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When labour shortages just signal management caprice – case study

I have been researching the so-called labour shortage that business types are talking about relentlessly as part of their on-going strategy to undermine the conditions of work and make more profit. In the course of that enquiry, I came across an interesting juxtaposition between two US companies that illustrate a lot of what we have known about for years but have allowed this relentless, neoliberal, race-to-the-bottom to obscure. Well-paid workers with job security, work better and are happy workers. Companies that pursue the ‘race-to-the-bottom’ strategy and seek to build profits by trashing the conditions they offer workers eventually struggle to prosper because their bad reputation undermines their ability to attract productive workers. In the case we discuss today, the so-called ‘labour shortage’ is really just a signal of management caprice. Rather than being a shortage of workers, there is a shortage of workers who will tolerate the indignity of low wages, onerous conditions and capricious management. It is also a union versus non-union type of discussion where the unionised work places generate high productivity and worker attachment, while the non-unionised workplaces find it hard to attract reliable staff and blame it all on ‘labour shortages’.

The labour shortage narrative

I have always been skeptical of the labour shortage argument that employer groups use, often to relax immigration standards, with the intent on maintaining downward pressure on wages.

In the 1960s, the advanced nations typically had more unfilled vacancies than unemployed workers,which created a dynamically-efficient environment.

Not only were new entrants to the labour force able to transit from school to work effectively, but, firms were forced to offer training with employment slots to ensure the workers that they could entice were able to have job-specific skills.

It meant that wages growth was strong and firms had an incentive to invest in new capital that maintained productivity growth at high levels, which, in turn, meant that the higher real wages growth didn’t translate into rising unit costs and inflationary pressures.

It was a win-win, although it meant that firms had to share the spoils of production more equitably.

By the end of the 1960s, many employer lobby groups were getting behind the Monetarist surge in the Academy because they saw it as a way to attack trade unions and start to undermine the full employment system that had delivered such gains to workers (the vast majority of the population).

In this neoliberal period, the ‘labour shortage’ narrative is often just a mask to hide what the employers really want or do not want.

They could offer higher wages, and given the gap between labour productivity growth and real wages growth, that has seen massive redistributions of national income away from wages to profits, that would hardly be ‘unaffordable’.

They could also offer work to unemployed workers and offer them training. Much of the argument about structural unemployment is really just about employers exhibiting prejudice to certain types of workers (age, ethnicity, colour, gender, disability, etc) rather than there being a shortage of workers.

In the 1960s, the ability to engage in prejudicial behaviour by firms was reduced because there was full employment.

Last week (November 4, 2021), Bloomberg ran a story – Highly Paid Union Workers Give UPS a Surprise Win in Delivery Wars – which noted that FedEx, the main UPS delivery rival, was going through tough times.

It was experiencing major difficulties in recruiting delivery drivers – due to the “massive labour shortage that’s rocked the U.S. since the pandemic”.

FedEx is non-unionised and its pay levels are indicative of that status (much lower than the rival).

The Bloomberg report says that FedEx has “racked up $450 million in extra costs because of labor shortages.”

As a result, it has signalled that “its profit margin will fall further”.

To compound the problem:

The lack of workers is taking a toll on its reliability, too. FedEx’s recent on-time performance for express and ground packages has sunk to 85% …

We learn that a FedEx bean counters created a business model that relies on bifurcated delivery arms – “one for its overnight air delivery business, which is handled by FedEx employees, and another for its ground parcel service, which uses independent contractors to make final-mile deliveries employing their own nonunion drivers.”

The reason for this structure was to push down variable costs and truck maintenance and shift the costs to the independent contractors.

The ‘gig economy’ model to making more profits.

The pandemic has shifted demand considerably towards home delivery and reducing commercial deliveries – in other words, pushing more work to FedEx employees and less to the independent contractors.

And one of the outcomes of the pandemic has been that workers seem less willing to tolerate “low wages and challenging work conditions”.

Companies like FedEx, Amazon etc, who rely on this ‘race-to-the-bottom’ desperation model and screw their workers are now “struggling to hire people” and are being forced to pay higher wages.

