Institute on Education and the Economy


The Future of Low-Wage Jobs: Case Studies in the Retail Industry (Working Paper No. 10, March 1999)

Annette Bernhardt

America’s shift to an economy based on knowledge and technology continues to color our perceptions of the future of work. Yet for all the talk of high-tech jobs, the average American worker has not seen significant gains in well being. While the business press abounds with examples of innovative companies that create good quality jobs, just as prevalent are low-wage strategies and the substitution of contingent for full-time workers. New generations are entering a transformed labor market, and the wage inequity they face is not going to disappear unless explicitly addressed. This will be accomplished by a better understanding of how firms have responded to heightened competition and the effect on job design, skill requirements, training, and wages.

This study looks at firm restructuring in a service sector that has been neglected by researchers—retail trade industries. More than one in six Americans (18.1%) currently holds a retail job and projections indicate that the sector will continue to serve as a mainstay of employment. Yet job quality ranks at the bottom of all major industries. Retail trade therefore affords us a window on low-wage firms and the future of workers without a college degree.

Upheaval in the Retail Industry

Retailing has changed radically from the small mom-and-pop stores of the first half of the century, so that large firms and mass discounters now dominate. Cost containment is the absolute bottom-line, competition is unceasing, and margins are razor-thin. What has this new environment meant for firm strategies, and by extension, for worker outcomes?

It should come as no surprise that the high-performance workplace has not come to dominate the retail sector. A rough but telling indicator is job quality. Retail wages have fallen significantly over the last thirty years, and part-time work has become the archetype of retail employment. Only a third of full-time workers had pension coverage in 1993, and less than two-thirds of employers sponsored health plans. These are not indicators of a high performance strategy focused on rewarding skilled workers for their input.

The Ascent of the Wal-Mart Model

And yet, the firm strategies, which do dominate, can also not be considered low road. The leading retail strategy today is the Wal-Mart model. It is characterized by an extremely efficient production process, where the operations that make up the heart of retailing – buying products, distributing them to stores, and selling them to customers – are streamlined and linked in one continuous “just-in-time” chain. Wal-Mart pioneered the concept of using technology to manage inventory, and in recent years has invested some $600 million in its information system.

In contrast to this taut efficiency, little attention is paid to the human resource side of the equation. Sales jobs are low-wage and dead-end, raises are small but not guaranteed, and work schedules change constantly. “Full-time” is defined as 28 hours or more a week, in order to avoid overtime pay if workers stay late. Employees must contribute 40 percent from their own paychecks toward health insurance. Finally, there is no pension plan, and the profit-sharing plan is primarily invested in company stock, which has lost value in recent years.

With sales of $117.9 billion in 1998, Wal-Mart outperforms other retailers on almost all productivity measures, putting enormous pressure on the rest of the industry to follow suit. Thus what we see in retailing is a restructuring model based on technology and process, not on developing human resources. Nor is this likely to change. For example, what would convince McDonald’s to shift its production-line system to one based on skilled workers, given the enormous upstart costs and the amount of capital it has already sunk into designing its kitchen around low-skill labor?

Customer Service and Segmentation

Still, analysts argue that a human resource strategy based on improving the skills and input of workers could be viable in retail trade. This is because the industry has recently given much press to the idea that providing “quality customer service” is the new route to survival. However, two very different definitions of customer service have emerged. The first stresses personalized in-depth service. Nordstrom’s sales workers, for example, build long-term relationships with their clientele, and Home Depot’s sales staff gives customers detailed advice. By contrast, the second definition stresses fast service and cheap products that are always in stock. The market being tapped here, by Wal-Mart and others, is consumers who are pressed for time and know what they want.

These two routes to competing on the basis of “quality” service have markedly different effects on the workplace and on jobs. Because of their skills and training, workers at The Home Depot have autonomy, earn above-average wages, and almost all are full-time with benefits. None of these characteristics hold at the mass discounters or fast-food chains. Thus the two definitions of service, based on a segmentation of the customer market, are yielding a similar segmentation of job quality.

Technology and Its Selective Impact

If the push for quality service has generally not resulted in an upgrading of retail jobs, perhaps technology can do the job. Technology has had a profound impact on the retail industry, enabling the “just-in-time” linking of all parts of the production chain. Yet the actual tasks that most retail workers perform have gone largely untouched. To the extent that sales workers have been affected, the most direct result has been to eliminate jobs. For example, the counting of products in stock, once done manually, is now done either automatically or by fewer workers using hand-held scanners. More time is spent on the selling floor – but often with tougher sales goals and electronic monitoring. Combined with the overall reduction in staffing, these practices have greatly increased stress levels. Thus while technology has enabled the Wal-Mart model of efficiency, it has generally not brought an upskilling of front-line retail jobs.

The Prospects for Career Mobility

Beyond the poor quality of most retail jobs, there is also the deeper question of opportunities for upward mobility. Workers who hold retail and other low-wage service jobs tend to be the least educated in the labor force and so depend on training for career mobility. Unfortunately, retailers train employees an average of only seven hours (last among 14 business sectors), and so workers acquire few valuable skills that they can take to the open market. Moreover, the industry has one of the flattest job hierarchies in the economy – sales and service occupations make up more than two-thirds of the jobs. Firms are also increasingly hiring young college graduates for managerial slots and bypassing workers with years of tenure. In this context, there is a severe constraint on upward mobility, no matter how talented or hard-working the individual.

These problems are not limited to the retail sector. A fundamental reorganization of the American workplace is underway, and the rules of mobility have changed. We might imagine that systems analysts and general managers could still find a career job or at least build real wage growth as they move between employers. For cashiers, salespersons, information clerks, nursing aides and orderlies, however, the prospects look less promising. The result may well be a cadre of “migrant service workers” who move from one service job to the next, learning no new skills and achieving few wage gains with which to support their families.

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