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The Price of Profits

Why careers are gone, and jobs are going next

Sarah Gardner Jun 17, 2016
Car makers, both U.S. and foreign, rely partly on temporary workers in their U.S. assembly plants. Brian Gammey, Korisa Warlick and Steven Ferguson were hired as contract labor at the Nissan assembly plant in Smyrna, Tennessee. They now work union jobs at a GM plant. Hayley Hershman
The Price of Profits

Why careers are gone, and jobs are going next

Sarah Gardner Jun 17, 2016
Car makers, both U.S. and foreign, rely partly on temporary workers in their U.S. assembly plants. Brian Gammey, Korisa Warlick and Steven Ferguson were hired as contract labor at the Nissan assembly plant in Smyrna, Tennessee. They now work union jobs at a GM plant. Hayley Hershman

The days of lifetime employment and a gold watch at retirement are long gone, but the CEOs who engineered mass layoffs in the 1980s and ’90s might be shocked at just how tenuous our ties to employers have become.  

New research from Harvard economist Lawrence Katz and Princeton economist Alan Krueger suggests that all the net job growth in the last decade is in “alternative work arrangements.” That includes temps, on-call and on-demand workers, contractors at companies, independent contractors and freelancers. Online “gig” work like Uber is a tiny slice of that. The chart below shows the percent of workers in alternative work arrangements, by industry.

“Most of this growth is the janitor who used to work for the auto company who now works for the janitorial services company,” Katz said. “Or the accountant who used to work for a larger firm now works for a temp agency. Or the reporter who used to work full time now is part time and a does a bunch of freelance to fill in their income.”

Visit any American city and you’ll encounter this growing workforce.

Take Greater Nashville. Aspiring musicians work gigs, musical and otherwise. Independent contractors and temps fill in or work on a project basis for companies, including corporate heavyweights like Nissan, HCA and Bridgestone. Temp agency workers, in fact, make up nearly 4 percent of the workforce in Tennessee, higher than the national average, according to Labor Department statistics. 

Randstad, the staffing agency, is the fifth-largest employer in the area, counting internal staff as well as placements. The city’s growing tech and hospitality industries supply plenty of freelance work to developers, marketers and other professionals.

Amy Walters, 41, is part of this growing independent workforce. She freelances for an online startup in Nashville called Gun.io, as in “hired gun.”  The company matches freelance software developers with business clients who want to outsource digital projects. Walters chose freelance work because she wanted a more flexible schedule. From a converted bedroom in her 1960s ranch house, she collaborates with developers across the world.

Walters doesn’t need much to do her job.

I need a laptop, I need a phone, I need an Internet connection.” she said.

Gun.io’s overhead is exceedingly low, too. Three people, including the 27-year-old CEO, run the online platform. Their tiny rented office space includes a few desks and computer equipment.

David Ledgerwood, 39, vice president of services, said the barriers to entry today are lower because of technology.

“You can really do professional business and run a really solid-looking shop on paper without having to have all  those trappings of Class A office space and all this business that just becomes very superfluous,” Ledgerwood said. “We do really important big business and we get to have a nice lifestyle and it doesn’t own us.  And I think that’s what we can give to people as freelancers.”

When mugginess and mosquitos are scarce, tech freelancer Amy Walters works from her backyard in the Bellevue section of Nashville.

Walters and her fellow freelancers are paid well — typically $100 an hour. But it’s part-time work, and some of them have other gigs as well, or perhaps a spouse with a full-time job, like Walters. Gun.io doesn’t pay benefits, and any career development is up to “the talent.” As long as they can keep up their skills, the thinking goes, they’ll have work.

But Walters said that getting laid off once from a full-time job — on 9/11 of all days — shook her.

 “So I think about financial future now or going forward, I mean how stable are any of us, really?”

Job stability hasn’t defined the American workplace for decades. Just ask anyone who has been escorted out by security in a mass layoff or whose factory moved offshore. In a global marketplace constantly upended by technology, companies are under unrelenting pressure to cut costs and maximize profits.

If companies can do business without permanent employees, they will. Technology and contractors make that easier every day, and companies are often rewarded for a lower headcount. 

The economist Gerald Davis, author of “The Vanishing American Corporation,” said investors often cheer layoffs.

“At minimum, Wall Street does not value having employees,” he said. “At maximum, you might be punished.”

Corporations have quietly been shedding permanent employees for years. Not just through offshoring and technology. American business farms out a surprising amount of work that used to be done in-house, from HR to IT, from marketing to maintenance. Witness the growth of the U.S. staffing industry, especially since the recession. The idea is to focus on “core competencies” and farm out the rest.

Jeffrey Pfeffer, a business professor at Stanford’s Graduate School of Business, said, “Employees impose overhead costs and burdens, and you have to fire them using some reasonable due process, and you have to pay benefits and social security and all this other stuff. And so it’s much cheaper to just get rid of them.”

Firms like Concept Technology Inc. in Nashville provide IT services for 250 companies and nonprofits in the area. The company’s website reads: “Outsource your IT Department.” 

Peter Cappelli, professor of management at the Wharton School, isn’t sure it’s always cheaper. But companies often operate by a rule of thumb that “employees are a bad thing because they’re a fixed cost,” he said. “And if we bring in a staffing company or temps or independent contractors, even though we’re paying them a lot, we’re getting this sort of flexibility.” 

