A book excerpt and interview with Jeffrey Pfeffer of Stanford University, author of “Dying for a Paycheck”
RONALD REAGAN once quipped that they say hard work never killed anyone—“But I figure why take the chance?” Yet things have changed since “the Gipper” pretended to loaf in the Oval Office. Toxic work environments are as dangerous to health as second-hand smoke, argues Jeffrey Pfeffer, a professor at Stanford Graduate School of Business, in his latest book, “Dying for a Paycheck”.
A giant of business scholarship, Mr Pfeffer teaches one of Stanford’s most popular courses, on office politics and power. His early works looked at organisational design and how it sapped employee productivity rather than enhanced it. His previous book in 2015, “Leadership BS”, examined the gap between what companies say and how they act. He reprises these themes in his latest work, bringing a trove of original data to make his case.
The Economist: What are the main ways that work harms workers?
Jeffrey Pfeffer: Work harms employees in two fundamental ways. In the US, employment status and your employer determine your access to health-care—if you will have health insurance, how much you will pay, and who will care for you. Gallup reports that 33% of people said they had to forgo filling a prescription or seeing a doctor during the preceding year because of cost.
Second, employers affect the stress-inducing conditions of work: work-family conflict, long work hours, absence of control over one’s work environment, and economic insecurity. Stress makes people sick both directly and by inducing unhealthy individual behaviours such as smoking, drinking, and overeating.
The Economist: In the knowledge economy, human capital ought to be valuable and vital—so why are companies acting against their self interest?
Mr Pfeffer: Companies do not act on the basis of the best evidence. They merge even though much research shows that mergers destroy value. They use forced-curve ranking systems for performance reviews even though extensive evidence documents the harmful effects. There is no reason to believe they would behave any differently with respect to their human capital.
Evidence shows work hours are negatively related to productivity, that giving people more autonomy leads to higher motivation, and that layoffs often harm performance, including profits. So in making employees sick, employers have created a lose-lose situation.
The Economist: In a world of artificial intelligence, algorithms and bots will steal the jobs that are killing people, so problem solved, right? Or, more seriously: might AI improve things by handling tasks, so many jobs are less dangerous, less stressful, more rewarding, etc?
Mr Pfeffer: AI and automation will almost certainly make things worse. An Oxford Martin School study of 702 occupations noted that 47% of American jobs were at high risk, with 35% in Britain and 49% in Japan. A McKinsey study noted the likely widespread job loss and job disruption on the horizon. Unemployment and economic insecurity are serious health risks because of their consequences for stress and income. The gig economy is characterised by irregular work schedules, and here again, the evidence shows the harmful health effects.
Although governments might act to mitigate these adverse impacts through extensive job retraining programs and income maintenance efforts, most governments already face large budget deficits and an ageing population. Moreover, states in the US and the government in Britain have been reducing their expenditures on higher education for decades. Thus, I see little reason to believe that state action will mitigate the disruptive effects of AI.
The Economist: The 19th-century liberals reformed the workplace and changed capitalism to save it. Are things so dire that we need a similar workplace revolution today? What would it entail?
Mr Pfeffer: Things are becoming dire. Health-care costs are soaring worldwide. The World Economic Forum estimates that three-quarters of all health-care spend is for chronic disease. Chronic disease comes from stress and the unhealthy behaviours stress induces. Surveys consistently show that the workplace is one of the top two or three sources of stress.
Therefore, controlling health-care costs has to involve changing workplace practices. Within the last hundred years, countries got serious about reducing deaths from physical injuries at work—and in the developed world, have been remarkably successful in doing so. It is now time to get just as serious about reducing the psychosocial toll from contemporary work arrangements.
The Economist: What’s the one solution that’s easiest to implement that would produce the best outcome—and what’s holding it back from happening?
Mr Pfeffer: We know that measurement affects behaviour. What gets measured gets managed. What gets measured improves; what isn’t measured is ignored and often gets worse. The single simplest and easiest thing to do is to measure the health effects of workplaces on people. A single-item measure of self-reported health prospectively predicts mortality and morbidity, even when other factors such as current health status are statistically controlled.
When people are suffering, they use drugs. Prescription drug use of various psychotropics such as antidepressants, sleeping pills, and ADHD medications to improve concentration can highlight workplaces, including work units and supervisors, that are adversely affecting people’s health.
We can—and should—measure the dimensions of work environments, including work hours, that we know affect health. Measurement would be the single most important thing we could do, particularly if we highlighted those workplaces doing the best—and the worst—on the various measures.
