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Original article URL: http://bridgemi.com/2015/12/when-low-wage-workers-problems-become-a-companys-problem/

Business Bridge

When low-wage workers’ problems become a company’s problem

Tanya Allen, a partner in a joint venture that owns restaurants at Detroit Metro Airport, said she’s had problems keeping quality workers because of a lack of mass transportation.

Tanya Allen, a partner in a joint venture that owns restaurants at Detroit Metro Airport, said she’s had problems keeping quality workers because of a lack of mass transportation.

At a car wash one day this past summer, a young man noticed Tanya Allen’s hat bearing the LongHorn Steakhouse logo and asked her if she knew anyone who worked at the restaurant chain.

She told him she owned one. Allen is a partner in a joint venture between Atlanta-based Hojeij Branded Foods and its Detroit partner, AP United LLC. The venture owns nine restaurants inside the McNamara Terminal at Detroit Metropolitan Airport.

“I’d like to work,” Allen recalls the man saying. But once she told him where the restaurant was located, she said, he dropped his head. He didn’t have transportation to get there.

Reliable transportation. Medical challenges. Child care gaps. These are some of the barriers that separate low-income workers from an opportunity to move forward in a career path and ultimately increase their incomes. Nearly 1 million households in Michigan fit this profile.

It’s a problem that also hits employers. Rampant turnover by this workforce population can get expensive for companies ‒ and quickly, to the tune of $3,400 or more to refill these positions. The challenges posed by these workers, nicknamed ALICE (for “asset-limited, income-constrained, employed”), have caused some Michigan companies to rethink their recruitment and retention strategies. In some cases, employers are offering community resource-type services, part of an effort to keep workers employed and reduce turnover rates.

“We’re desperate for people right now,” Allen said. “We’re getting ready to open up our 10th restaurant (this) month and, quite frankly, we’re scrambling to get really quality employees out there. Because we don’t have a succinct mass transportation system, it’s very difficult for people who want to work to get out to that location.”

“I’ve had experiences where I’ve had some really, really dedicated employees who have taken two or three buses to get to work,” she added. “To me, that’s heartbreaking.”

Meet ALICE

Though named for a woman, ALICE is a composite of women and men, young adults and seniors, single households and families. The acronym was coined in 2009 by a United Way organization in New Jersey, which sought to identify barriers to employment that hold back low-income workers from achieving career success.

More often, they’re referred to as the working poor, with incomes above the federal poverty limit but too small to be financially stable. Many have limited education or skills, small family support systems or little savings. ALICE advocates say some of today’s low-skilled workers grew up without role models who could demonstrate what it means to work full time or teach “soft skills” such as communication and problem-solving.

Common industries that employ ALICE workers include manufacturing, hospitality, customer service and construction.

ALICE workers have jobs, but a steady income can be fragile. One flat tire, an unexpected doctor’s visit or a sick babysitter could mean a missed shift and paycheck. That, in turn, could cost them their jobs: Absenteeism is one of the most common reasons the working poor are fired.

National estimates peg the cost of losing a single employee at about $3,400, based on hiring and training a replacement, lost productivity and even extra overtime for workers who stay.

To prevent turnover, many employers across the state are choosing to pool funds for the salary and benefits of a caseworker who meets with qualified employees at their work sites during work hours.

The partnerships, known as employer resource networks, help workers access bus fare or gas money, child care services and help to prevent utility shutoffs. Employers say the networks also have dramatically increased retention.

Advocates for the working poor and human resources consultants say businesses long have maintained that it’s not an employer’s responsibility to solve their employees’ personal problems, even though the salaries many companies pay their workers often lead to those very problems. Can they do more?

Companies that succeed at reducing turnover, they argue, are the ones that attempt to understand the challenges their employees bring to work each day — which can become distractions to productivity — and recognize that a solution is not the sole job of government welfare programs or nonprofit human services agencies.

