Here’s the transcript of the CallTalk podcast of the same title with host, Bruce Belfiore of BenchmarkPortal.com, and guest, Mike Dershowitz, CEO and founder of Fair Trade Outsourcing, discussing the difference between living wages and market wages, and the human and political elements that push for a “living wage” compensation. Listen to the podcast below as you read the transcript.

[00:00:00:20] Intro

[00:20] Alan Hello everyone. I’m Alan Pottkotter and you’re listening to Call Talk for February 26, 2020. Today’s topic is Living Wage vs Market Wage: Pros, Cons, Whys & Hows for Contact Center Managers. If you’re listening live, we invite you be part of the show and ask questions. Here’s how you do it, email me at [email protected] I want to remind everyone that all of our shows are archived and available to listen to any time of the day at benchmarkportal.com. And now with that, I would like to introduce the host of the show, Bruce Belfiore.

[01:02] Bruce Thank you, Alan, and welcome back to Call Talk everyone. Today we again welcome Mike Dershowitz to the show. And Mike is a thinker, as well as a doer, and  has put a lot of spot into how employers and managers can create triple-win situations where frontline agents and supervisors are empowered and are provided with the skills and the pay to develop themselves and contribute to [stuttering] themselves and those connected with them, their own communities, etc. And where customers interact with employees, were motivated and energized, and where business results are very positive and proven by the metrics, so welcome back to the show, Mike.

[01:42] Mike Thanks, Bruce. It is great to be here.

[01:46] Bruce Okay, good. Well, alright. Our listeners may recall that in the previous episode, back in July 2018, you talked about “Fair Trade Outsourcing: Sustainable, Ethical, and Profitable.” And we discussed your novel approach to managing call centers for top results while creating social and economic impact. And our focus during that episode was on your outsourced contact operations in the Philippines. Do I just recall what we chatted about there and then we will dig into today’s topic.

[02:17] Mike Yeah, absolutely. So, we’ve developed this concept of Fair Trade Outsourcing and we’ve, you know, changed the name of the company to that, as well, to try and create this win-win-win for agents, clients, and operators, and/or call center managers. And the overall concept was very much influenced by the fair trade movement. The fair trade movement is one which really looks to say, “Hey, consumers need to care about what the lives of their producers are like.” Right? So if you’re buying chocolate, if you’re buying apparel, what’s the condition of the person making that, in that supply chain. And as an ethical and moral human being, how are you consuming those goods, or making sure that the goods that you consume is fair trade, that no one was really been harmed in making the goods that you consume. I was very much inspired by this in  2017 after experiences I had operating, you know, a center in the Philippines. And since really that… since that program, the concept itself has advanced quite rapidly but also, most importantly, we’ve really started to get a lot of really, really good data about how to more effectively and also, how to create some rules about what it means to be a fair trade operator in the contact center world. And that all starts with wages. Which is why, Bruce, when you reached out and said, “Hey, would you be interested to being back on, and if so, what would you like to talk about?” And I’m like, “Oh, let’s talk about wages.” Because whenever I introduced someone to the concept of fair trade outsourcing, it’s always about, “let’s start with wages.” Let’s understand why wages are important. Let’s understand how your current wage policy may be actually harming and not helping agents, etc. And so I’m very happy to be back, to really get into the nitty-gritty of that and to help managers understand how they can go from A, which is where they are now, to B.  And that is really focusing on the agent journey and how that’s going to positively impact your center.

