Employers May Want to Get off Sidelines in Dialogue on Worker Economic Insecurity

By Ed Frauenheim

Aug. 1, 2006

A debate is brewing about the economic insecurity faced by American workers in today’s global economy, a discussion that so far includes economists, activists and some politicians. But one group with a big stake in the matter has been largely silent: business leaders. During the past few years, corporations have remained relatively quiet as others have begun to discuss the erosion of the traditional compact between workers and employers and grapple with ideas about how to repair or replace it.

    Few if any observers call for a return to the days when workers gave loyal service to firms in exchange for a promise of lifetime employment and comprehensive health and retirement benefits. That era may be over, but employers risk a great deal if they fail to engage in the public conversation of what should replace that earlier promise or at least address financial anxiety among their own workers, analysts say.

    On the one hand, companies’ reputations could take a hit just as the labor market threatens to tighten and places a premium on attracting talent. More broadly, anger about economic inequality may trigger new regulations on firms. And fears of offshoring could translate into protectionist laws that hurt the economy overall and sharply limit companies’ growth, says Brad Jensen, an economist with the Institute for International Economics.

    Jensen, one of a number of economists calling for a stronger safety net for people displaced from their jobs, suggests business leaders have “fallen down a little” when it comes to figuring out what to do about those who lose big in the global economy.

    “There’s a lot of good from having an open trade system, but people are anxious and scared,” he says. “The protectionist sentiment is palpable here in Washington. Businesses should be concerned by that.”

    John Castellani, president of the industry group the Business Roundtable, rejects the idea that U.S. companies have remained aloof regarding Americans’ economic fears. He says corporate leaders haven’t spoken out about “economic insecurity” per se, instead focusing on the need for American workers to become lifelong learners and for the country as a whole to remain competitive. Those steps will be critical for Americans to enjoy any sort of financial security in a fast-paced global economy, he says.

    “You can wish to slow it down all you want,” says Castellani, whose association is made up of executives at major U.S. companies. “But the rest of the world isn’t slowing down.”

    Perhaps not, but the global economy is exposing large numbers of Americans to painful economic dislocations. In a study published by the Institute for International Economics last fall, Jensen and co-author Lori Kletzer found that many U.S. workers are in services industries that can be traded internationally, such as data processing and insurance. They also discovered that these workers lose their jobs at a higher rate than workers overall do, and that job loss for them is costly.

    On average, the authors report, full-time workers in tradable services fields who are displaced and then return to full-time work suffer a 21 percent drop in earnings.

    That finding comes amid other data suggesting those at the top of the corporate heap are winning big while most employees tread water. Meanwhile, workers face the decline of employee-sponsored health and retirement benefits. Even outplacement services, which emerged in the 1980s to help cushion corporate layoffs, have shrunk. Ten years ago, companies often hired outplacement firms for as long as it took for every laid-off worker to find a new position, says John Challenger, CEO of outplacement provider Challenger, Gray & Christmas. Today, firms typically cut off outplacement services after three months.

    Most workers can find new jobs within that window, Challenger says. “But it means the people who have the most difficult time—the bottom 20 percent—are abandoned,” he says.

Concern widespread
    Amid a growing economy, layoff fears seem to have eased in recent months. Still, the overall trends have left Americans anxious and unhappy with businesses. According to a March report by retirement services firm the Principal Financial Group, 73 percent of Americans surveyed agreed completely or somewhat with the statement “I am very concerned about my long-term financial future.” And in a study published last fall by the AFL-CIO, 64 percent of adults surveyed said companies fall very short or somewhat short on being loyal to long-term employees, up from 57 percent in 2002.

    There’s strong interest in laws to bolster economic security, according to the AFL-CIO study. Eighty-five percent of those surveyed rated providing incentives for companies to keep jobs in America as a priority, and 73 percent said establishing a national health care system should be the top or a high priority.

    Politicians have begun debating these issues in the past few years. In recent months, economists from different parts of the political spectrum have highlighted one possible reform: a stronger social safety net.

