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Why big employers like Starbucks have all the leverage

Rick Newman
Barista Sandy Roberts pours samples of Starbucks coffee during the company's annual shareholders meeting in Seattle, Washington in this file photo taken March 19, 2014. Starbucks Corp said it plans to partly pay for an online bachelor's degree program for its employees in the United States, hoping to retain its workforce and save on hiring and training costs. REUTERS/David Ryder/Files (UNITED STATES - Tags: FOOD EDUCATION)

Starbucks (SBUX), one of the nation’s better corporate citizens, got a jolt recently from a New York Times article describing the harrowing schedule one of its part-time baristas must work. Jannette Navarro, a 22-year-old single mom in San Diego, works an erratic schedule generated by software, with only a few days’ notice given each week. The unpredictable and irregular hours cause chaos as Navarro tries to arrange childcare for her 4-year-old son, maintain a romantic relationship and invest time in things she deems necessary to get ahead.

Starbucks is hardly unusual. Many retailers and other companies use computerized, just-in-time scheduling to save money by staffing up or down as business ebbs and flows. Yet the Times story produced a backlash among people outraged that a company dependent on the goodwill of consumers could be so indifferent to the needs of an earnest worker. Starbucks very quickly responded to the article, saying it will make employee schedules more predictable and end some practices that strain workers the most.

Workers should not get cocky, however, because big employers such as Starbucks still exert most of the leverage in the relationship between companies and their workers. This is especially true when it comes to workers at the lower end of the skill spectrum who lack a college degree or any kind of specialized training. It’s getting harder for nearly everyone to get ahead, and workers such as Navarro face a particularly punishing future if they fail to obtain specialized skills that set them apart. Here are five reasons big companies can basically have their way with workers:

It’s still a buyer’s market for labor. Companies have been hiring more, but there are still more than two unemployed people for every job opening. Specialized or highly skilled workers such as programmers, engineers, welders and plumbers are scarce in some areas, which gives them an unusual ability to demand concessions from employers. But there’s a labor glut in many other parts of the economy. It’s almost impossible for employees to demand higher pay or better treatment when there’s a line of people who would gladly take their place – and put up with lousy treatment.

Technology can do more and more of the work humans used to do. Restaurant diners can now order via tablets and smartphone apps instead of hailing a waiter. Unmanned kiosks are beginning to replace checkout clerks. And of course e-commerce threatens the entire retail business model. Companies have more technology than ever at their disposal, and the more labor costs go up, the stronger the incentive to adopt automated systems that reduce payrolls. Again, unskilled work involving lots of predictable repetition is likely to be most threatened by technology.

Unions are a thing of the past. Union membership and public support for unions are both in sharp decline, leaving little recourse for many workers these days. Unions sprang up more than a century ago to prevent the exploitation of the most vulnerable workers, and there could be a revival of unions if worker mistreatment were to become extreme. But laws already prevent many workplace abuses, and Americans have generally soured on unions as they’ve become more associated with lavish perks and benefits than with protecting the little guy.

Corporations are growing more powerful. Crony capitalism has been very good to corporate America. Recent Supreme Court decisions have given corporate donors more ways to fund favored politicians, adding to the influence corporate interests already hold over public policy. The same goes for state capitals, where there are fewer journalists and watchdog groups keeping an eye on lobbyists and their targets. It’s no accident proposals to raise the minimum wage, hike taxes on the wealthy and close corporate tax loopholes have gone nowhere in most jurisdictions.

Americans are allergic to higher prices. Starbucks is one exception, since it markets an upscale product and can afford to spend a bit more to keep workers satisfied. And Chipotle (CMG) has gotten away with price hikes recently without roiling customers. But big employers including Walmart (WMT), McDonald’s (MCD) and many others cater to cost-conscious consumers in no mood to bear price hikes that might come from higher wages or other moves to improve employee perks. Some activists feel big companies should share more of their profits with the rank-and-file, but that’s not how capitalism works; with competition tough everywhere, no company is likely to forgo profits unless it serves a business purpose, such as safeguarding the company’s image or improving the experience for customers.

There's some evidence that companies are better off when their workers are happier. One study, for instance, found that companies rated among the best to work for have better stock-market returns than other companies. Even so, CEOs and their deputies often get fixated on short-term concerns at the expense of worker well-being. 

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This might seem like a dismal state of affairs, but there are other ways to tilt the balance of power back toward workers. A healthier economy would do it eventually, since workers gain leverage as unemployment falls and labor becomes more scarce. In that regard, anything that helps the economy grow will benefit workers.

If public outrage grew, that would probably compel legislators and regulators to take more action on behalf of workers. It’s not realistic to expect corporations – which exist to earn a profit for shareholders -- to also operate as humanitarian organizations looking out for their employees’ private interests. Few companies, on their own, are willing to raise wages or enhance benefits much beyond market norms. But if new laws forced all companies to do it, nobody would end up with an advantage over anybody else, and everybody would adapt. The bellyaching would subside pretty quickly.

Many problems contribute to our current glut of unskilled workers — subpar education, over-dependence on debt, an epidemic of young, single mothers and absent fathers. Starbucks and its ilk are good at churning out profits, but lousy at socioeconomic policy-making. We don’t expect the government to sell us lattes. And we shouldn’t expect a coffee roaster to protect and revive America’s middle class.

Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.