[04:25] Bruce Okay, very good. And the idea that the Fair Trade concept is moved from goods, particularly things like coffee and cocoa, etcetera, to services, like call centers. It is really interesting, very interesting. I remember talking to a fellow, who was with one of the agencies that goes down and actually does the certification for Fair Trade with coffee in Central America and started talking through the practical elements of all that. So, it’s really, really interesting. So, we’re really delighted to have you back on, and today we’re really turning our attention to that living wage vs market wage: pros, cons, why, and hows for the contact center managers. And all about the market and corporate forces, because we got to be practical, right? Many people on the phone, some are entrepreneurs and can do it themselves, others are living within corporate constraints but they need to understand, so that they can advocate. You know, these things that push us to offer compensation based on market conditions and also understand the human and political elements that can push towards offering the living wage compensation. And really, this will… You know, we’re asking you to draw on your experiences managing centers in urban America and offshore sites, in particular. And we’re looking forward to hearing your opinion with regard to the $15 minimum wage. So, anyway, let’s start with the big picture. Give us sort of an overview of your thoughts on the topic, then we can drill down on, these management issues and approaches.

[06:05] Mike Absolutely. So, the overarching concept for the way I think that’s best for people to visualize how to get this to work right for their individual situations is, you know, I want you to think about, really, just that old x and y axis graph. Right, that old x and y axis graph. And then think about when you plot a point on an x and y axis graph. You know, the goal of wages in your contact center is to land at the right place for the type of work as well as the type of company that you are. Okay? That’s really it. So, let’s say x is work and the y-axis is the type of company. And, you know, your goal is to kind of land somewhere in the field where you’re going to be able to optimize for what your company’s trying to accomplish, okay? That’s the overall concept.

[07:02] Mike Now, let’s talk about a couple definitions, right. First off, what is a market wage? A market wage is exactly what it says, which is as a contact center manager, when you post a job opening, at a certain rate per hour. Let’s say, because most employees in the industry are hired per hour, at a certain per hour, you know, does the market respond? Does your local labor market respond? And it’s very easy to determine that. Do people come at the door to apply, or do they not? Right? And so, that’s the market wage. And it’s different all over the place. So, that’s the market wage. The living wage is something different. The living wage is based off of this concept of consumption. So, when economists look at wages, they always look at the labor market, and then they look at consumption. And they say, what level consumption is reasonable to sustain for a given geographic area and for a given family compensation. So, if I’m a single person, right. And I just have little to worry about. I have no children, I’m not married, I’m not living with someone, that’s a much different household than if I’m married with three kids, and so on and so forth. Obviously, most of us on the phone probably have kids, I know, I do. Kids are expensive.

[08:26] Bruce  [laughing] Kids are really expensive.

[08:28] Mike And so, really that living wage, tries to take into an account, what a minimum sustainable level of consumption is that afford someone what’s called a dignified or sustainable life. And one that is free from as much danger as possible. And, the two methods are extremely different. At times, they’re not super far apart. They’re really not. But the concepts are very different. And again, I’ll repeat. So, a market wage is I post a job for x dollars an hour, and it works or it doesn’t work, and when that person is hired to that, they can either do the job or not. The living wage says let me look at consumption. What is the minimum reasonable amount of consumption for someone to live a safe, dignified life and what is that cost. And that’s the big difference.

[09:26] Bruce And obviously, there is a huge difference. I have kids as well. Wrote the last check for a tuition last year for college.

[09:36] Mike [laughing] I’m so jealous. I’m so jealous.

[09:40] Bruce Exactly. You are looking forward to all that.

[09:43] Mike Yeah, yeah. Like, I don’t know if I could see that end well. Where all of these point, Bruce, I dunno man, where all of these lie. But go on. Go on.

[09:50] Bruce I think a lot of people on the phone could understand that every stage is wonderful in the development of this kids but everyone has its challenges and certainly it’s very expensive. You know, the idea of a living wage for somebody who’s single can be very different for somebody who’s married, etc. So what you aim toward, and is that, depends for instance, whether you are in a college town, and you’re basically bringing through a lot of people who are college students working part-time as opposed to perhaps in a semi-rural area where people need to work full-time, and if that might even impact your decision on where to site a call center. What are your thoughts on that? In other words, there’s a big range… maybe actually a smaller range between living wage and market wage than there is between living wage for somebody who’s single and living wage for somebody who’s married with children.