FedEx calls this a “labor problem” whereas anyone who knows anything knows it is a management problem – where unfettered greed backfires.

John Maynard Keynes argued that while it was an institutional reality to observe nominal wage levels that were downwardly rigid that one couldn’t conclude that this was exclusively the result of resistance by trade unions, which is the usual conservative interpretation.

He said that there were actually good economic reasons for employers to resist trying to take advantage of their workers by cutting wages when times were less bouyant.

The reason is about ‘swings and roundabouts’ – what you gain on one hand you lose on the other.

He considered that if employers tried to cut wages during a downturn, when workers were desperate for work, then as the cycle turned, such firms would find it difficult to recruit labour because they would have bad reputations – workers would view these firms as capricious and steer clear of them.

As a result the strategy to cut wages and conditions is myopic.

The U.S. delivery scene seems to bear that out.

At present, UPS is a high-wage, unionised firm that pays its workers generous retirement payouts.

Its workforce is very stable and it is enjoying strong profits growth, in comparison with FedEx.

Further, its delivery performance is superior to FedEx.

On September 23, 2021, a logistics analysis – ShipMatrix data provides insight into delivery on-time performance for July and August – noted that UPS and FedEx were “performing at different levels” and that:

… the gap between FedEx and the other two is greater than is the case in normal times (pre-COVID-19 pandemic)

The logistics company, ShipMatrix reported that for July and August, the “on–time performance (OTP) metrics” were:

– July: FedEx, 90.2%; UPS, 96.2%, and USPS, 97.2%; and

– August: FedEx, 86.4%; UPS, 95.3%, and USPS, 97.15%

So FedEx is consistently late in delivery and the situation is getting worse.

How is it that these companies could have such different performance metrics?

While the pandemic has placed the delivery service under increased pressure due to the shift in consumption patterns, the reality is that FedEx has been falling behind for a long time.

The Bloomberg article notes that:

The difference in performance predates the worker shortage. Even while paying union workers almost twice what FedEx Ground drivers make, UPS earns a return on invested capital that’s more than double its rival’s. In the last full year, UPS and FedEx each had sales of about $84 billion; UPS banked $7.7 billion of operating income, while FedEx earned $5.9 billion.

Early last year, I read a story that FedEx, the other big mail, transit company had become involved in a dispute with their workers over pay and conditions.

The workers were seeking to unionise and the company was spending significant amounts to prevent that from happening.

The UK Guardian story (January 14, 2020) – FedEx mounts big-money push to head off unionization by US workers – noted that FedEx had “bombarded” their workers:

… with anti-union messages and forced them to attend anti-union meetings.

They told workers that they should be “grateful for what the company has to offer them” – low pay, insecure work, torrid supervisory management tactics, low retirement benefits, etc.

The company told workers that they had to take care of their own retirements – “You can’t hold FedEx Freight accountable for your own inability and failure to prepare for your retirement”.

FedEx constructed the push for unionisation as resulting from the union bosses “running out of money” and trying to be parasites on the backs of workers and the company.

And the cost of all this propaganda? Between 2014 and 2018, FedEx “spent $837,000” on the anti-union push.

The article outlines a history of anti-union activity by the company as it has been trying to shift as much cost onto the workers (cutting pension entitlements etc) to make more profits.

The problem is that the strategy appears to be backfiring.

The cultural differences between the two companies, especially with respect to their attitudes to unionisations, goes back a long way.

They have been at odds with each other and lobbying legislators to change laws to suit their different viewpoints.

One has to go back a long way to see how this started.

UPS began operations in 1907 as a truck company and operated under the – National Labor Relations Act 1935 – which aims to “encourage collective bargaining by protecting workers’ full freedom of association”.

The NLRA:

… protects workplace democracy by providing employees at private-sector workplaces the fundamental right to seek better working conditions and designation of representation without fear of retaliation.

As a result, UPS has a long and proud history of providing a unionised workplace with good wages and conditions for its workers.

Conversely, when FedEx was created in 1971, its focus on air freight meant it began operations under the – – which provides rules that bias against unionisation.

