In rural Washington State, a local restaurant owner, who runs the kind of place where retirees linger over scrambled eggs and parents feed their children hamburgers, proudly told Anna Haley-Lock, a researcher at the University of Wisconsin in Madison, how he avoided overpaying his workers. He set a rule that labor costs could equal no more than twenty-one per cent of sales each day; about half of that sum could be spent on front-of-the-house staff, and half on those in the back. Every half hour, the owner and his managers review an Excel spreadsheet with the latest totals. “The labor percentage can’t exceed twenty-nine per cent at three P.M., or it’s unlikely to drop to twenty-one per cent” by the end of the day, the owner told Haley-Lock. “At that point, managers know to ask some folks to go home.”
With his clunky spreadsheet, the restaurant owner was improvising a version of the software that large chains use to schedule employees at strict intervals, and to end their shifts when business slows. The effects of unpredictable hours are rippling through workers’ lives and dampening the over-all economy. Last week, in the Times, Jodi Kantor told the story of a Starbucks barista whose family life was in chaos partly because of her haphazard work schedule, which sometimes required that she close the store late at night and return before dawn the following morning. After the story appeared, a Starbucks executive said that the company would make modest adjustments to its staffing practices, including eliminating back-to-back shifts and enforcing its policy of giving workers their schedules at least one week in advance.
Kantor's article mentioned that retail managers are rewarded for the efficiency of their staffing; it’s also worth noting that these managers are often constrained in their staffing decisions by rigid parameters set by corporate bosses. Generally speaking, managers are allotted a total number of employee hours per month, or even per week, on the basis of constantly shifting revenue forecasts. Even in cases where they plan to give workers advance notice of schedule changes, if the corporate office cuts their over-all hours—perhaps due to a weekend snowstorm that ruined business, or unusually high costs in other areas—managers may be forced to make last-minute decisions. Some companies, such as Jamba Juice, regularly consider weather, adding workers on short notice if the forecast calls for a blistering day.
Haley-Lock's analysis of more than a dozen small businesses and one large chain in the restaurant industry, with its hectic pace and thin profit margins, left her sympathetic toward both employees and their managers, especially at mom-and-pop places. “I’ve never encountered more exhausted people than when I was recruiting managers and owners to talk for that study,” she told me. “They were practically breathless.”
The managers, at least, have reliable schedules and predictable incomes. For low-wage workers, flexibility favors only their employers, who maintain a large pool of part-timers in order to make it easier to shuffle schedules. When employees request flexibility for themselves—to work around college classes or child-care availability—they tend to be penalized. In a survey of managers at a women’s clothing chain, Susan Lambert, a University of Chicago researcher who has collaborated with Haley-Lock, found that more than eighty per cent gave more hours to employees who placed fewer restrictions on their availability.
At service businesses like Starbucks, labor expenses account for most of the variable costs; if managers can’t control those expenses, their stores won’t survive. Yet executives often mandate a blunt-force approach to labor costs, as if their policies could never push out valuable employees or drive away customers. Since 2006, the retail and wholesale sector has cut more than a million full-time jobs and added half a million part-time positions.
A study of one large retail chain, conducted by researchers at the University of North Carolina at Chapel Hill, found that scheduling the optimal mix of temporary and part-time workers could increase the profitability of the average store by nearly a third. But cheaper wasn’t always better. Part-time workers often are not as productive as full-timers, because they tend to be less skilled and less experienced. To maximize sales, the researchers found, the typical store should have four or five part-time employees for every ten full-time employees. “It is possible to have too much of a good thing,” they concluded.
We may already have passed that threshold. Last week, researchers at the Federal Reserve Bank of Chicago reported that a slack job market continues to limit the paychecks of U.S. workers. An important factor, they said, is the number of part-time employees who would rather have full-time work. When workers aren’t earning much and their hours are erratic, they become reluctant to spend money—and this reluctance extends to the very businesses that are setting unpredictable schedules. Walmart, the nation’s largest private employer, recently lowered its profit forecast for the rest of the year. “Our customers are still under pressure,” said Charles Holley, the company's chief financial officer.
Since the recession began, activists and lawmakers have focussed on raising the federal minimum wage, which currently stands at seven dollars and twenty-five cents an hour. (In inflation-adjusted terms, it peaked in 1968.) But Haley-Lock worries that such a raise might simply prompt business owners to reshuffle their employees’ hours. She argues that more states should adopt so-called reporting-pay laws, which guarantee payment for a minimum number of hours if a worker’s shift is cut short. (Only eight states, including New York, as well as the District of Columbia, have such a law.) Haley-Lock is studying procedures at Costco, which mitigates the damage of schedule changes by sending several employees home a little early when business slows, rather than docking all of the hours from a single worker. The bulk retailer also trains employees to cover multiple departments, so that they can shift to a busier section as the need arises. While there may be challenges to replicating Costco’s formula—its customers are relatively wealthy, and it gets much of its revenue from the sale of memberships—Haley-Lock doesn't believe that there's "anything unique to the Costco model.”
Even Walmart, a pioneer of the flexible-staffing model, has indicated that it may have gone too far with minimizing labor costs. Last fall, responding to shopper complaints about empty shelves, the retailer said that it would move thirty-five thousand employees from part-time to full-time status. As always, incentives matter: the decision came shortly after shareholders voted to link executive compensation to how well Walmart stores are stocked.
