Achyuta Adhvaryu on the economics of better workplaces

January 7, 2016

Michigan Ross Professor Achyuta Adhvaryu shows that it can be both ethical and profitable to consider production workers as more than labor expense.

What is positive business? It’s the idea that businesses can and should create not just economic value, but also offer great places to work, be good neighbors, and help solve some of the world’s biggest challenges.

How does that apply to business economics? For Michigan Ross Professor Achyuta Adhvaryu, it’s about countering the oft-held view that low-skill workers are little more than inputs into production — cogs in the machine of progress.

His research and work with garment suppliers in India has shown financial gains for companies that invest in programs that improve working conditions and address workers’ personal concerns. These programs are mutually beneficial — they improve employees’ quality of life, helping stabilize homes and neighborhoods, and positively impact firms’ bottom lines.

“Basic economic theory thinks of labor as merely an input in the firm’s production process,” says Adhvaryu, professor of business economics and public policy. “But anyone from the management field will tell you that you have to invest in people for optimal performance. What I hope to do with my work is show how employee assistance programs of various kinds can have real financial returns by reducing attrition and changing on-the-job performance, all while improving the lives of workers.”

You can learn more about this and other ways to apply positive business principles at the 2016 Positive Business Conference, where Adhvaryu will lead one of the workshops.

A big problem for mass producers of basic goods is astonishing turnover. Adhvaryu’s private-sector partner in research, a leading garment export firm in India, has an annual turnover rate of nearly 150 percent. Annual attrition rates of 350 percent are not uncommon in many industries with primarily low-skill workforces. That’s a big waste in terms of recruitment and training costs, as well as efficiency.

A substantial portion of turnover is explained by problems workers experience at work and at home. Poor working conditions, health issues, cultural constraints on female workers, and hostile supervisor-employee relations all contribute to high attrition rates.

And that’s precisely where the opportunities lay, Adhvaryu says. At some point, something has to give. So Adhvaryu studies the effectiveness of programs aimed at improving specific areas of worker welfare, carefully measuring impacts of these programs on turnover, efficiency, and profits.

Free life skills and time management training has helped lower stress for employees and improved efficiency and retention. Worker grievance programs that allow employees and managers to have open and honest discussions reduce tension and make workers feel less like a “cog in the machine.”

Another program Adhvaryu is studying helps workers from rural areas adjust to life in the city and jobs at factories, helping with financial and social adjustment. The vast majority of these workers eventually return to their villages, often despondently, and the hope is these programs help them navigate their new environment and thrive in their new jobs.

“We want to take our results to other garment firms and to other industries, and be able to demonstrate the direct benefits of the interventions we study,” he says. “The exact shape this programming takes in each context will vary, but in our studies we are seeing large rates of return going hand in hand with efforts to improve workers’ lives. It’s rare for those two to coincide, so when they do, we ought to do everything we can to spread the word.”

Learn more about positive business and how it can benefit you and your organization at the 2016 Positive Business Conference, May 12-13 at Michigan Ross. Registration is now open.

Reprinted from Ross Thought in Action