It used to be that commentators boasted about the way in which FedEx were able to operate with lower costs and “brag to customers that it hasn’t had a strike in 38 years” (Source).

Proposed legislation in 2009, the – 2009–10 Federal Aviation Administration Reauthorization Act dispute – would have brought the two companies under the NLRA and made it much easier for FedEx workers to unionise.

FedEx went on a lobbying and PR offensive claiming that the change was designed to “bail out” UPS, although that company was doing well commercially at the time and hardly needed government assistance of that sort.

The Republicans effectively blocked the transition of the legislation and FedEx won the battle, and, its workers lost out

The upshot is that only a small minority of FedEx workers are unionised (mostly pilots) while UPS runs a union shop.

The myths about strike activity are exposed easily given that UPS has endured few strikes since its inception (Source).

Conclusion

The current situation where FedEx is struggling with so-called ‘labour shortages’ and declining performance, while its rival UPS is maintaining its staff and achieving much better performance outcomes is symptomatic of the whole neoliberal era that has relied on the creation of a fictional world where they tried to make us believe that cutting wages, cutting job security, denying rights of association, imposing onerous key indicators (delivery times etc), and, all the rest of us, was the way forward to prosperity.

All my career I have been railing against that myth.

It seems that finally the evidence is mounting that more people are waking up to the lies.

Unions are good for workers (usually) unless they become corrupted by officials bought off by management.

Secure work is good for workers, who have fixed nominal commitments (like mortgages) and do not want the uncertainty of fluctuating wages.

But, moreover, as Keynes argued in the 1930s, these so-called ‘rigidities’ (as the conservatives like to construct them as) are also good for sustaining profit.

Sure enough, the neoliberal era has allowed capital to build up massive profits – but the system cannot be sustained under these circumstances.

Eventually it will crash.

That is enough for today!

(c) Copyright 2021 William Mitchell. All Rights Reserved.

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    This Post Has 19 Comments
    1. Thanks for the link to the Business Week article. It’s rare to see something in the mainstream media that argues for the multiple advantages of unionized workplaces.

    2. Thank you, Bill, for one of those posts that cuts directly to the heart of the issue. Our political task, as you’ve indicated, is to do all in our power to humanize an inhumane neoliberal system, to sensitize an environmentally-insensitive neoliberal system, so as to possibly avoid or at least mitigate an otherwise inevitable, utterly devastating crash. Pulling this off, if it can be pulled off, would seem to involve a two-stage process: first, substantial modifications to existing neoliberal capitalism pursuant to MMT principles; second, evolution from that interregnum into some form(s) of eco-socialism. The trick no one has yet figured out how to do is to summon the necessary political will, when governments and media have been fully captured by supremely manipulative, insatiably greedy, inherently ecocidal neoliberalism. Even books as clear and compelling as “Reclaiming the State” seem insufficient to solve this daunting dilemma. While your expertise lies in economics, not politics, I’d love to see you take a stab at addressing this crucial political question. I don’t think such a move would undermine your explanation/advocacy of MMT but rather strengthen it, not in the narrow minds of the elite but in the minds and hearts of the struggling masses. Perhaps that sequel to “Reclaiming the State” (to which you have alluded) will go precisely there. All you do, Bill, hard for most of us to fathom, is as deeply appreciated as it is vitally necessary.

    3. Delighted to say that I tagged Geoff Tily, TUC economist, with “Very interesting study of UPS (unionised) and Fedex (not)” and he just RT’d! I’ve been trying to attract his attention for years – I did once by saying that he’d written the best book on Keynes – that’s what my ex said, never read it myself:o)

    4. Sometimes it is difficult to write a comment when you 100% agree with the author. That’s where I am. It’s a great piece you wrote Bill. Gives a good idea where your sympathies lie.

