Politics & Policy

Employer Paternalism: Making It Easy for the Risk-Averse to Say ‘Yes’ to a Job

(Everett Collection/Dreamstime)

The company town gets a bad rap. Tennessee Ernie Ford lamented that he owed his soul to the company store, and the abuses associated with company towns — artificially high rents on company housing, high prices at those company stores, the scrip system, effective debt bondage — are familiar features of folk economics.

The strange thing is that a great many workers liked — even loved — those company towns. Some of them were awful and exploitative, but many were at least partly philanthropic expressions of Progressive-era utopian idealism, “conscious capitalism” before its time. In the United Kingdom the Cadbury company, which was owned by a reformist Quaker family, founded Bourneville, a company town built with an eye toward helping Cadbury workers achieve a standard of living that they could not secure on their own, with high levels of municipal services, better public hygiene, tidy subsidized housing, recreational facilities, etc. — and no pubs. In the United States, the Pullman Company was famous/infamous for its company-town paternalism.

Many company towns were based on extractive businesses — oil, mining, timbering — and hence often were located in remote areas, which in turn created monopoly conditions for the companies that owned the towns. Monopolies are rarely good things, but keep in mind that the idea of a monopoly exercised in the public interest was a common feature of progressive thinking a century ago, as it is today. (Some people never learn.) To be sure, there was an ever-present element of self-interest on the part of employers, but there was also a belief, perhaps naïve, that this corporate-municipal paternalism could be part of a virtuous cycle — companies would invest in the well-being of their workers, those workers would be happier and more productive, the companies would grow more profitable and thus have more resources to invest in the happiness and moral uplift of their workers, and so on. You hear the same kind of arguments made today for mandatory-leave laws.

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Another feature of the company town, one that is relevant to our own time and condition, is that they made it very easy to say “Yes” to a job. If you were out of work, the promise of a steady wage, an affordable home with no embarrassing and stressful negotiations with a skeptical landlord, credit at the company store, and the basics of life at your fingertips often was alluring. Paternalistic employers encouraged religious and family life, healthful recreation, and self-improvement, while they discouraged drinking (especially drinking in dens of sin in which union organizers might congregate) and other vices, and smoothed over many of the small perplexing dilemmas and inconveniences of life. All you had to do was accept the terms of employment and be willing to do the work.

If that sounds a little bit like a labor-intensive version of college life today, that is no accident.

#share#Here’s a strange thing: In an era when attendance at a prestigious universities is an absolute obsession for the American upper class and aspirants to it, college recruiters routinely report that students from poor, low-resource communities, especially Hispanic students, turn down scholarships at prestigious institutions to attend less highly regarded colleges close to home. There’s a whole subgenre of higher-ed professional literature on the subject, which occasionally makes its way into popular discourse. Republicans often overgeneralize positive stereotypes about Latinos — that their being “family-oriented” makes them likely Republican prospects — but the fact is that Latinos, like many members of minority groups, women, and low-income people, tend to be risk-averse in certain important ways. They are hesitant to pack up, move across the country away from home, family, and social-support networks, to set up a new life from scratch in some remote college town or intimidating city.

With the basics of life taken care of, it’s a lot easier to say “Yes” to the opportunity. You get on the bus and you go.

College recruiters have responded to this in much the same way as those old company-town bosses did; for example, recruiters have told me that they have much better luck recruiting minority and low-income students when the offer includes campus housing and a meal plan rather than, say, a more generous scholarship or work-study arrangement that would allow students to live off-campus. With the basics of life taken care of, it’s a lot easier to say “Yes” to the opportunity. You get on the bus and you go. In my own experience working in educational nonprofits, I’ve seen anecdotal evidence of the same trend: It is a lot easier to recruit students for fellowships and internships that come with housing arrangements than for ones without that, even when the latter come with generous stipends and other benefits.