[10:54] Mike That’s right. So… and there is. In general, the living wage for a single person is… excuse me, the living wage for a person married with two children where the other spouse doesn’t work is typically twice the living wage for a single person. Roughly, about twice. In a two-income household with two children, the living wage for that person earning one of those two incomes is actually about 60% more than the single-person living wage. The challenge is, that nationally, in general, call center wages, starting call center wages, are below living wages. Okay, or, to continue the use of the same vernacular, starting call center market wages are typically below the living wage. Right, we see that in our research, we see that in our centers. Not always, but certainly, that is the trend.

[12:00] Bruce I’m going to ask two questions. What is the research that’s based on, because I think a lot of people are probably do a little bit of push back there, so that’s number one and then number two, I’ll just add in there… Given the tightening of the labor market, is that starting to change because of the fact that we’re on a full employment level. So one and then two.

[12:23] Mike So you wanted to take me basically to being my economist side. So fair warning, I’m probably like an economics professor over here sometimes. To answer your first question, there has been no official research within the call center industry to state what is the delta between living wages and market wages within the call center industry. The research that I am pointing to is a combination of work that we’ve looked up between the MIT living wage calculator, which you can find on Google Search. Great, great tool. In addition to that, the BLS, the Bureau of Labor Statistics and the data that they make available for the job category, customer service, within the varying economies around the country. So when you compare those two, in general, you’re going to find that the market wages in the call center industry are below. That’s how we do it. And then I have sort of anecdotal evidence of speaking to, whether it’s the companies that I’ve looked at acquiring, so I know what their wage structure is or friends I have in the industry. And I would ask, “What do you pay your agents?” because I want that anecdotal data. Maybe, that’s something that we should do, Bruce, together. We should commission a study on that or work on a study so that the industry has some good work… That’s actually a good idea. That’s the answer to your first question.

[14:01] Mike The answer to your second question, I think really has to do with, when it comes to what you should be paying. Well, that’s where the balancing act really comes up, right? We go back to that graph we talked about, x and y. The reality is that, in our industry, especially in an outsourced contact center. So I think contact center managers  that are internal versus contact center managers that are within an outsourced business that are in contract, they’re also going to have a different experience. So let me address folks like me first, those service providers providing call center services within a service contract. First off, those folks are going to have it the toughest, right? Because they have to pay for facilities, they have to pay for margin, their own margin, their own SGNA, and then what happen is that then they’re going to get out and try to be competitive in the market. And of course, there’s always downward pressure on price in order to capture business.

[15:02] Mike Those folks are going to have it the toughest, and so their position on the graph is going to be different. And their position on the living wage is going to be different than somebody who’s insourced. Somebody who’s insourced doesn’t have to pay a supplier’s margin. The same cost that they may pay on a per hour wage to an outsourcer, they may able to apply that same per dollar rate to an internal person and instantly that person is going to be earning four dollars an hour above the living wage, or something like that. So, in my experience, that’s typically, the decision of a manager’s individual context. And how they figure that out. That really is the meat of the  discussion. Because at the end of the day, we’re still in business. And even in our own centers. Even in our own centers, domestically. Our goal, we start somebody at the living wage where they are. So in Philadelphia, it’s $12.69/hr, that’s for a single person. Single-person living wage 2019 numbers from MIT calculator. Arizona, where we currently looking at putting a center in Arizona, $12.77, okay, so a little bit higher. We sort of look at it, and make a determination that way. The big difference in a Fair Trade model is that you commit to be a living wage employer. You will not go below that living wage. Okay?

[16:29] Mike Now, the challenge for any contact center manager, this kind of goes to what I like to call the “agent journey,” the challenge as a contact center manager is that somebody’s starting in that seat, that’s starting. What are you doing to get that person into either higher-level work, where they may be earning three or four dollars above the living wage while still being an individual contributor, still producing for a client, or how do you get them to be a supervisor or a manager. Because once you kind of get them and find pathways to get people into higher-level work, then you could start paying them at the living wage if they have kids. And we keep coming back to this concept of kids ’cause it makes a huge difference. It makes a huge difference in what the living wage is. So that to me is really how we start our evaluation. That’s kind of the ‘HOW’ we decide what wages to pay, and then I think to answer your question on, do contact center managers, do they care about single person vs family, and the answer is your goal should be the goal from single person to family. And that’s how we’ve set our goal to be. How many people can you get from single person to family, how are you changing so that you’ve got the room to make that move. And that’s where I would like to see us set.