“As cold-hearted as this may sound, if business doesn’t see return on their investment, they’re not going to do it,” said Duane Berger, a project specialist with Gov. Rick Snyder’s office and former chief operating officer with the Michigan Department of Health and Human Services, who travels the state to promote employer resource networks.

“It’s got to be a business solution,” Berger said. “If human capital’s stabilized at work, they’re probably stabilized in their family lives, and if they’re stabilized, their communities are stabilized.”

Not enough income

Data paint an eye-opening picture of the size of just how large Michigan’s low-income workforce is: Forty percent of all the state’s households don’t make enough money to cover their bills, according to Michigan’s ALICE report, released in September 2014.

Income varies by county and family size, but generally, low-income households led by someone younger than 65 earn between $35,000 and $50,000 per year. Seniors in the ALICE category generally earn $20,000 to $25,000 annually.

That income is far short of what United Way’s findings estimate is needed just to cover basic expenses. For instance, researchers determined that a single-person ALICE household in Michigan would need to earn $16,818 per year just to meet his or her expenses, or $8.41 per hour. A family of four would need to earn $50,345 — $12.59 per hour if both parents work, or $25.17 an hour based on a 40-hour work week if only one parent is employed.

To cover expenses and have money left aside to build savings — in other words, to become financially stable — a four-person household would need to earn at least $92,409 annually, or 84 percent more than survival income alone. That larger figure accounts for saving $563 a month and having a little budget breathing room, such as funds for the family to eat out once a week. To reach that $92,409 figure, both parents would need to earn at least $25.17 per hour, or $46.20 per hour if only one parent works.

A single ALICE employee, meanwhile, would need to earn an annual income of $24,430, or 45 percent more than needed to cover base expenses. That comes to $12.22 per hour.

Yet achieving those incomes will be problematic in a state dominated by low-wage jobs, researchers suggest. That trend is likely to continue.

In all, 63 percent of Michigan jobs pay an hourly wage below $20, they found. And the fastest-growing expected job openings — in health care, retail, construction and food preparation — require little schooling and pay less than $15 per hour. In fact, the authors wrote, those openings are expected to grow at least twice as fast as jobs that require more skills.

“Two hallmarks of the service-sector economy are that these jobs pay low wages and workers must be physically on-site; cashiers, nurses’ aides and security guards cannot telecommute or be outsourced,” they wrote. “This means that Michigan’s economy is dependent on jobs whose wages are so low that workers cannot afford to live near their jobs even though they are required to work on-site.”

Transportation is one of the biggest obstacles to getting and keeping a job, Michigan’s ALICE report found. Others barriers include child care, health care, housing and food costs.

United Way leaders already are talking about updating the ALICE report to account for federal Affordable Care Act health insurance changes, a higher state minimum wage and cost-of-living increases, said Scott Dzurka, president and CEO of the Michigan Association of United Ways.

Expanding network

When employees at Coastal Automotive miss a day of work, they amass “points,” or demerits. The Rochester Hills-based supplier of energy-absorbing vehicle materials says workers have called off a shift for such reasons as a friend’s car had a flat tire and they had no other ride.

Company administrators say they are empathetic, but contend their hands are tied, since they can’t award some employees preferential treatment over others.

“So many people we lose because they don’t have a way to get to work,” said Victoria Roberts, Coastal’s human resources manager.

Three years ago, the supplier forged a $9.8 million program with the state called Community Ventures, which uses state general fund dollars to match employers with human service providers who can help ex-offenders and workers on the state’s public assistance or Medicaid rolls hold on to jobs.

That program, though, is limited only to employees who live in the city of Pontiac, since the state concentrates its dollars in four of the state’s most troubled urban centers — Detroit, Pontiac, Flint and Saginaw. That means a worker at Coastal who is struggling to make ends meet but lives a few miles away in Auburn Hills isn’t eligible to receive any services, such as gas cards or funds to prevent utility shutoffs.

As a result, Coastal Automotive has committed to join a startup employer resource network that will serve workers who live in all of Oakland County, extending wraparound services to even more people. Oakland Livingston Human Service Agency will be the network’s administrator.

