Corporate America has a major over-efficiency problem

When President Biden signed a new law last week requiring railroad employees to accept contracts that railroads and unions had negotiated in September, it ended—at least for now—the threat of a strike that could have done massive damage to supply chains across the country and cost the U.S. economy $2 billion a day. But what the new law won’t change is the underlying problem that had rail workers ready to go to the picket lines: Corporate America’s quest to run their operations so lean that employees don’t even have time to get sick. 

Indeed, the concrete cause of the railroad labor dispute was that rail employees wanted to get seven paid sick days a year, as opposed to the zero paid sick days they currently get. (In fact, until now, they haven’t gotten any unpaid sick days, either.) That’s the product of what you might call the cult of efficiency, which American railroads have become devotees of over the past two decades, embarking on a quest to wring costs out of their businesses. They now run longer trains, because one long train is cheaper to operate than two shorter ones. They’ve implemented what’s called Precision Scheduling Railroading, which has streamlined their operations and reduced the amount of time trains spend in the yard. And they’ve shed employees—since 2016, the number of rail workers has declined by more than 25%, in part due to attrition and in part due to job cuts.

The result of all this is that railroads are far more cost-efficient than they once were: According to a report on the dispute from Biden’s Presidential Emergency Board, this year, they’ll do 97% of the volume they were doing before the pandemic, but with just 81% of the staff. And they’re far more profitable—Bloomberg found that Union Pacific alone returned more than $41 billion to shareholders in the form of dividends and stock buybacks from 2017 to 2021. 

That sounds great, of course—the railroads are doing more with less, and boosting profits. But in the process, they’ve made the system as a whole more fragile, and they’ve dramatically increased the strain on rail workers, who are now expected to be, in essence, on call all the time. The reason the railroads held the line at giving employees seven paid sick days off wasn’t just the cost—which they estimate at around $700 million a year. It’s also that their operations are running so lean that the unexpected absence of even a small number of employees can throw the whole system into chaos.

It isn’t just the railroads, either. You can see the same phenomenon in the airline industry, where job cuts and attrition have left the airlines with almost no cushion when things go wrong, even if what’s going wrong is as predictable as bad weather. That’s part of why air travel this summer was such an incredible mess, with thousands of flights sometimes canceled on a single day. Airlines once had reserve pilots they could put in a plane if weather stranded the assigned pilots in another city, and they had more mechanics and ground crew they could call on to fill unexpected holes. That’s no longer true, which is why you sometimes find yourself waiting for hours at the boarding gate for your flight crew to arrive, even as the plane you’re waiting to board sits out on the tarmac.

Less dramatically, you can see similar issues in places like retail stores and fast-food outlets, where schedule unpredictability (companies like to call it “flexibility”) is more the rule than the exception, and employees are often expected to be able to remake their schedules at a few hours’ notice. And while it’s true that some of the understaffing these days is the result of a decline in the number of people willing to work these jobs, that, in turn, has something to do with the fact that these jobs are more tightly scheduled and have less flexibility than they once did. 

Efficiency, to be sure, is a good thing—we want corporations to be looking for ways to be more productive. And there’s no question that industries like rail and the airlines were once overstaffed; for a long time, for instance, the airlines’ contracts with their unions required them to have three pilots in the cockpit, even though the planes were designed to be flown with two. (Airlines are now pushing to be able to fly with just one pilot.) But in the relentless quest for efficiency, companies risk cutting not just fat, but also muscle.

More important, even if running as lean as possible is good for investors, it comes at the expense of customers and employees. When thousands of flights are canceled, disrupting people’s vacations and travel plans, that has a relatively small impact on the airlines’ bottom line. But it has a big impact on the people flying. As for the railroads, the only way Precision Scheduled Railroading works, given the level of staffing at these companies, is by requiring employees to give up nearly all control of their everyday lives. To be sure, the employees are now paid better—the new contract provides for a raise of 24% over four years. But in exchange, they need to be permanently on call.

There is, of course, an obvious solution to this problem—hire more people. It doesn’t even necessarily need to be a lot of new people. It just needs to be enough to build some degree of resilience and redundancy into the system. “Redundancy” sounds like a bad word—no one wants to be redundant. But it’s a valuable thing in a system, because it shrinks the possibility that a few small problems can cascade, bringing everything to a halt. And it makes the lives of the people working that system a little easier. No one wants the railroads or airlines to get fat again. But adding a little cushion wouldn’t hurt.