Aurich Lawson / Getty
The future of work
View more stories
Until the 1980s, large companies in America tended to adopt a paternalistic approach to their workforce. Many company bosses were proud to take care of everyone who worked on their company premises. Company leaders liked to tell stories about someone who worked their way up from the post office to an office in the C-Suite.
However, this started to change in the 1980s. Wall Street investors have called for companies to focus more on maximizing shareholder returns. An emerging corporate orthodoxy believed that a company should focus on its "core competency" – the one or two functions that really differentiate it from other companies – and at the same time assign other functions to third parties.
Often companies found that they could save money this way. Large companies often pay above the market price for routine services such as cleaning offices, answering machines, staff in a cafeteria or work on the assembly line. By providing these services for competitive offerings, companies were able to perform these functions at rock-bottom prices while avoiding the hassle of managing employees. It also saved them from having to pay the same generous benefits that they offered to more highly qualified employees.
Of course, the things that made the new regulation attractive for large companies made it bad for the workers concerned. Not only did companies try to spend less money on these services, there were also companies in the middle that made a cut. Once a job was placed, it was much less likely that it would be a first step on the career ladder. It is difficult to work your way up from the post office if the post office is operated by a separate contractor.
An important question in the coming years will be whether the contraction trend continues to gain momentum – or whether opponents of practice can convince companies to stop it. For example, last year California passed AB 5, a law that makes it difficult for companies to classify their employees as independent contractors. Other states are considering following in California's footsteps. Proponents of labor rights hope that a mix of legislation, litigation, and awareness campaigns can convince companies to treat more of their workers as workers.
It will not be easy. Contract strategies save companies a lot of money and are deeply rooted in the corporate culture at this point. But nobody knows for sure whether there will be more and more shrinking in the future – or whether we will return to the more egalitarian jobs of the mid-20th century.
"This practice has brought the skill ladder further up"
A 2017 New York Times story illustrated how the contract trend affected ordinary workers. It compared the experience of a caretaker at Kodak in the early 1980s (a time when Kodak was considered a successful high-tech company) with that of an Apple caretaker in 2017. The caretaker's inflation-adjusted salary had remained roughly the same for over 35 years calculated Neil Irwin of the Times. But almost everything else about the job had changed.
As employees, Kodak caretakers enjoyed paid vacation time, tuition reimbursement, job security, and career opportunities within Kodak. Irwin introduced a woman who could work her way up from a janitorial job to a professional IT job.
In contrast, Irwin reported that Apple caretakers were employees of dedicated caretaker contractors who applied to clean Apple's offices. These employees received none of the benefits that an Apple employee had, no real job security, and no way to advance within the company.
Similar trends can be found in a variety of other industries. If you are staying at a branded hotel today, there is a good chance that the person who checks you in and the person who cleans your room does not work for the company whose name is on the building. If you're calling about a problem with your home internet service, you're probably talking to someone in a call center who is subcontracted. If a broadband technician comes to your home, that person is also likely to be a contractor.
"Many technology companies have solved this problem by not actually having the poorest paid workers as employees. They are outsourced. We can treat them differently because we don't really employ them. The person who cleans the bathroom is not exactly that The same kind of person. What I find offensive, but that's how it is done. "
And it's not just caretakers, housekeepers and call center employees. "This practice has continued to improve," author and Brandeis professor David Weil told me in an interview at the end of February. Nowadays, even many employees work for high-profile companies as contractors and not as full-time employees.
The shrinking trend has turned the American company into a two-tier economic system. If you're lucky enough to be hired as a Fortune 500 company, you can expect generous benefits, adequate job security, and significant work autonomy. Those who fail to work for one of the many subcontractors of these companies. That probably means poor benefits, precarious employment and few opportunities for advancement.
The existence of such a two-tier job is particularly ironic in Silicon Valley, a region proud of its egalitarian ethos. Former Google CEO, Eric Schmidt, made a remarkably honest assessment of the situation in a statement cited by author Chrystia Freeland in 2012.
"Many technology companies have solved this problem by not actually hiring the poorest paid workers. They are outsourced," said Schmidt. "We can treat them differently because we don't really hire them. The person who cleans the bathroom is not exactly the same person. What I find offensive, but that's how it is done."