[17:54] Bruce That’s great. So, what I’m taking away from this is that we’re still in somewhat speculative area in terms of all of this because it’s new, because you kind of spearheading this. This is a new road to hold, but it’s a fascinating one. One that should be, in fact, studied more and I’d be happy to talk to you more about that. It’s still so much speculative by there’s some stakes that are being put in the sand that can be actually utilized for analytical purposes to do and for those people who want to do what  you’re talking about. And the other thing is that there’s a kind of a layered evaluation on the situation. You gotta understand, are you a… If you’re an outsourcer, you’re in one situation. Basically, the career path is inside of the outsourcing operation and it’s a call center outsourcing operation. So, there’s a possibility to move people from being a front-line agent to a higher paid supervisor. But that’s somewhat limited. There’s some situations where it’s an in-house center and there’s numerous companies, a lot of companies, probably people in this call who used the call center position as an entry level to then spread people out among departments in the company. And where they may be able to take that step up and increase their wage levels. And so, that’s where they could be moving from a single-person level of compensation to a family level of compensation. Insurance companies being very typical of this, where you go from being a contact center agent to going across the way to helping out with adjustments, and all kinds of other things. So really fascinating, sort of analytical construct that you put together here. What are your other thoughts there while I might get my thoughts together for some treasure here.

[20:02] Mike You know, I want to go back to… I think the ‘how’ is incredibly important and I’m hoping we get some questions, so we can actually kind of mull on specific  examples, but I want to talk about the ‘how’ in the case of a captive company. So, what happens if the finance department’s coming to you saying ‘we need wage savings, we need wage savings’ within a call center. And how do you respond to that? In that particular case, I want listeners to think about sort of this, the straw that breaks the camel’s back. So, your site may be sited somewhere. Let’s say your site is sited in San Francisco. I don’t know of any call centers in downtown San Francisco, but let’s say you got a call center in downtown San Francisco. And–

[20:52] Bruce I know one!

[20:53] Mike Okay. Good. Well, I’d love to talk about… I think they have a lot of favorable economics they can take advantage of by moving offsite. In that case, really, what happens is that, once wages, once your finance department tells you to drop wages below a certain level, and it’s not necessarily the living wage but, you want to think of it as a living wage. Once that happens, what happen is that, you know, that wage level within your call center actually becomes a material risk to the contact center and then, depending on the contact center’s function, within the business to the business. Because what happens is that dropping a wage below that threshold to where the life of the agent becomes so economically insecure that they can no longer function in their job. You’re really sowing the seeds of significant problems within your operations. You really are. Does that make sense, Bruce?

[21:55] Bruce Absolutely. I mean, I’ve seen that in certain employment situations where people, this happens when new call centers will come in to an area and all of the sudden somebody who was a traditional employer who’s not offering the same wages is basically priced out. And expenses, the development of the community itself means the real estate prices are going up, everything is going up. So actually the cost of living goes up. And so the phenomenon that you’re talking about does happen, so the  agents both have their lives become less secure and they have the enticement of higher wages from the new entrant. So, absolutely! Now, it’s a very, very practical thing.

[22:41] Mike And the great part about that phenomenon, I want to add ’cause I think it’s important, is that the signal through the noise as to when that’s happening and really starts to be a problem is your attrition rate. If you make a wage change, or finance requests the wage change, or other types of changes to save costs, and your attrition rate goes up, well then you’ll have your answer. Right? And you know that there’s a link between how you’re endangering that person, how you’re economically endangering that person’s life, and your own operation. Because they’re just going to leave and search for something that’s actually sustainable and hopefully gets them on a path to a sustainable life.