    5. MMT Economists’:
      How could you all “forget” that our lives are grounded on this earth; fatefully dependent on investments in growth?
      °___°

      Other Economists’:
      Are you all referring to the unpredictable chaos out there?…Our societies were inspired by the imagination; is that not the real world!? •___•

      MMT Economists’:
      o___0 … You idiots!
      So thats what this is all about!? You’re all just grown up children wanting to continue playing in imaginary worlds; making up rules to “perfect” the game when the physical world gets in the way! ~___~

      Other Economists’:
      Its not imaginary, our world’s are real! And besides we can only do so much for the people in this world; we are limited in what we can do! ^___^

      MMT Economist’s:
      Imagination has no limits…so why the restriction to the existence of this fantasy world of isolation…? -___-‘

      Other Economist’s:
      ○’__’○ Aahhhh…
      We don’t know what you’re all talking about; this is the only world we live in.
      .>___>.

      MMT Economist’s:
      Well, let’s go see what the people think of your world…!

    6. Dear Jerry Brown

      Thanks for the comment.

      I could make a joke and say I must be doing something wrong if you agree 100 per cent with me. But I won’t!

      But the comment raises an issue: You refer to “where your sympathies lie”, which is a ‘heart on the sleeve’ sort of reference.

      I would not deny that observation but the point is that many progressives argue like this exclusively – a values sort of strategy.

      Bean counters rarely recognise these sorts of appeals as being valid. “Oh, you’re just a tree hugger”, or “Bigbird is a Communist” (for recently getting his Covid vaccination!).

      So, you can usually make the same points without any appeal to sympathy. The blog post makes it clear that bean counters are not doing their job properly if they think getting rid of unions and making workers precarious on low pay is sensible.

      Even the sorts of appeals that bean counters can relate to, would lead to the conclusion that my ‘sympathies’ reach.

      best wishes
      bill
      ps now you can disagree with me again if you like.

    7. Maybe some bean counters are finally getting it. Or maybe now it is just possible to say or write certain things in the bureaucratic halls of power, without being sacked or having their file stamped “Never to be promoted,” for doing so.

      As Jerry says, ” Sometimes it is difficult to write a comment when you 100% agree with the author.” I find myself in the same boat on this occasion. That’s why I hope I may be permitted to mention this video by Professor R.D. Wolff; a Marxian for those not familiar with him. You can easily find it online. Someone in the Fed, Jeremy Rudd, is writing things, admittedly in the footnotes, that you would expect to come directly from MMT Professors like Bill Mitchell or from Marxian Professors like Richard D. Wolff. That perhaps does indicate that matters are turning, along with the increase in quits and strikes in the USA. Prof. Wolff refers to inflation, strikes and wages in this clip. In other clips he refers to quits too.

      “Fed Economist & Striking Workers Agree: System Change is On the Agenda” – Richard Wolff

      On some more general points.

      (1) I think it is important that the Left, which is fractured and diverse in many way, works on generating a broad coalition. That’s why we (if can call myself “left” along with others here) need to pay attention to and combine the ideas of many diverse Left thinkers. Perhaps some aspects we can agree on, some aspects we can synthesize new theory and agreement on and finally on some aspects we continue to agree to differ. The importance is to get a big, cohesive coalition.

      I actually find Professor R.D. Wolff differs from Bill Mitchell on nothing when it comes to monetary and fiscal policy in the current system. Wolff may not use all of the MMT technical terms but he is basically saying the same things. On other issues he strongly advocates for worker democracy in the workplace: for the workers to make and own the decisions. And to own the productive apparatus in worker collectives. He is a Marxian after all.

      (2) I do disagree with Bill Mitchell on some specific points but I have to be careful. I am tactless (and opinionated) when I disagree. I’ve taken the tack more recently of only writing when I strongly agree in order not to antagonize (with my lack of research, tact and diplomacy). If I can put together some “R&D” (research and diplomacy) I will indicate specific areas of disagreement.

    8. Oh I’m sure there will be something soon that I will slightly disagree with or at least have a question about :) And ‘which side are you on?’ may not be an intellectual type question- but the answer is still very often quite important. The heck with the bean counters once in a while.