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Why does this matter? It matters because much of our thinking and debate about things like welfare and unemployment is dominated by the question of how we think people should behave, when we ought to be thinking more about how people do behave. If your interest is in moral posturing, then lecturing people who are on welfare and lingering on unemployment that they should be assertive self-starters willing to suck it up and take a new job in a new location in order to become self-sufficient citizens is enough; if you want to get people to actually change their lives, then you have to go beyond the homily.

Without getting too deeply into the psychological research, there are a great many things that we think of as character defects that probably are at least in part hardwired features of certain people’s brains, or at least practically ineradicable products of their experiences. In neither case are these features necessarily irrational: For example, given that women and African Americans were for many years excluded from or marginalized within the formal economy, is it any wonder that members of those groups are collectively less sunny about the prospects of free enterprise than white men are? Not really. It may be that they are wrong about the promises of capitalism, but they aren’t wrong unreasonably. The risk aversion referenced above is a real and knotty fact of life that our public-policy thinking has to take account of. So is the predominance of now-directed action rather than future-directed action in portions of our population, particularly among young men. Assuming that what we want — “we” here being not only conservatives, but practically everybody short of the full-Communism Left — is self-sufficient working families who if they rely on public assistance at all rely on it temporarily as a bridge from one state of self-sufficiency to the next, then we have to figure out ways to overcome that risk aversion and now-directedness or, even better, use it to our (and their) advantage.

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One way of doing this would be to radically change how we handle unemployment benefits. If you are unemployed in Texas, you can look forward to 26 weeks of benefits at something like (on the upper end) $400 to $450 a week. Even in the low-cost corners of Texas, that’s not a lot of money, and, given the structure of unemployment benefits, it’s always less than you were making before. You aren’t getting ahead: At best, you’re treading water, but you’re probably falling behind. The maximum 26-week benefit you could get in Texas would be (rounding down a little for the sake of simplicity) about $12,000, or about $460/week. On the one hand, that’s not very much money at all week to week; at the same time, that $12,000 in total is a lot of money to most households, and more than many working families have ever had in their bank accounts at once.

#share#The way we do things now, we essentially say: “Okay, buddy, here’s your $460 check. You have 25 weeks left, so you’d better get a job.” We could instead say: “Okay, buddy, here’s your $460 check. Your maximum remaining benefit is $11,540. If you get a job this week rather than collecting unemployment for the full 26-week period, we’ll give you 70 percent of what’s left, which is about $8,000.” For a significant number of lower-income households, that $8,000 would mean paying off all credit-card debt or owning their car free and clear. For most of them, it would more than cover the cost of relocating to a new place to take a new job. Of course, we’d have to be clever about the timing and structuring — we’d probably want to hold off on writing that big check until they’ve been in their new job for a year or more and deduct these payments from any future unemployment benefits — but putting a big fat bonus on getting off unemployment would put that now-directedness to work for us and for them, whether they appreciate the fact or not. Put the money on the table and people will start thinking real hard about what they have to do to get that check.

If we want people to take new jobs, then we should make it as easy as possible, and as attractive as possible, for people to take new jobs, including new jobs that require relocation.

We could also operate on the employer side of the relationship. Paying for a recruit’s relocation is compensation, and therefore is a deductible business expense. But except for big-money firms going after big-paycheck employees, most businesses won’t even have a discussion about paying relocation costs. Hiring managers will moan all day about how hard it is to find good people, but they refuse to go hunting where the ducks are. If a potentially good employee has been unemployed for a month or two, chances are excellent that his personal finances are not in terrific shape, and that the cost of putting a deposit on a new apartment, getting out of his current residential situation, and renting a U-Haul are going to be a real burden on him. If you knocked 7 percent off his offer and used that money to help relocate him, you might very well come out ahead. A really aggressive/paternalistic employer might even go so far as to rent a couple of modest apartments near the office and make them available to relocating employees, deducting the rent out of their paychecks. A super-paternalistic employer might even go so far as to mandate personal financial counseling for all employees and take steps to help them make good decisions. There are things that we could do through public policy to encourage that, too. Instead of making employee relocation an ordinary deductible expense, we could partially refund some of those costs, redirecting some of the money we might have spent on certain public benefits to employers who make them unnecessary. Even with all the caveats that leap to mind about creating perverse incentives and opportunities to game the system, there are better ways to spend the money we’d spend maintaining people in endless unemployment.