Companies Don’t Have to Resort to Layoffs
An excerpt from “Dying for a Paycheck: How modern management harms employee health, and company performance—and what we can do about it”
On Wednesday, September 12, 2001, no planes were flying in the United States. On the day after two planes flew into the World Trade Center and one crashed in Pennsylvania, it was not clear when air travel would be permitted to resume nor was there any certainty as to what the operational and logistical conditions would be when flights resumed—what new security arrangements would be required and how they would work. As the United States was already beginning to experience the effects of a recession, it was certainly unclear as to what the level of ongoing demand for air travel would be. In the days following September 11, US airlines such as American, Delta, and United did what they had done so many times before—laid off employees, about eighty thousand in total. All the big airlines announced layoffs almost immediately after September 11. That is, all except one.
Southwest Airlines sent an email to its employees and in that message noted that in its entire history it had never had a layoff or furlough. Although it could not promise that it would never have to lay people off, the airline made clear that it was committed to its people. Get back to work and provide great service to the customers when that became possible again, and the company would do its best to ensure the wellbeing of both its people and its patrons.
Southwest, even as it offered its customers no-questions-asked refunds if they wanted them, maintained its flight schedule and made a scheduled $179 million contribution to its employee profit-sharing plan in the aftermath of September 11. By the end of 2001, Southwest had not only made money for the year, it had been profitable even in the fourth quarter and had gained market share on its domestic US airline competitors. Going into 2002, the company had a market capitalisation greater than the entire rest of the US airline industry combined.
The idea that all companies, particularly those operating in cyclical industries, must resort to layoffs as a routine part of how they do business is simply not true. For a long time Xilinx, a semiconductor manufacturer, avoided the cycles of layoffs and rehiring so common to that industry. In the tech recession of 2001 and 2002, when Intel and Advanced Micro Devices cut nine thousand jobs, Xilinx laid off none of its 2,600 people. Toyota assiduously tries to avoid layoffs, even during times when the motor vehicle market is not doing well. Toyota has sought to retain employees on the payroll not just in Japan but in the company’s US factories as well.
Arc welding manufacturer Lincoln Electric, headquartered in Cleveland, Ohio, has survived two world wars and numerous economic cycles without sacrificing its employees or their jobs. The company is famous for its profit-sharing incentive plan that produces variable compensation costs and helps Lincoln avoid layoffs. Because pay declines when profits go down during recessions, Lincoln Electric can eschew layoffs as its wage costs decrease. One of Lincoln’s former CEOs described downsizing as “dumbsizing.” And a more recent CEO, a longtime veteran of the company, noted, “I think my philosophy and that of my predecessors is that we can perform in an economically challenging environment, and we can spread that pain in a way that long-term will better represent our shareholders’ interests without crucifying our employee base.”
SAS Institute, the largest privately owned software company in the world with 2016 sales of more than $3.2 billion, used the technology downturn in the early 2000s to hire hundreds of people and thereby gain both talent and market position. When the next economic recession hit in 2007 to 2008, Jim Goodnight, the CEO, noted that employees were frequently asking him if there were going to be layoffs. He sent out an email encouraging people to watch expenses but assuring them that there would be no economy-related layoffs. As he told me, although sales did not grow as fast during the recession as they had in the past—no surprise there—profitability was reasonably good. With people assured of their jobs and their security, they could focus on their work and be more productive, and, because they were grateful to be working for a compassionate employer, they reciprocated with diligence and creativity—and with enhanced attention to keeping expenses in check.
Layoffs reflect company values. Large grocery chain Whole Foods Market went through the economic crisis of the late 2000s laying off fewer than one hundred people. Chip Conley, the founder and leader of Joie de Vivre Hospitality, one of the largest boutique hotel chains in the United States, tried to minimise layoffs even as the company’s revenues fell more than 30 percent in the recession of the late 2000s. And having gone through that wrenching experience, when the economy recovered, Conley sold his stake in the hotel chain in part, he commented, so he would not have to go through the experience of laying off so many people again.
Some industrialised countries have adopted public policies that encourage employers to retain their workers. In many European countries, companies that lay off permanent staff are required to make large severance payments, thereby causing companies to have to balance the presumed savings from letting people go against these severance costs. Other policies require advance notice of layoffs and, in some instances, consultation with unions or workers’ counsels. Although such policies are presumed to create inflexible labor markets that result in persistently higher unemployment and less growth in employment, the evidence on such effects is mixed. Moreover, virtually no studies of labor market effects balance the costs of higher economic security against the benefits in health and well-being.
Germany, recognising that when people lose their jobs they collect unemployment benefits and other social-support payments, has experimented with offering companies some fraction of these anticipated payments to induce them to retain workers, even on a part-time basis. The German policies have often been credited with reducing the extent of economic dislocation that would otherwise occur during recessions. The point is that public policy is an important factor affecting company decisions about layoffs. Moreover, the cost of layoffs needs to be considered in deciding about the benefits and costs of policies that seek to reduce economic insecurity and layoffs.
Excerpt from “Dying for a Paycheck: How modern management harms employee health, and company performance—and what we can do about it”. Copyright © 2018 by Jeffrey Pfeffer. Used with permission of Harper Business, New York. All rights reserved.
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