This MIT professor explains how good jobs can boost productivity and competitiveness

Almost half (44%) of workers’ skills will be disrupted, finds the World Economic Forum’s latest Jobs of Tomorrow whitepaper while honing in on which jobs and sectors are more exposed to AI.

Meanwhile, an ageing population means a growing demand for care workers, which are traditionally low-paid careers.

So with the economic and social challenges we face as a planet, how can we create good jobs?

“Business leaders have a choice in how they run their business,” says Zeynep Ton, Professor of the Practice at MIT Sloan School of Management and author of The Case For Good Jobs: How Great Companies Bring Dignity, Pay & Meaning To Everyone’s Work.

“Or they can see their employees as drivers of growth and profitability, invest heavily in them with good wages, strong benefits and design their work for high productivity and contribution and operate with low turnover.”

Ton wrote The Case For Good Jobs as a follow-up to 2014’s The Good Jobs Strategy, which was based on 15 years of research. It outlines the key elements needed to offer good jobs to employees and great service to customers.

“I want to encourage more leaders to choose that latter approach, which I call the Good Jobs Strategy.”

The below Q&A is an edited interview with Zeynep Ton.

A good job, at a minimum, should provide enough pay so that people can have control over their lives. And a good job should treat people with respect and dignity. Those are the minimum conditions. Of course, there are so many other things that might go into a good job: a sense of belonging, meaningfulness, sense of recognition, but those minimum conditions are quite important.

So how do we make jobs good jobs? I’ve seen the Good Jobs Strategy, essentially investing in people and designing the work for high productivity, to be useful in a wide range of contexts, from call centres to retail stores to hospitals.

The work design aspect means that we simplify the work so that it’s easier to perform, empower employees so that they make decisions to improve performance, standardize certain things, cross-train employees to be able to do a variety of tasks and give people enough time to do a good job will help you win with customers. This is how we create value for customers. This is how we create high productivity and motivating jobs.

In some ways, the jobs landscape has changed and, in some ways, it hasn’t. Low wages, unstable schedules, poor working conditions were problems in 2014. Those are still problems in 2023. Technology has been making progress all that time.

But some leaders have started to change their mindset and treat the low wages and poor working conditions, and the resulting high turnover and poor performance, as unacceptable and unsustainable. My team at the Good Jobs Institute and I have learned with these companies about where to start, how to approach these changes, and what results are possible. Many leaders still feel stuck in their current system and that’s precisely the reason I wrote this book, to change some mindsets and encourage more to make the transition.

Labour markets have changed since COVID-19. We’re seeing some evidence that we’re going back to pre-pandemic levels. During that period, we started seeing the significance of workers on the front lines. We started calling them essential workers, people who make our food, who sell us groceries and who deliver our food, because they are so essential to the functioning of our economy. Their jobs have become even more difficult and complex during the last couple of years so some left the frontline service industry altogether. Now we’re back to where it was at pre-pandemic levels, so job markets have tightened.

The other thing that is changing is a shift in demographics. Baby boomers in the United States are retiring. People are having fewer children, which means we’re going to have fewer people in the future to be able to work in all the jobs. Wages are going to increase anyway. So it’s better to start making investments in people, design for high productivity so that they can leverage those investments and create a high return on those investments.

Company leaders are quick to object by saying that investing more in their employees is too expensive. But low pay and the resulting high turnover cost companies a lot more than leaders may think. The first direct costs are the cost of turnover, the cost it takes to recruit, hire, onboard, train and time to full productivity for new workers. Those costs can be significant. We’ve worked with dozens of companies through the non-profit Good Jobs Institute I co-founded in 2017 and we have seen employee turnover levels from 40% all the way to 400%. Just those direct costs can amount to 10% to 25% of the total payroll that these companies spend. So they’re already spending the equivalent of 10% or 25% of their payroll dollars on turnover costs.

But those turnover costs are tiny compared to all the cost of poor operational execution that comes from high turnover and low people investment. Those costs are lower sales, lower customer satisfaction, a lot of mistakes, a lot of operational problems, poor productivity, and those costs are so small compared to the cost of the system that’s created when companies operate with high turnover. They end up making so many other decisions that create a low-trust system. That’s a low-expectation system and an uncompetitive system because you can’t serve the customer well and thrive.

The cost of low pay and high turnover means leaders tend to operate in a vicious cycle, where low pay results in understaffing, which leads to operational problems. Operational problems reduce profitability and sales. When sales are lower, then companies can’t invest in employees and then that vicious cycle continues.

There is a virtuous cycle, which is heavy investment in people, low turnover, strong operational execution, higher profitability, higher sales and, as a result, you can invest more in your people. But what I found early in my research was that the virtuous cycle didn’t operate on its own. It was supported by a quartet of operational choices: focus and simplify; standardize and empower; cross-strain; operate with slack – that enabled that virtuous cycle, by design, to improve the productivity and contribution of workers and set them up for success.

