December 20, 2001

Harvard Gets A Labor Lesson

By DAVID WESSEL, The Wall Street Journal

Harvard University turned its formidable intellectual weaponry on itself this week, and produced a penetrating account of how one American employer cut wages of its most poorly paid workers during a decade of prosperity.

To persuade students to end a sit-in last spring, the university created a committee and commissioned a report, issued Wednesday, that resembles one of the case studies for which its business school is famous. With the careful hand of Harvard labor economist Lawrence Katz, the committee report meticulously documents how "outsourcing has been used to undercut pay set forth in collective bargaining at Harvard," much as it has elsewhere.

Between 1994 and 2001, low-wage workers elsewhere finally got raises, Boston-area unemployment rates fell toward historic lows, Harvard's endowment tripled, and undergraduate fees rose 11% faster than inflation. Yet the university cut inflation-adjusted wages of custodians, food-service workers and guards, all of whom were represented by unions, by 10% to 15%.

Harvard did this because it could. Rich universities engage in endless introspection about whether they have an ethical duty to treat custodians any better than Marriott and General Electric do. But the report is interesting not because the Harvard that emerges is different, but because it's so similar to other employers.

American willingness to push down wages at the bottom of the ladder, which sets the U.S. apart from many other rich economies, has been drawing increasing criticism. One strain is the "living wage" movement in which Harvard students enlisted. It argues that universities and local governments ought to pay more than other businesses because it's the right thing.

Another strain argues: "You get what you pay for." It surfaced during the congressional debate over airport screeners. As Rep. Carolyn C. Kilpatrick, a Michigan Democrat, put it: "Current security contractors hire security personnel at minimum wages to provide the flying public minimum airline security." In this view, paying more is the smart thing. It reduces turnover, increases loyalty and produces a devotion to duty from which employers benefit.

Twenty years ago, each of Harvard's schools -- which operate as independent units -- had to buy cleaning, security and food services from a central monopoly that paid above-market wages and often provided lousy service. For the past decade, the units have been choosing freely between Harvard and outside vendors. The result, according to the committee Prof. Katz headed, is improved productivity and quality of service.

For workers, the dynamics varied by job. Unionized security guards were replaced by lower-paid nonunion guards, a familiar story. Custodians found themselves competing with custodians from outside cleaning services who were represented by the same big local of the Service Employees International Union. That was a double whammy. When the university began outsourcing, Harvard wages fell to the level paid outside. And the union, the leadership of which has since been replaced, served all its members poorly, failing to win pay increases for Boston-area janitors that kept pace with inflation at a time of very low unemployment.

Food-service workers in cafeterias sheltered from the market -- the ones for which students pay board charges whether they eat or not -- faced no outsourcing threat, and their wages didn't plunge. Most workers in cafeterias that compete with Harvard Square restaurants, however, were squeezed by outsourcing. Harvard's schools of government and law hired nonunion contractors and cut wages.

But, in an intriguing exception, Harvard's business school hired a contractor and agreed to pay the same wages paid to Harvard's in-house workers. It apparently concluded that the benefits of a stable, happy work force in its restaurant outweigh savings from lower wages. It clearly was a business judgment, not an ethical one: The business school had no problem cutting wages for custodians.

Thechallenge to the Harvard committee was to blend two forces: one, the widespread belief on campus -- though not in Harvard's administration -- that universities owe more to service workers than other businesses do and, two, the continued demand for better service and productivity that come with competition and outsourcing.

The headline news was the committee's call for Harvard to raise wages immediately. The more far-reaching recommendation was that the university embrace the business school's food-service model: Encourage competition and outsourcing to keep pressure on workers to improve productivity and service quality, but stop using outsourcing to undercut wages by requiring outside contractors to pay the same wage the university pays in-house, unionized workers.

For universities and other nonprofit employers, Harvard helps set norms of socially acceptable behavior. If it accepts the committee's recommendations, as is likely, other nonprofits will feel pressure do something similar.

Business employers, except those who face high-profile consumer boycotts, usually avoid ethical arguments about wages. They stick to what works. Maybe Harvard will have something to teach them in a few years.