79. A Cheap Employee Is … a Cheap Employee

Paying workers as little as possible seems smart -- unless you can make more money by paying them more.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Stephen J. Dubner?

  Freakonomics Radio is sponsored by Southern New Hampshire University. There's no hiding how convenient Southern New Hampshire University makes college. They offer over 80 career-focused graduate programs online. Classes have no set meeting times, so you can balance life and learning, and online tuition rates are some of the lowest in the country, making it all a little more manageable. A school this willing to work with you is worth the investment. Visit SNHU.edu/freakonomics to learn more. Freakonomics Radio is sponsored by PNC Bank. Boring. Great word, bad rep. Yet, time and time again, here at Freakonomics, we find that when something culture-changing happens, boring things like calculations and careful planning are usually behind it.

• 0:46Stephen J. Dubner?

  Which begs the question, why not apply it to other aspects of life? Like banking, for example. Well, PNC Bank did, since its inception, proving time and again that the best banking strategy isn't the exciting type, but the steady, reliable, definitely-not-YOLO type. PNC Bank: Brilliantly Boring Since 1865. Brilliantly Boring Since 1865 is a registered mark of the PNC Financial Services Group, Inc. PNC Bank, National Association, Member FDIC. Freakonomics Radio is sponsored by Hotels.com. Hotels.com helps you find and book the right stay for work faster.

• 1:27Stephen J. Dubner?

  With business preferences, save your travel must-haves, like gym access or breakfast, just once, then get tailored results whenever you search for work travel. Plus, with a free membership, you can save up to 20% on hotels and earn rewards on every stay for future travel. Book now at hotels.com. Visit hotels.com for details.

• 1:53Stephen J. Dubner?

  Freakonomics Radio is sponsored by ChatGPT. ChatGPT Work is a new way to work in ChatGPT. ChatGPT Work can pull info from across your apps and connect to your tools to help you create finished work. You can even automate work in ChatGPT with the Scheduled Tasks feature, and the whole time, you stay in control. Put ChatGPT to work on your most ambitious ideas and projects. Get started at chatgpt.com by selecting Work Mode, available on Plus and Pro plans.

• 2:30Speaker 01

  From APM, American Public Media and WNYC,

• 2:36Speaker 01

  this is Freakonomics Radio on Marketplace. Here's the host of Marketplace, Kai Rizdal.

• 2:45Speaker 02

  Time now for a little Freakonomics Radio, that moment every couple of weeks where we talk to Stephen Dubner, the co-author of the books and the blog of the same name. It is the hidden side of everything. Dubner, how are you?

• 2:58Speaker 03

  Thank you for holding. Stephen Dubner is currently assisting other radio hosts.

• 3:03Speaker 02

  All right, first of all, you're two-time.

• 3:04Speaker 03

  Your call will be answered in the order it was received.

• 3:06Speaker 02

  All right, all right, come on, come on, come on, come on, come on.

• 3:08Stephen J. Dubner?

  Hello, Kai?

• 3:09Speaker 02

  Yes, what?

• 3:10Stephen J. Dubner?

  I am sorry for that inconvenience. I really do appreciate your patience. How can I help you today?

• 3:14Speaker 02

  Well, one, you can answer the dog on phone when I call. But what? What's your stick this week?

• 3:19Stephen J. Dubner?

  Well, Kai, as you may have guessed, our topic today is about customer service, how we are treated when we have some kind of, you know, retail experience.

• 3:26Speaker 02

  You, by the way, you give lousy customer service. Can we just say that right up front?

• 3:29Stephen J. Dubner?

  I am working on it. Thanks for the feedback. I do appreciate that. We started by asking our blog readers about their experiences with customer service, good or bad, mostly bad. Here's Eric Jones, a guy who found himself in one of those ridiculously long lines at the phone company.

• 3:46Speaker 04

  And remembering my life as a hippie in the 60s, I decided that the right way to do this, instead of throwing the phone display through the store window, was to simply lay down on the floor. And I did that, and I was astonished how well it worked.

• 4:01Speaker 02

  Occupy, uh, Ma Bell, right?

• 4:05Stephen J. Dubner?

  That's exactly right. Now, it's no dream scenario on the other side of the counter, as we know as well. So here's Jamie Krauthamel, who worked at a phone store in Charleston, South Carolina. She had to tell a customer that he couldn't return a bag of crushed phone parts.

• 4:22Speaker 05

  He pushed back from the table and pushed his stool out from under him and slammed his fist on the table and just started cursing. And then he threw the phone at me.

• 4:32Speaker 02

  People never cease to amaze me. But here's the thing about retail, right? I mean, it's all about low-wage jobs in pursuit of low-cost products that Americans buy until they don't want to buy them anymore, right?

• 4:43Stephen J. Dubner?

  That is the conventional wisdom.

• 4:44Speaker 02

  Yes.

• 4:45Stephen J. Dubner?

  But this wisdom may not be so wise, it turns out. All right, so Zeynep Ton teaches management at MIT's Sloan School. And she did a study that looked at successful low-cost retailers, like Costco, Trader Joe's, the QuickTrip convenience stores. And what she found is that these companies spent more on labor than their competitors, with higher wages and more money for training, and these companies were more profitable.