A lot of companies are still operating in a financial-centric way. But I’ve studied a wide range of companies like Costco, Progressive (insurance), Four Seasons Hotels and Resorts that offer good jobs to their employees. When you ask their leaders why they choose to operate this way, their answer is always in terms of customers. They talk about how they want to win with their customers. They want to be able to create value for their customers.

If your number one driver is to create value for the customer, then having a workforce that can’t focus on the job because they can’t put food on the table, that’s not empowered to make decisions, is not acceptable for them. Being customer-centric requires a company to be frontline-centric because frontline employees are the ones serving the customer, doing the work in front of the customer. So customer-centricity is at the heart of the Good Job Strategy. And too many companies, because they are more financial-centric, will do anything that adds to their sales. They feel tremendous short-term pressure to meet their targets and to lower costs and lose their focus on their customer value.

Costco, for example, is one of the world’s largest retailers. Last year, a typical Costco employee made $26 an hour, while a typical retail sales employee made $16 an hour. So $10 an hour of a difference. But when you go to Costco, you likely see a lot more employees than you see at other settings because Costco tries to operate with slack. Now you might ask, how is that profit maximizing? How is that good for the company? Because when there aren’t enough people on the selling floor to take care of the customer, then customer service suffers and then sales suffer.

When there aren’t enough people to do their jobs well, then there are all sorts of mistakes: products may not be in the right place, the checkout line might be too long, the fresh products might not be handled in a good way. So then you have shrink. Costco operates with slack so that people have enough time to do their job well, to serve the customer well, and to be able to come up with ideas to improve their performance so that they can reduce costs everywhere else in the system. And operating with slack also enables them to hire the right people, to have enough time to be able to lead them, to develop them, and it results in all sorts of positive outcomes for Costco, its customers and its workers.

There are several reasons. I’ll focus on the top three I have observed during interactions with hundreds of business leaders during the last couple of years. The first is lack of imagination. For decades, business leaders have been taught that labour is just another input to production – just another cost – market pay is the right pay, and lean and mean is what drives efficiency. So they can’t even imagine operating in any other way. Imagination is really important in creating system change.

The second reason is a lack of prioritization. The playbook for the Good Jobs System is a more sophisticated playbook; it is a harder playbook. The playbook for a bad job system – pay as little as possible, design the work so that anyone can perform it – is a much simpler playbook. And there are oftentimes few reasons for company leaders to prioritize the Good Jobs playbook because their investors aren’t asking for it, their board is not asking for it. In fact, investing in people has less legitimacy in the eyes of the board and investors than some other things like cost cutting, mergers and acquisitions, or other types of ways to improve performance.

The third reason is a lack of trust in workers and their abilities. When companies operate with low pay and high turnover, their employees also operate in a vicious cycle of poverty of their own. When they are paid very little and they can’t take care of their families, they’re not making a living wage, then there are all sorts of problems. Low pay is associated with obesity, heart disease, stroke, diabetes, opioid use, even loss of cognitive functioning. Low pay is associated with a drop of 13 points in IQ because of the “bandwidth effect”. Employees are unable to focus on the job, they make mistakes and don’t treat the customers very well when they operate in this vicious cycle of poverty. For company leaders, when you see employees showing up late, not being able to focus on the job because of the system they’re in, the assumption is that these workers are not hardworking. And there’s a lack of trust in them.

Courage, competence, compassion and humility all matter. Humility to recognize that you don’t have all the answers. Compassion for the front lines, their ability to do a good job. Courage to be able to make difficult, risky decisions because they’re the right things to do. And, competence, understanding how to drive performance in the organization.

I think the future of jobs depends on how we use new technologies. If our mindset is to see people as a cost to be minimized and we use technology as a substitute for labour, then that might result in jobs that are lost. But if we see people as human beings who can drive performance and make good decisions, then jobs of the future might look very different because we could use technology to substitute for tedious tasks, to enable people to make decisions and to empower people to drive performance. So if we are smart and we think about technology that way and, again, being customer-centric, the first question to ask is, how do we improve value for the customer and then how do we create jobs that drive productivity and empowerment? Then, the future would look much better.

Your status quo with low pay and high turnover is a lot worse than you may think. And getting out of it is a lot less risky than you may think. Look at all the companies from a $60 billion retailer to a small restaurant chain that were able to get out of their vicious cycle to improve their performance dramatically. They reduced turnover, they improved productivity, they started winning with their customers. And while they improve performance, they change the lives of their workers. What a privilege to be in that position and what a legacy to leave