Coastal also recently started a pilot program with the ride-sharing service Uber, which arranges to drive employees to work. That program has helped at least one dedicated employee, who works as a team leader, drop off her two children and arrive on time for her shift at 6 a.m., said Wendel Martin, Coastal’s commercial director.

Without it, he said, she likely would have lost her job due to transportation issues alone, regardless of her job performance.

Since joining the Community Ventures program, Coastal Automotive’s retention rate has improved from about 40 percent over 12 months to roughly 67 percent, the state said.

Turnover cost

Employers have a definite financial incentive to want to improve retention: avoiding the training and financial cost of turnover.

Nationally, the average cost per hire was $3,420 last year, according to estimates from the Alexandria, Va.-based Society for Human Resource Management, a U.S. membership organization for human resources professionals.

That’s based on a number of onboarding costs, including fees paid to a third-party consultant or advertising agency, job fairs or online job boards; employee referral bonuses; travel and relocation costs; compensation for recruiters; and other talent acquisition expenses.

On average, the human resources organization estimated, it takes 42 days to fill a job. Overall annual turnover in the U.S. is 18 percent of a company’s staff. The data is not broken out for Michigan.

Harder to estimate is the dollar value attributed to lost productivity, or the impact of turnover on customer service, said Rick Guzzo, a partner with human resources consultant Mercer LLC, based in Washington, D.C. There are also vacancy costs, such as maintaining an open desk or unused phone service.

Employee retention issues are not limited to low-paid workers. Turnover can be costly for companies with mostly professional ranks, too — potentially more costly, since their lost positions tend to require more skills and pay higher wages.

For every lost recruiter position, it can take Rochester Hills-based TTi Global, which provides training development and staffing services in the U.S. and abroad, up to three months to find a replacement. That works out to a $5,500 hit to the company’s bottom line every month the position stays empty, president and CEO Lori Blaker said.

When an employer begins to experience a rash of turnover, senior executives could benefit from digging into the root causes, Guzzo said. Rarely is it any one factor in isolation. More likely, he said, absenteeism or job loss is the result of several factors at work — scheduling complications, low wages or transportation among them.

“The work that we do with large employers is to help them understand: Of all the things that could be causing turnover, what’s actually most influential in their situation?” Guzzo said. “Those factors can differ greatly from one employment setting to another. It’s not always wages. It’s not always just schedule. It’s not always they hired the wrong people.”

‘Open up their eyes’

Advocates for the working poor say helping low-income workers achieve career success and upward mobility can’t be solely the work of government or nonprofits.

Rather, business has to buy into policy changes that emphasize people along with the bottom line.

The state is transitioning away from a manufacturing-centric economy into one that values knowledge-based services and higher education. And a talent shortage in the skilled trades is making it harder for some employers to find new workers to fill the pipeline.

The ALICE report “has started to open up their eyes,” Dzurka said of employers.

Companies that join an employer resource network spend money up front with the hope that they’ll reap a greater return on investment. Berger said participating employers repeatedly have noticed improvement in retention.

Hiring a caseworker to handle solutions to social problems also frees up in-house human resources managers to focus on business needs, Berger said.

“A lot of companies will say, ‘It’s not my job to solve social problems. It’s not my problem to worry about how they get to work. It’s not my problem to worry about their kids.’ And to some degree, that’s true,” Berger said.

“More and more companies are recognizing, ‘Maybe it’s not my responsibility, but if I want business bottom line to be (the) best it can be, I’ve got to have good assets in my human capital.’”

More companies also are paying above minimum wage, closer to the concept of a “living wage,” said Guzzo, of Mercer. That demand is playing out publicly in fast-food workers’ push for a $15 minimum wage, as an example.

Employers that successfully boost retention don’t focus just on raising wages, said Guzzo, of Mercer. Instead, they have perfected a system of employment practices, from scheduling to skills training.