• 5:09Speaker 06

  If you pay your employees more, you attract a better group of employees and you retain them longer.

• 5:15Speaker 02

  Connect the dots for me here. If you pay people more, you make more money. How does that work?

• 5:19Stephen J. Dubner?

  Retail isn't necessarily a complicated enterprise, but there's a lot of room for things to go wrong when you hire the cheapest possible employees.

• 5:28Speaker 06

  When a retailer doesn't invest in its people, then execution at the store suffer. You often find products in the wrong locations, promotions not carried out on time or at all, or mistakes at the checkout. So these operational problems, what was surprising to me was how frequent these problems and how expensive these problems were.

• 5:49Speaker 02

  All right, well, Dubner, help me out here. If spending more money on labor is good for a company's bottom line, why aren't more companies doing it?

• 5:56Stephen J. Dubner?

  Well, because most retailers think of labor as purely a cost, as opposed to a way to make more money.

• 6:02Speaker 02

  Right.

• 6:03Stephen J. Dubner?

  And if you're trying to control costs, which every business is trying to do, one thing about cutting costs is that you immediately see it as a benefit to your bottom line. Whereas investing more on employees, well, that doesn't pay off until later.

• 6:16Speaker 02

  All right, let me ask you my customer service bugaboo. You know, you walk into a store, usually it's clothing, but it could be anything, and you're like accosted by, "Man, I'll help you," and this and that. And I'm like, "No, man, I just want to look around."

• 6:28Stephen J. Dubner?

  Yeah, well, I've got good news for you. That doesn't really seem to work. So, a recent survey of 75,000 people found that customers don't really care about all those niceties, okay? Here's Nick Toman, one of the authors of that study.

• 6:41Speaker 07

  The pleases, the thank yous, the flowery language, that didn't matter so much. Making things simply easy for customers, getting a question answered, returning an item, making the burden as low as we can on the customer, results in the greatest initial economic benefit for the company itself.

• 6:58Stephen J. Dubner?

  Now, Kai, let me add what I think is the most important point, okay? What you really want to do for retail is, oh, Kai, I'm gonna have to get back to you. Just hold on.

• 7:08Speaker 02

  Don't you get, oh, you know what? First of all, I don't like this music very much.

• 7:13Speaker 03

  Thank you for waiting. Your call is very important to us.

• 7:16Speaker 02

  No, it's not.

• 7:17Speaker 03

  Stephen Dubner will be with you in just a moment.

• 7:19Speaker 02

  No, he won't.

• 7:20Speaker 03

  This call may be recorded for quality assurance.

• 7:24Speaker 02

  Stephen Dubner, Freakonomics.com is the website. He may or may not be back in a couple of weeks, depending on, you know, customer service.

• 7:35Stephen J. Dubner?

  Coming up next week, another full-length podcast called Riding the Herd Mentality. It's about how we all respond to peer pressure, for better or worse, and how to use guilt and shame to improve the world with stories from Bogota, Columbia, West Texas, and the Petrified Forest National Park. And also, before we let you go, Freakonomics Radio needs your vote. We've been nominated as one of the top edutainment podcasts on iTunes. Now, I'll warn you, the competition is very stiff. We're up against Radiolab, which would probably get my vote, to be honest, and the TED Talks podcast, but if you're feeling charitable, you can go to the iTunes Facebook page and

• 8:18Stephen J. Dubner?

  cast your vote for Freakonomics Radio, or whatever else your conscience tells you. Thank you very much.

• 8:33Stephen J. Dubner?

  Freakonomics Radio is sponsored by EverPure. Is the value of AI not living up to the promise? The problem is probably your data, not your AI models. When it's scattered across different systems, getting your data AI-ready is a challenge. You keep your AI waiting and everything slows down. EverPure unifies your data so you can see it, understand it, and control it all from one simple place and get it AI-ready fast. Unlock the true value of your AI at everpuredata.com. Freakonomics Radio is sponsored by Ozempic. Innovation happens through rethinking what's possible, and when it comes to GLP-1s, Ozempic pill does just that.

• 9:15Stephen J. Dubner?

  Learn more about Ozempic semaglutide tablets, 4 and 9 milligrams, by calling 1-833-OZEMPIC or visit ozempic.com to view the medication guide and ask your doctor what's possible with FDA-approved Ozempic pill. Freakonomics Radio is sponsored by Southern Company. The world and its energy needs are always changing. Southern Company's commitment to meeting this demand stays the same. That's because Southern Company believes energy is more than a utility, it's what powers possibilities. So they are looking ahead and investing $80 billion in infrastructure upgrades and are committed to fueling growth in ways that benefit all customers so that reliable and

• 10:00Stephen J. Dubner?

  affordable energy is accessible for generations to come. Go to southerncompany.com to learn more. Southern Company, building the future of energy.

• 10:14Speaker 08

  This episode is brought to you by Charles Schwab. Is there a right time to sell a stock? Are you taking the right risks with your portfolio? Financial decisions can be tricky, and often your own cognitive and emotional biases can lead you astray. Financial Decoder, an original podcast from Charles Schwab, can help. Join host Mark Reapy as he offers practical solutions to help overcome the cognitive and emotional biases that may affect your investing decisions. Listen at schwab.com/financialdecoder.