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Which is to say: If we want people to take new jobs, then we should make it as easy as possible, and as attractive as possible, for people to take new jobs, including new jobs that require relocation. We want to make the road to “Yes” as smooth and straight as possible. The worker is here, the job is there, and we want him to get on the bus. Sometimes, everybody will be better off if we pay the fare.

The cynical might say that this sounds like a plan to take people who are averse to change and risk and convert, on the relative cheap, their malingering on unemployment and welfare to stagnating in dead-end jobs. Even if that were the case, it still would represent an improvement. On the other hand, if we could keep some non-trivial share of those people on the verge of long-term unemployment in the habit of going to work every day, paying their bills, etc., then we have reason to hope that some portion of them will advance and thrive in their new positions, and that many of the others will at the very least achieve some sort of stability.

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But that’s going to be very difficult to do if government and the unemployed are the main actors while employers play only a minor role. The real challenge is getting employers to take a more assertive and, though we dare not say so aloud, paternalistic role when it comes to non-elite employees. As technological connectedness lowers employment-related transaction costs for high-end, high-skilled employees and employers both, a lot of what Ronald Coase wrote about in The Nature of the Firm is becoming less applicable at the rarefied end of the market: The entire concept of “having a job” means less and less every year to elite workers, who increasingly move from project to project and opportunity to opportunity rather than from job to job as such. For many elite software developers and financiers, and even for many people at the top end of the arts and cultural occupations, the idea of a 40-year career with one firm and a pension at the end of it is not only undesirable, but absurd. They neither need nor want employer paternalism.

But that’s not the case for a $40,000-a-year assistant manager of a food-distribution warehouse, who is in most cases going to be a lot less motivated by the prospect of thrilling intellectual challenges at work than by the increasingly frustrating quest for basic security and stability. Employers need both kinds of employees, but many of them neglect opportunities in the non-superstar end of the market. Part of that is economic, but part of it is cultural, too. There’s no reason why a commercial landlord in Wyoming shouldn’t recruit a new property manager from New Jersey and help him with the relocation, but we just don’t do very much of that. And maybe we should do more. Strangely, we do the opposite: The people who receive relocation assistance as part of their compensation are generally high earners who don’t really need it much and who could manage with no trouble without it; in these relationships, the relocating assistance (along with things like signing bonuses and the like) function mainly as a signaling mechanism, a way for employers to tell recruits that they are important and will be treated as such.

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There is reason to believe that many Americans, especially those of average to lower incomes, would welcome a degree of paternalistic intervention. We already have in effect a forced-savings program for American workers, except we call it a “tax refund.” We overtax workers, who in effect make interest-free loans to the federal government and then get excited when they get their own money back — with no interest, but in a lump sum. People like lump sums. That is not rational from a strictly economic point of view, but it is a genuine aspect of human economic behavior. Employers and government both have the opportunity to do something creative with that. And there are self-interested reasons to do so. Give an hourly employee a bonus equivalent to two weeks’ pay and you’ll see a very happy employee — even if that bonus was funded by paying him a bit less than you otherwise would have. One smart operator of my acquaintance, who is not famous for generous wages, socks away the equivalent of a small percentage of what he pays every employee and hands it out as severance pay. He does this even though he is not required to, and he does it whether the employee is leaving on good terms or on bad terms. This often amounts to six or seven months’ worth of compensation, which takes the sting out of it if you’re firing somebody and secures a great deal of good will when an employee is leaving to pursue more attractive opportunities elsewhere.  

Employers 100 years ago went out of their way to keep their workers away from whiskey, and they incurred some expenses in doing so. There aren’t very many companies today where a $28,000-a-year employee can walk into the human-resources office and say, “I want to do something about my credit-card debt,” or “I want to save up for a down payment on a house” and expect to get any real help. Changing that could do some real good.


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