I didn't know whether to laugh or cry as i read a story today from the front page of the Los Angeles Times about Ikea. Hats off to Nathaniel Popper for this story and to the Times for publishing it.
Of course, outsourcing to foreign countries to find the least expensive labor is not news. As my readers undoubtedly know U.S. companies, among others, have been moving capital to places like China for several decades where workers are paid extremely low wages to manufacture goods for both the U.S. public and other populations. A good book on this subject which I highly recommend is Alan Tonelson's "The Race to the Bottom" Westview Press 2002 which documents this process in detail and the negative consequences for labor forces in both the "developed" and "developing" nations of the world.
But i digress. Ikea, a famous Swedish company, which is the subject of this blog, has a long well-standing reputation as a good employer with high standards of employment. Its workforce in Sweden is entirely unionized and there is even a code of conduct know as IWAY which guarantees workers the right to organize and stipulates that all overtime be voluntary. In fact, in 2008 Ikea had the third highest reputation as a good company (right after Toyota and Google (of course, Toyota is no longer #1 but that's a blog for another day)) in the world according to Reputation Institute's Global Pulse 2008 (this reputation is built on 7 pillars from which a company can create a strategic platform for communicating with its stakeholders on the most relevant key performance indicators. These dimensions are: Products/Services, Innovation, Workplace, Citizenship, Governance, Leadership, and Performance). Ikea pays its workers in Sweden a minimum wage of $19/hr and a government mandated five weeks of paid vacation. No wonder they have a good reputation.
So what's the problem. It turns out that Ikea opened an enormous assembly plant in the U.S. in Danville, Va in 2008 with incentives from the state of Virginia in the amount of $12 million. And now, surprise-surprise, there are labor problems with complaints of racial discrimination, a union organizing campaign that is being fiercely opposed by management, and high levels of turnover from among the new employees who are complaining of eliminated raises, a frenzied work-pace and mandatory overtime. Danville employees start with an $8/hr wage with 12 vacation days (8 of the 12 days on days determined by the company).
Incidentally $8 is above the minimum for both Virginia and the U.S. where the minimum wage now is $7.25/hr. Oh yes, we should also keep in mind that 17% of the U.S. workforce has no paid vacation time (See Joe Robinson, Work to Live 2003). So thing could be worse.
But this is outsourcing coming home to roost. Here is this large international firm identifying the U.S. labor market as a place to invest its capital so that it can hire lower wage workers and make bigger profits. And why pick Virginia for their new plant? Perhaps its due, in part, to the fact that it is one of 22 states (mostly Southern) with "right to work" statutes which prohibit agreements between labor unions and employers making membership or payment of union dues or fees a condition of employment, either before or after hiring. Of course, the purpose of "right to work" laws is to weaken unions and lower wages (6.5% less on average in "right-to-work" states). And another consequence is that states with "right to work" laws according to the U.S. Dept of Labor in general have a higher rate of workplace fatalities (19 of the top 25 are right to work states). Metro Council Democrats Say No to Right to Work for Less
So no unions, anti-union laws, low wages, work intensification, few paid holidays, etc. etc. Is the U.S. becoming the new CHINA!