[23:20] Bruce Right. They’re great, great points. And we’re going to go over Alan in a second because he got a couple of questions there, I think. But we were advising a  company, a very large Asian company with their call center in the United States and they found themselves in the situation where they were offering less than the prevailing rate but they needed to find some way to satisfy everybody inside the company. We actually came up with the way that people could earn themselves bonuses by becoming… by upskilling themselves and becoming more efficient with their calls while at the same time keeping up high quality and customer satisfaction which they had the technology to measure on a real-time… near real-time basis. And, so with somewhat sophisticated in terms of the dashboard we put together for them but it worked. So there are ways that you can do that and actually allows somebody to earn themselves the living wage that they need and still stay there and be happy about it. So, anyway… really, really  fascinating area. Mike, we’re going to have some more talking about this afterwards. But, Alan I know you got a couple of questions here, so why don’t we turn things over to you.

[24:37] Alan Yup. We got the first one here from James, and the question was, “I have just been given responsibilities for our operations in North America, Ireland, and India. Continents of problems in all of these locations. How do I harmonize my approach to wages among these areas?”

[24:55] Bruce First of all, congratulations to you James for getting that promotion. That’s a big responsibility. Over to Mike now to reply.

[25:06] Mike I go back to those two… I go back to the subject of this of this episode as well as to that core evaluation change, you’ve got to evaluate all three markets separately according to the living wage and the market wage and understand where your wages are in relationship to the two. A couple things to keep in mind. Number one: Do not rely for your North American operations, do not rely on national statistics. The American economy is diverse. It is vast. It’s so different regionally that you cannot rely on national statistics. Practically, you cannot do that in Canada either. So that’s cautionary tale number one.

[25:57] Mike Cautionary tale number two is for India. So for India, I want you James to look up the Global Living Wage Coalition. They’ve done amazing work. Based off on the work of two economists, two married economists, whose first names escape me but their last name is Anker. A-N-K-E-R. It’s called the Anker Methodology. And the Ankers developed a methodology for evaluating the living wage globally. And so, even within India, the call centers in Mumbai versus the second, third or even the fourth tier city, you’re going to have significant differences. So, the most important thing you got to do James, you got to get to that local market data. You gotta get to the local market data of all three of those economies, and you really got to get to the answer.

[26:47] Mike Once you do that, you could set a policy like we’ve done it that says we’re gonna pay the living wage.  That’s a global policy that we’ve done, James. The living wage, you know. We know what the living wage is in Ghana. We know what the living wage is in the two cities in the Philippines in which we operate. We know what the living wage is in Philadelphia and Arizona. We’re looking at Mexico. We know what the living wage is in these parts of Mexico, so the living wage is harmonious, really it is harmonious [inaudible 27:13] in whatever economy you dropped it into as long as you go and you get the data.

[27:22] Bruce That’s great. This is obviously the challenge of doing all these is [it] puts an added burden on the management, but it can also solve management problems. So, in a sense there’s the dual side… a dual sword side, if I could put it that way. On other hand, you make an ethical commitment but you’re also solving a practical business problem because you don’t want that high turnover. You don’t want that high attrition that Mike was talking about. So, those two actually, those two things come together.

[28:00] Mike Hopefully, it’s not a leap of faith for James. It’s not a leap of faith because ultimately – and this is the benefit – is that it’s completely defensible. When you root your computation policy in the economic reality of the economies in which you do business. Finance is gonna really have trouble pushing back… You know, they’re really gonna have trouble pushing back. And that’s why in the outsource industry, by the way, that’s why margins in the outsource industry are typically below ten percent. And when you see… I was just looking at a resume for an operations executive the other day and he was kind of, on his resume he was listing his accomplishments, and he was listing his accomplishments and says, “You know, I got two percent of profitability out of this center, I’ve got another four percent profitability out of that center.”

