Is Your Workplace a Commodity?


Kyle T. Westra
Manager, Wiglaf Pricing

Published May 18, 2021

Fire Fast—Then What?

It is common advice for employers to react with decisiveness to a recession. Lay off those you need to quickly and firmly, both to scale back operations while demand is reduced and to reduce uncertainty for the remaining workers. Those still employed are not waiting for the other shoe to drop and can trust that their roles are seen as essential, at least for the time being. And the company as a whole will be better positioned to weather the storm financially – a prerequisite for anyone’s employment.

In fact, the majority of large U.S. companies held layoffs in 2020 due to the pandemic and its economic effects. The Washington Post found that “at least 27 of the 50 largest firms held layoffs [in 2020], collectively cutting more than 100,000 workers.” This included companies such as Boeing, Berkshire Hathaway, The Walt Disney Company, and Citigroup. As a group, these top 50 firms did quite well in 2020, with 45 of them still turning a profit despite the circumstances.

With the economic effects of the pandemic beginning to taper, many eyes are back on the labor market and whether employment will come roaring back. So far, the workforce recovery has been lackluster, with 8.2 million jobs left unrecovered.

There is concern from some business and government leaders that generous policy is creating a “worker shortage.” Others counter that suffering industries face a “wage shortage” in which simple economics tells us workers are not being offered enough compensation to want to fill undesirable jobs.

Commodity workplaces will find the current labor shortage more challenging than companies that can command a premium

Photo by kate.sade on Unsplash

66% of unemployed adults seriously considered changing their occupation or field of work thanks to the pandemic, according to research by Pew Research Center. That is substantially higher than what occurred under the Great Recession.

Another key difference is that, whereas the Great Recession hit relatively medium-wage construction and manufacturing jobs the hardest, the pandemic has decimated relatively low-wage leisure and hospitality positions. Many of the laid off or underemployed workers in the latter categories are looking for stabler, safer work and don’t plan on returning to their previous jobs.

The Importance of Trust

I mentioned trust; trust is a complicated phenomenon, especially when applied to employment and the workforce. While there are rules that govern much of the interactions and expectations between employees and employers, the role of trust must not be ignored.

Research demonstrates that high-trust workplaces outperform low-trust workplaces. At the least, lower trust means higher enforcement costs, and like any cost, that is a headwind for profitability. Companies can therefore increase their profitability by maintaining higher levels of trust.

Trust is also valuable for the economy as a whole; what’s true for one company is true for companies in aggregate. Steve Knack, a Lead Economist at the World Bank, suggests that “if you take a broad enough definition of trust, then it would explain basically all the difference between the per capita income of the United States and Somalia.” That would attribute trillions of dollars of value to trust at the level of the national economy.

Trust perhaps isn’t as important in low-skill, low-wage industries where work can be more transactional. But in high-skill, high-wage areas, workers expect (and can demand) more from their employers.

This comes into play when companies start rehiring after a recession, pandemic-fueled or not. Will workers once laid off want to return? Will new executives be enticed to join the company workforce? For companies in the knowledge economy, these matters are critical.

In pricing, a commodity is that which does not have differential benefits compared to the next best alternative. A commodity cannot command a price premium because it hasn’t given potential customers any reason to pay one.

Similarly, workplaces that are just like the next one over may find it hard to command any premium in the minds of potential employees. Once laid off from Citigroup, is there a compelling reason for an executive to return there versus joining Bank of America?

The fundamental question a manager has to confront then is whether their workplace is a commodity.

That will dictate whether employees see their work relationship as premium or merely transactional. Premiums may not be the least expensive in the short-term but demonstrate value long-term. I hope the corporations that chose to fire fast won’t come to regret their expediency.

About The Author

Kyle T. Westra is a Manager at Wiglaf Pricing. His areas of focus include pricing transformations, new product pricing, commercial policy, and pricing software. Most recently to Wiglaf Pricing, Kyle worked in project management, business systems analysis, and marketing analysis, starting his career in global strategy at a foreign policy think tank. He has extensive experience in ecommerce, sales strategy, economic analysis, and change management. His Amazon bestselling book about how technological trends are affecting pricing and commercial strategy is entitled The New Invisible Hand: Five Revolutions in the Digital Economy. Kyle is a Certified Pricing Professional (CPP). He holds an MBA with distinction from the Kellstadt Graduate School of Business at DePaul University and a BA in Political Science and Economics from Tufts University.