For Allen, who operates the restaurants at the Detroit airport, that includes offering a work environment that makes workers want to stay.

Her joint venture recently joined the Wayne County employer resource network, at a cost of $10,000 annually. Allen says that money will pay dividends when it comes to reducing turnover.

Employees who are distracted by outside problems, especially in a job where they are interacting with customers, affect the quality of service given to customers, she said. And each time the company has to train a new worker, speed of service declines.

“Pay it later or pay it now,” Allen said. “If you don’t invest in your employees now, you will pay later.”

Lindsay VanHulle covers business and Lansing for both Bridge and Crain's Detroit Business.

7 comments from Bridge readers.Add mine!

  1. Equity

    I really want to believe that this is a well-meaning effort. I do. And some of the supports, I’m sure, are truly beneficial to some workers.

    But this is what it sounds like: Employers are pooling funds to sustain their business practice of paying workers less than a living wage, and calling it an “employer resource network” (note that it’s labeled a resource for employers, not employees). Instead of putting effort into raising wages across the board, Michigan businesses want their working-poor employees to get access to “bus fare or gasoline cards, training, second-shift day care, budget counseling and even … loans to build workers’ credit.” (Sure, just take a loan out through your employer — what could possibly go wrong with that dynamic?). Budget counseling?? “Here, you silly workers: Let us show you how to live poor correctly.” Didn’t McDonalds do that, to widespread ridicule?

    “This is not a government solution. This is a business solution,” Berger says. Yes, it appears that way. A solution that ignores the fundamental issue of Michigan’s stagnated pay and props up workers just enough to keep them at work — still underpaid, still working poor. Nice for the employers. But not a real solution for Michigan’s ALICE families.

    If I’m completely wrong, I’d like very much to hear the counterargument.

    Question for the reporter: Are any of the companies who have signed on to this program unionized?

    Thank you.

    1. Yvette

      Equity Thank You! for your critical thinking and reflection. Absolutely is a business solution and not designed to move individuals out of poverty into the middle class.

  2. Mrs A

    Just imagine if the $3,400 a company appears willing to “invest” in recruitment were actually “invested” in the employee by adding it to their wages? And of course, this doesn’t factor in the intangible benefits the company would secure by employing a happier, more engaged employee who knows more about how to work efficiently, is more committed to customer satisfaction and ensuring return business, can function as a resource in bringing in additional staff from among friends and relatives, and contributes his or her experience and perspective to improve operations. You would think that a business out to make money would be smart enough to figure this out.

  3. Duane

    I saw a similar effort made by a private employer involving Saginaw residents back in the early 70s. As I recall the employer provided the transportation, in plant training, payed competitive wages for technician jobs [entry level was far above minimum wage], etc. I believe they stayed with it for a few years. As I recall the bus ride was 15 or so miles. It seems it ended because of a lack of stability in the individual employee interest.

    I don’t recall what level of government involvement. I wonder if those supporting the efforts mentioned in the article were aware of that employers efforts and if they had contact that company to learn what they did and what the results were. That employer has been very successful at changing the demographics of the work force while growing a global competitor.

  4. KG-1

    Why are any tax dollars being used to support a business model that is not self-supporting?

    This is a concept that would be unthinkable not even a century ago.

    1. edson schaus

      100 years ago was just about the beginning of the Black Migration from the south to the industrial north. Then later the flight to the suburbs taking those jobs and city tax bases with it. Then there is also the still ongoing issue of reliable, affordable mass transportation to get to those area of new jobs. The government’s policies (and money) enabled all this to happen. That the government might have to help ameliorate the problems caused by those policies is just an actual cost that just now is coming due.

  5. Michelle Smith

    It doesn’t appear to me that one government hand even knows what the other one’s doing. This study is all well and good, but then knowing this, the State of Michigan then turns around and passes a road-fix bill that will make it more expensive to own a vehicle (through increased State vehicle fees), and higher gas prices (through increased gas taxes). Now tell me how this contributes to the success of the ALICE program??

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