[28:53] Mike I’m like, that’s not a turnaround. I mean I’m sure he’s a competent person, that’s not a turn around. That’s not something where you’ve really stabilized and delivered real value to your business. You’ve done the best within what you’re handed but you’ve got to peel off that next layer of the onion. What really is the thing that could do the best for me and for my company. And at the end of the day, Bruce, this is what I love about the living wage, at the end of the day the living wage is about people’s lives because it’s consumption-based. It’s about how people live their lives and what is reasonable and what is not. What is moral, ethical, and what is not. And I tell you, Bruce, to take a little bit of a tangent here. It wasn’t until I started visiting, which I’ve been doing for about three years now. I started visiting my agents’ homes in the Philippines and now in Ghana. So I really got enough of my own kind of small sample set of data, to understand what a middle-class household looks like, what really a lower-income household looks like, what an abject poverty household looks like, and what a high-income household looks like. The beauty of the living wage is that it [inaudible 30:12] of the human issue. Really, the human aspect of our business. As a contact center manager, your job is to get performance from humans, from people. And so, how do you expect to do that if you don’t understand their lives, if you don’t understand how they’re living their lives? And that’s why it’s such a large component of the living wage. And I think James has got a lot more opportunities if he just took over, to make a real difference in his, I’m sure, hundreds and thousands of people’s lives, then he may know. So James thank you very much for that question and please feel free to reach out to me directly. I’d be happy to help in any way I can.

[30:59] Bruce Well said. Well said. Obviously, what are we here for, right? We’re here to make a difference in people’s lives and dealing it through our work and through the relationships that we form with the people we work with, this is so important. I think we got time for one more question. So, Alan do you have one there?

[31:18] Alan Yes, I have one here from Bryant. He’s asking, “We are in a city that wants a minimum wage over $15. We can’t pay that much. I feel powerless. Any advice?”

[31:33] Mike Move your center. Re-site your center. The local economics are just going to squeeze your business. You unfortunately have to make that type of radical change in order to capture economics that are actually sustainable for your business. And for what you trying to accomplish that’s unfortunately the only answer. Economics is like Math, two plus two always equals four unless you’re in some sort of alternate dimension or something. But I think the other thing not to be flipped to consider is simply, as an outsourcer, this is a big part of what I consider, of what I do. We get asked to give prices all the time. We offer XX, and somebody will come in and they’re like “we want x minus two or whatever.” Part of what fair trade is is that it has to be sustainable. It’s more damaging for… It’s actually better for the people in that instance. It’s really better to kind of send the people that are currently in that center that’s got above $15 an hour minimum wage, better to send them back out for the labor market to find sustainable work in their local economy with the skills they’ve accumulated in your business than it is to try and lower their wages and keep that center operating within that local economy. That’s just the economic facts. So, in that case, you’re almost doing more damage than good by trying to keep wages below the living wage. You got to move that center because it will be sustainable for the people that are there as opposed to the risk of surviving right now, which is unsustainable. And we faced it on our own business all the time. We will not take a contract where we can’t pay the living wage. We won’t. We won’t do it.

[33:28] Bruce Okay. Listen this has been great. Mike, great insights. A lot of forward thinking there that you’ve done. One thing I might add on here is that automation is going to become a factor in the discussion in what people do and what decisions they make going forward. But I think that the concepts that you put forward so nicely and clearly were very stimulating. We probably just touched the beginning of the iceberg. There’s a lot more to discuss here. We’ll do a third time, Mike, how’s that sound?

[34:03] Mike Love it. I love talking to you, so no problems at all. Happy to do it.

[34:06] Bruce Okay. Good, good. So thank you so much and Alan we’ll hand things back to you.

[34:16] Alan Thanks again to Mike Dershowitz and Bruce Belfiore for your great discussion on today’s show. Be sure to join us next month for another great show and look at our huge collection of archived shows and topics at benchmarkportal.com. Then click on Call Talk where you’ll find over ten seasons of this show. From all of us here at  Benchmark Portal, get those headsets steady and your fingers ready. This is Alan Pottkotter, signing out. Have a great day.

[34:45] Outro