    Princeton University’s Alan Blinder, who served on President Clinton’s Council of Economic Advisers, argued in the March-April edition of Foreign Affairs magazine that the United States “may have to repair and thicken the tattered safety net that supports workers who fall off the labor-market trapeze—improving programs ranging from unemployment insurance to job retraining, health insur­ance, pensions, and right down to public assistance.”

    Jensen, whose institute is known for its staunch defense of free trade, also argues for a “less-porous” safety net, which could mean extending existing Trade Adjustment Assistance programs to more workers.

    Louis Uchitelle, author of a new book, The Disposable American: Layoffs and Their Consequences, argues the true number of American full-time workers forced out of their jobs each year is about 7 percent, rather than the official annual layoff statistic of about 4 percent.

    Despite the scale of layoffs and a lack of quality jobs for people to move into, Americans largely blame themselves when they get pink slips, Uchitelle says. He’s not surprised that corporate management has remained quiet in the discussion about economic security.

    “Until we start talking about this as a social issue, companies don’t have to enter the debate,” Uchitelle says.

    Sanford Jacoby, a professor at UCLA’s Anderson School of Management, sees other factors behind the business community’s relative silence. Compared with the past, that community is more fractured along fault lines such as an international vs. domestic focus, Jacoby says. What’s more, he says, today’s crop of business leaders is missing the sort of public spokesman on social issues embodied by Marion Folsom, the Eastman Kodak treasurer who helped draft the Social Security Act during the Great Depression.

Too much investor focus?
    Jacoby traces much of the current climate back to a corporate focus on pleasing shareholders rather than other stakeholders, such as customers and employees.

    “It’s not only shifted to shareholders,” he says, “everyone else has fallen off the map.”

    Not all companies are taking a shareholder-only route. Oil refiner Valero Energy, for instance, says it has never had a layoff despite a downturn in the refining business in the late 1990s and multiple acquisitions. The 22,000-person company has fired some employees for poor performance. “But at Valero, as long as you do a good job, you know you will have a job,” says company spokeswoman Mary Rose Brown.

    Valero offers both a 401(k) and a traditional pension plan. And the company, which saw net income jump 59 percent in the first quarter of this year to $849 million, makes stock options available to all exempt employees and bonuses available to all workers.” “If executives get a bonus, everyone gets a bonus,” Brown says.

    Outrage about huge CEO pay packages is generating shareholder calls for reform, says Amy Lyman, co-founder of the Great Place to Work Institute, which compiles the annual list of Fortune’s 100 Best Companies to Work For in America. The concern, she says, is CEOs are being paid more than they are worth when their contributions are considered relative to those of everyone else.

    “Smart boards are going to see investor anger and start paying attention,” she says.

    Among the firms under fire for hefty CEO compensation is retailer Home Depot. Its chief, Robert Nardelli, took in $37.9 million in compensation in the last fiscal year, including the value of stock options granted to him. A recent shareholder proposal calling for an advisory vote by stockholders on the firm’s executive compensation practices failed to pass, but garnered 40 percent of the votes cast.

    As for the broader public debate about Americans’ economic worries, some of the loudest business voices have decried possible trade barriers. Business leaders such as Microsoft’s Bill Gates have called for better education and looser immigration policies to improve America’s ability to compete. In addition, the Business Roundtable’s Castellani cites executives’ efforts to make the U.S. health care system more efficient and to provide portable retirement benefits—like 401(k) plans—that reflect a working world in which people tend to have multiple employers during the course of their careers.

    Business leaders have good reason to address the financial anxiety of average Americans, argues economist Jared Bernstein, author of the new book All Together Now: Common Sense for a Fair Economy. Americans would be better, more reliable consumers if they felt less vulnerable economically, he says. In Bernstein’s view, this could be done without closing off free trade, but instead by creating policies that pool risks rather than shift them to individuals.

    Today’s businesses could then help their own bottom lines by helping to rewrite, and not erase, the social contract.

    “In other eras, corporate titans recognized that a more equitable distribution of growth, more opportunity and greater economic stability was very much in their interest,” Bernstein says.

Workforce Management, July 31, 2006, p. 38-39Subscribe Now!

Ed Frauenheim is a former Associate Editorial Director at Human Capital Media and currently works as Senior Director of Content at Great Place to Work. He is a co-author of A Great Place to Work For All.

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