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 –

When labour shortages just signal management caprice – case study