Even physicians can be outsourced. Angeline Brunetto is an ER doctor and independent contractor at several HCA-owned hospitals in the Nashville area. She is paid an hourly wage by EmCare, a physician staffing firm.

Contingent workers are common in manufacturing. Steven Ferguson, 33, was a contract assembly line worker at the Nissan assembly plant in Smyrna, 23 miles outside Nashville. He helped build SUVs like the Rogue and the Pathfinder.

His employer was a staffing firm called Yates Services, which has supplied Nissan with thousands of temps since the recession ended. When Yates hired Ferguson in 2011, he worked alongside regular Nissan employees doing the same job, but for roughly half the pay (starting at $13.25 an hour) and no guarantee of a permanent position.

Ferguson believes job insecurity sometimes prevented Yates workers from using the in-house clinic. He said they worried they would be sent home permanently.

“So there would be people that would work on the line or in the plant hurt or injured,” he said.

In an email, Nissan spokesman Parul Bajaj said employee safety was a “top priority” at the company.

“The company continuously strives to comply with all workplace safety laws and regulations while adhering to ‘best practice’ safety principles and values.”  

The Center for Automotive Research said Nissan’s total U.S.temporary staff may have been as high as 40 percent at one point. Nissan won’t comment on the numbers. 

“All production team members at Nissan’s U.S. plants are considered full-time headcount and receive good wages and a comprehensive package of benefits,” Bajaj said. Nissan said it has transitioned thousands of Yates workers to Nissan employees “and will continue to do so based on the needs of its business.”

But the needs of a business don’t always match the needs of workers. Ferguson did eventually get hired by Nissan through a transition program called Pathways. But others can stay contract workers for years. Another ex-Nissan contractor, Brian Gammey, said that when he returned home from serving in Iraq in 2010,  he was shocked that all he could get was fill-in and contract jobs. At one point he was working for three different temp firms.

“It seems to be an ever-growing trend in the job force that everything is temp, and it is really hard to actually get on with an actual company anymore,” Gammey said. “Even if you want to get a home loan, the bank looks at it and says, “Oh, well, you work for Yates Services. You’re a temporary employee. When are you going to get a real job?”

The business case for “hiring out” is easy to make. As market demands change, employers can quickly and cheaply staff up or down. They can access a staffing firm’s vast database of talent, rather than investing in their own, and move from one project to the next without lag time for training.

All this corporate efficiency lowers prices for consumers and raises profits for stockholders, but it often comes at the expense of workers. David Weil, head of the Labor Department’s Wage and Hour Division, said the outsourced economy exacerbates wage inequality.

“We have a lot of good economic studies that show this actually happens,” Weil said. “That the wages of a janitor who works as a contractor are significantly below those of the same janitor doing the same kind of job if it’s directly my employee.”

Weil described in “The Fissured Workplace” how various forms of outsourcing have affected wages and benefits, from the cable TV installer who works on contract at lower pay and no benefits while being treated like an employee, to the maid who works for a hotel that may be owned, operated and staffed by a dozen or more different companies. He argued all this subcontracting puts downward pressure on wages and benefits, and lets owners off the hook for working conditions. 

At worst, subcontractors violate labor laws to stay competitive.  

Diana Lopez, 28, was a housekeeper in a four-star hotel in Nashville. But she was employed by a hotel staffing agency, not the name on the marquee.

“There was quite a lot of pressure to work very fast, to clean the room in 20 or 25 minutes and have it be perfect,” Lopez told Marketplace.

Diana Lopez, 28, was hired by a subcontracting agency to clean rooms at a Nashville hotel. She earned $8.75 an hour and no benefits.

She said she was paid $8.75 an hour with no benefits. At one point, she said, she and her co-workers noticed hours and entire days missing from their paychecks.

Chuck Yezbak, an employee rights attorney in Nashville, said that in the world of low-wage subcontracting, “At some point it’s hard to get more efficiency. So they cut corners to get it. I’ve seen a lot of maids that work in hotels that don’t even make minimum wage. How can it happen? It happens because the employer will pay them a rate per room and the rate per room isn’t enough for them to earn minimum wage and often they won’t pay overtime.”

Lopez and her co-workers did recover their wages with the help of a workers’ rights group, and the Labor Department is trying to make companies more responsible for contracted workers.

Today both Ferguson and Gammey are working union jobs at the GM auto plant in Spring Hill, Tennessee. Korisa Warlick, another ex-Nissan contractor, is also working at GM. The 23-year-old mother of three said the job she has now is physically harder, but she feels more secure.

“I know if my son is sick, I can take a day off without having to worry about getting fired,” Warlick said. GM, by the way, also hires “temps,” but it’s subject to negotiation with the United Auto Workers. GM’s chief financial officer recently said that about 25 percent of GM’s workforce are short-term workers who are “truly variable” so the company could adjust quickly if demand fell.

Lawrence Katz, co-author of the study measuring “alternative work arrangements,” said offshoring, technology, regulation and “firms figuring out new ways to maximize shareholder value” have all eroded the job security that Americans once enjoyed. The mid-20th century may be an “outlier period,” Katz said. “I think we need to re-think labor laws, should independent contractors have the right to organize, how do you provide benefits to workers who don’t have a stable, single job. That’s what we really need to think about going forward,” he said. “We need a safety net and set of employer policies and regulations that allow people to have security but also be able to navigate a labor market where they may work at many jobs simultaneously or across their career.”

The Price of Profits,” our series with Business Insider, looks at what happens when profits become a company’s product. For more, visit priceofprofits.org.

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