October 12, 2015

Why toll collectors and other jobs like them will disappear

I love the New York Post headlines. One of my favorites was in the Sunday, December 11, 2011, issue. The headline was “E-Z CASH: Change he can believe in: Toll collector makes $100K.” On page 5, the story to which headline refers is entitled “High-Pay PA Crew Taking Their Toll.” It describes what we have learned is an all-too-common rip-off of taxpayers, the use of what is called “pension spiking” to give people making a certain level of income the chance to get an even larger pension by awarding them a huge amount of overtime pay opportunity in their last year of employment, the only year that counts for pension calculations in many public-sector collective bargaining agreements.

In this case, the employer is the Port Authority of New York and New Jersey, an entity created by a contract between New York and New Jersey and jointly owned by the two states. This entity is not accountable to elected officers or voters, except for the indirect influence that elected officials from the two states sitting on its board of directors have on the entity’s operations. Oddly enough, entities like the Port Authority were created over several decades in the 20th century because elected officials believed that they would operate in a more business-like fashion and not be subject to the corrupting influences of elected officials trying to “buy” votes by bestowing favors on constituents. However, the lack of public accountability means that the customers of the Port Authority, namely those who travel in the New York Metropolitan area, will bear the brunt of the abuses of the pension system.

In one sense, it should be easy to solve this problem: abolish this “pension spiking” scheme in the next collective bargaining session. However, we get a hint of why these kinds of schemes are so hard to uproot. A toll collector named Princesella Smith is quoted as saying: “I’m blessed. I have a great job, and, in this economy, it’s great that I can cover everything with my eight hours a day and overs.”

Executives and union leaders who both know that paying a toll collector like Ms. Smith $89,599 per year is absurdly excessive also have to confront the fact that, but for her oversized compensation package, she probably would be living in a much more difficult economic situation. She is a human face to the problem of reducing the government budget deficit. I found that, at Pitney Bowes and at other large organizations, no matter how well these organizations were managed and how tightly costs were controlled, it was difficult to bring pay into line with what made sense for customers, when the overpaid person was someone we saw every day and genuinely liked.

The overpaid employee is a real person, often well liked and appreciated for his or her organizational commitment. While I do not know how good an employee Ms. Smith might be, she is clearly doing a job, collecting tolls on the George Washington Bridge, that few people would choose to do if they had other choices.

Not only are overpaid employees often liked and appreciated, but senior executives often know the families of these employees and the tragedies and challenges the employees face. At Pitney Bowes’ Connecticut operations, there really are no executives living in enclaves that totally separate them from coming into contact with ordinary employees. I was highly likely to interact with company employees outside the office. When my second son was younger, the president of the Little League baseball program was a product manager at the company. Our housekeeper’s husband worked at the company. When we went to school events, we would meet parents who were company employees and whose children were friends of our children.

It is tempting to blame militant labor unions for fighting to preserve the jobs of overpaid and under-skilled employees. However, my experience is that these problems would exist in any organization in which executives, voluntarily or otherwise, build close personal relationships with people up and down the organization.

Over time, I developed the skill of engaging with people I knew and liked, but who had to leave the company. I had to convince them that it was not only in our best interest, but in theirs, that we were taking them out of a job, reducing their pay, or in some other way taking an adverse employment action. I operated on the simple principle that if I could not look them in the eye across a table and justify what we were doing, the action was indefensible. Thankfully, I never had to make the judgment that an adverse employment action was indefensible when I used that test.

When we teach senior executives to care about employees as individuals, then we create a different problem. It becomes challenging to look those overpaid and under-skilled employees in the eye, meet them in the coffee shop and deli, see their families in the school events, or run into them on the street, and tell them that you either have to eliminate their job or reduce their pay to bring it into line with what the market pay should be for their job.

Think about the job of a postal worker who manages mail sorting machines. At Pitney Bowes, we were able to employ and retain people who would do this work at about 1/3 the rate that the Postal Service was paying for the same work. We were consistent in our pay practices with the real market for this job. The Postal Service’s pay rates were artificially high, both because of a collective bargaining agreement, and because of the political pressure that postal union workers could bring to bear on elected officials.

The concept of a “living wage” is that people must earn enough in any job to be able to afford a standard of living above the federal poverty line. However, what “living wage” advocates forget is that the “living wage” movement would result in fewer jobs and more expensive products. As I look across our economy, I see many candidates for job eliminations if wages for that job get too high, not the least of which is the toll collector job.

When I go to large retail grocery stores and pharmacies, I am increasing seeing self-service stations, including some at the checkout counter. When I go into bathrooms, I see electrical hand driers, which clearly replace the job of transporting and stocking paper hand towels. Postal sorting machines have replaced most postal clerks who sort mail. Automated banking kiosks replace tellers, as other vending machines provide 24×7 service in place of retail clerks.

The largest job elimination trend, which particularly comes into play at this time of year, is the substitution of online shopping for retail purchases. In past years, my wife frantically traveled from store to store to buy Christmas gifts. Today, she sits with her computer and orders everything online. While the merchants that deliver in response to online orders certainly employ people, fewer people are needed for online transactions, compared with their retail counterparts.

In essence, the labor union and “living wage” movements, whether they want to acknowledge this or not, are hastening the elimination of the jobs they are trying to protect and enhance. They will win for a few years, but eventually the desire for consumers to get the highest level of convenience and value at the lowest cost will override the desire to protect someone else’s overpaid job.  However, the people who need a "living wage" to reduce deep financial stresses in their lives are flesh-and-blood human beings that union leaders and other advocates know and care about.

Anecdotes about sympathetic people drive advocacy and the laws and regulations that respond to that advocacy.  We have to empathize with individuals going through adversity, but we have to keep in mind the many more people who will be adversely affected if we try to solve the problem of those we know and are trying to help.