a resort town starts looking pretty shabby and hard-scrabble
as soon as you look past the entertainment sites and look
at the rest of the population’s housing and sustaining
businesses. A bunch of starving service workers jammed into
terrible housing, such as an old trailer or van is more of
the reality there than the million-dollar homes, if numbers
count for anything.
So when the scenery discount is more likely to be for living
in one suburban house in a suburban development an hour away
from outdoor recreation with a 20 percent to 50 percent hike,
instead of a largely hyppothetical cabin in the woods overlooking
a crystal clear mountain lake, family finances are likely
to take precedence over Dad’s distance to snowmobiling
terrain. -Al Jones
Low wages draw companies
I read Al's column with great interest
and enjoyment, as I do with all of Al's writings. His thesis
isn't wrong – Western workers do have lower wages than
in other parts of the country, though perhaps not in the Deep
South; I haven't checked recently.
Yes, many commodity products or services jobs have been driven
to lower-wage regions, whether that's inland from California
or off-shore. Some companies have even ventured north into Oregon
and Washington.
As long as workers are willing to endure low wages because they
don't wish to move to higher-wage regions or their skills don't
warrant the extra pay, employers will continue to find a ready
supply.
The biggest problem for low-wage workers is that housing prices
have risen so fast in high-amenity Western towns that they can't
afford to rent a place, much less buy a home.
The exodus of companies from California that produce commodity
products ratcheted up about four years ago. Their high wage
costs, workers compensation, high taxes, high cost of housing,
and increasingly burdensome regulations forced the hand of many
business owners.
Most of these companies migrated to lower-wage, lower tax Nevada
and Arizona, which also had the benefit of a similar climate.
Many of their employees followed the company to the new location.
As Chris Gibbons of Littleton, Colo., often says, communities
that chase commodity industries are on a race to the bottom.
If we would focus more of our energies on those gazelles in
our communities that are now small but have great potential,
our local wages will increase. That was my experience in Bend,
Ore.
As for Al's comments on state employees getting annual or even
semi-annual inflation raises, that will only raise the hackles
on the rest of us taxpayers who don't see the value for the
cost.
My thanks to Al for writing this piece.
Melinda Anderson
Real World Development
Coos Bay, OR
Analysis:
Average wages by state
- U.S. Department of Labor, 2002
(excludes self-employed workers)
For all
occupations |
Median hourly
wage |
Mean hourly
wage |
Mean annual
pay |
| California |
$14.68 |
$19.06 |
$39.640 |
| Arizona |
$12.58 |
$15.98 |
$33,230 |
| Colorado |
$14.46 |
$18.13 |
$37,710 |
| Idaho |
$12.03 |
$15.02 |
$31,240 |
| Montana |
$11.10 |
$13.78 |
$28,670 |
| Nevada |
$12.66 |
$15.94 |
$33,150 |
| New Mexico |
$11.58 |
14.95 |
$31,100 |
| Utah |
$12.23 |
$15.56 |
$32,370 |
| Wyoming |
$12.07 |
$14.73 |
$30,640 |
Wage gap still yawns
By Greg Lakes, editor
Headwaters News
June 30, 2004
The federal data in the table above shows
the "scenery discount" Mountain West workers have
long had to pay for the privilege of living in the region.
The figures are from 2002, but the discrepancy between much
of the region and the rest of the nation has only increased
since.
In 2003, Idaho's
population grew at one of the country's fastest rates,
while its per capita income growth dropped from a dismal 43rd
to a worse 45th.
Much of the shift was due to retirees -- more people moving
in the state and not working than coming to find jobs.
The figures might have been even worse if not for relatively
strong showings in services that cater to newcomers and retirees,
such as financial services and rental agencies, education
and health services, and professional and business services.
Another economic driver was an increase in government salaries,
almost all of it due to higher pay for Reserve and National
Guard troops activated for the war in Iraq.
Montana's
version of good news-bad news was that its per capita
income rose last year at one of the hottest paces in the country;
but, it's still one of the lowest in the country.
Montana did better than the rest of the country in 2003 because
it lacks most of the industries and trades most affected by
the recession.
Its average income rose 4.4 percent,
versus 2.3 percent nationwide, which put the state 44th instead
of 45th. But the mean is still 82 percent of the national
average.
Montana is still trying to recover from the loss of relatively
high-paying jobs in natural resource industries in the 1980s
and 1990s.
Still, Montana incomes rose at twice the rate of inflation
in 2003, boosted by federal highway contracts and home construction,
which in turn was pushed by an influx of newcomers and low
interest rates.
Earnings for workers in leisure and hospitality industries
rose 6 percent, the second highest in the nation, further
reflecting the ongoing shift in the state economy.
Utah
is trying to recover from the 2002 recession, when it
lost a disproportionate number of jobs that paid above the
statewide average.
Many of the workers laid off from manufacturing, professional
services, information and construction jobs accepted lower-paid
work or are still looking.
Industries that added jobs were typically lower-paying, including
state and federal government, and leisure and hospitality.
According to one analyst, "Utah's high-wage recession
may be followed by a low-wage recovery."
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