    9. A few dot point comments from a rank outsider:
      1. I guess the difference you describe between FedEx and UPS could also be called a social contract with the community. I have felt for a decade or more a growing loss of this with more and more corporations. Oddly at the same time more is spent on glossy advertising to show a connection with the customer and community!
      2. My son has recently been applying for Graduate Program placement with various Australian state and federal governments. He has faced a pool of 3-4500 applicants for 30-40 positions in each of around 20 applications. So no shortage of workers for permanent jobs with good conditions! I have friends who work in recruitment agencies. They speak of difficulties finding workers for the places available. Delving into that you find the following issues; a) as they are a private placement agency they do not have access to all jobs or to all unemployed; b) some jobseekers do not know they exist, and are not “registered ” with them, c) the jobs are often short term contract positions which may not lead to permanent work, and d) placements often go to those registered with the agency, so if you are not know to them you have lesser chance of a job. This all points to a structural breakdown in employment processes. The old Commonwealth Employment Service would have a better chance of placing workers than this system.
      3. The selected KPIs are often the wrong ones. Here in Brisbane the Citytrain network has a KPI for on-time running. This often results in a train bypassing a station with waiting passengers (or customers as they are now called) to maintain the KPI performance requirement. The problem is those passengers are waiting for passage to get to a job interview, doctors appointment or such. They are left waiting 15-30 minutes for the next train. Language and KPI whilst seemingly a small part of management can produce perverse cultural outcomes.

    10. Because most cannot assemble the facts and access the data and put together an argument nearly as well as you do- well that does not mean they are not right about what their grievances are about. We are lucky we have someone who is so skilled as you.

      But I don’t think there is anything wrong with an argument based on ethics or moral principles. Maybe it won’t appeal to bean counters. But you never know- bean counters are people also.

      The other day I read Dr. Martin Luther King’s ‘Letter from Birmingham Jail’. Powerful argument. It is worth reading. Especially if you are an American. Not much based on statistics so to speak. But still compelling. With your permission, I would like to post a link to that letter as an example of moral argument.

      https://www.csuchico.edu/iege/_assets/documents/susi-letter-from-birmingham-jail.pdf

    11. “who emailed me to say that he does ‘get MMT’ last week.”

      Get him to explain why the Job Guarantee is so important in MMT thinking. That’s the only way you find out whether they ‘get MMT’ or not.

      It’s a bit more than understanding how banks do accounting.

    12. Neil, I don’t have that sort of contact with Tily – he’s only ever RTed or ‘liked’ a tweet. He’s a colleague of Ann Pettifor, who I do know, but there’s no way of using that contact:o). But I do sense that the JG is getting some traction in the unions. I’ll keep trying any way I can. Let’s hope he reads the blogpost and it whets his appetite.

    13. Replying to @econewbie …
      You make good points. Poorly designed KPI’s and Performance Reviews are a form of spiritual violence. Too many people who fail-upwards into middle management have never read or even heard of W. Edwards Deming. All the management fads and consultancy crap over the years are trifling compared to Deming’s advice.

      On a personal note: when my brother decided to move to giving his employees equal share of profits (because I “recklessly” – as an nerdy academician – advised him to!) he found instantly better productivity and job satisfaction. It lowered his overall costs.

    14. Thanks for the comment, Bijou. I understand that the US has lots of worker co-ops. The John Lewis Partnership here is not the best model. Such a well-kept secret worker coops/Mondragon. I wonder why (sarcasm alert).

    15. @Ikonoclast I regularly watched Prof. Wolff’s monthly talks, though not for a while. He’s an interesting speaker, and he may have educated himself further with regard to MMT since I watched, but certainly up to a couple of years ago, he didn’t understand yet was dismissive and misleading.

    16. @Carol Wilcox agreed, Mondragon (which I maybe first learnt about from Prof Wolff) should be much better known. Particularly its maximum 9:1 wage ratio. On the basis that the lowest paid worker is entitled to a wage commensurate to being a fully integrated member of society, who could justify having more than 10 times that buying power, or 10 times that carbon footprint.

    17. For what it is worth,
      I watch Prof. Wolff, and I saw him getting bank loans wrong recently.
      He also, recently, pointed out the the national debt is a problem.
      So, I don’t think he gets MMT at all.

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