When we think of the phrase “the American dream,” we think about a belief that everyone has a fair chance to better themselves, to get a free education, to land a job that provides them the means to be self-supporting and live in a good home. Behind the phrase is an assumption of fairness and opportunity, of earning good wages for your work and knowing you can take care of yourself, your family, and your old age.
That “dream” is slipping away. To understand why, read this important essay-review by economist Robert Kuttner in the “Néw York Review of Books.” It is a review of two books that helps explain the profound transformation of work in our time.
One of the books is by David Weil: “The Fissured Workplace: Why Work Became So Bad For So Many and What Can Be Done to Improve It.” The other is by Eileen Appelbaum and Rosemary Batt: “Private Equity at Work: When Wall Street Manages Main Street.”
Kuttner describes a new system in which employers outsource work to contractors, keeping a close watch on the quality of the product but taking little or no responsibility for salaries and working conditions. He gives two examples for starters: the treatment of workers building NYU’s satellite campus in Abu Dhabi, and the factory fire in Bangladesh that killed more than. 1,100 workers producing luxury items for wealthy consumers.
“The same system of outsourced employment increasingly operates at home. In the past generation, there has been a drastic change in how work is organized. Regular payroll employment is becoming the exception. The employer of record is no longer the corporation, but a web of intermediaries. The outside contractor demands stringent worker performance, even as it drives down wages, job security, and benefits….
“This system, which began in peripheral occupations such as janitors or security guards, has become pervasive. FedEx workers wear the company’s uniforms, drive its trucks, and adhere to stringent rules; but they are independent contractors, not company employees. At many leading hotels, room cleaners and desk clerks actually work for management companies, not for Marriott or Hilton. The technician sent by Comcast to fix your cable may well be a freelancer, not an employee. When you go into a government building, the receptionist/guard is likely not a civil servant, but the low-wage hire of a security firm.”
At this point, the rest of the essay unfortunately goes behind a paywall. You might find it worthwhile to subscribe (a one-week online subscription is only $4.99). I have the print edition, and I will quote a bit more.
“The new system frees corporations from the obligations of a tacit social compact in which employees’ loyalty is reciprocated, companies have an incentive to invest in workers, and people can look forward to predictable careers. Moreover, the entire structure of workers protections and benefits legislated beginning in the New Deal is predicated on the assumption that the employee is on the payroll of the company that makes the product. A casual worker has fewer rights, and those that carry over are harder to enforce. A contract workers or temp pays his or her own Social Security taxes, can seldom collect unemployment compensation, rarely receives company-provided health insurance or pension benefits, and has scant opportunity to organize or join a union.”
In the current economy, inequality of income and wealth grows, and at the same time there is a disconnect between productivity and earnings “because it allows corporations to batter down labor costs–people’s paychecks.”
“In explaining inequality, many economists emphasize the importance of education and technology, contending that widening gaps reflect shifts in the demands for skills and the failure of America’s educational system. Yet the old postwar social compact calling for far greater equality was respected at a time when most Americans did not go to college and many factory workers had not completed high school. Since 1980, college graduation rates have soared yet inequality has increased. Generally, it has widened among college graduates, not just between those with college degrees and those with only high school diplomas or less.”
Kuttner says that the new economy represents a shift of political power. Employers have been trying for over a century to lower labor costs. In this new era, with unions having lost numbers and political power, employers find it easier to outsource and replace workers with temps. Financial deregulation, he says, set off the latest round of work degradation. The second book he reviews “explains how the business strategies of these [private equity] investment companies logically destroy and degrade jobs, not for economic efficiency or better management but to transfer wealth from workers to financial profiteers.”
Private equity is, he says, “a sly rebranding of what used to be called leverage buyouts (LBOs), or more coarsely, corporate raids….Contrary to the industry’s claims about being experts in turning companies from losers to winners, private equity typically targets healthy companies rather than underperforming ones, the better to extract cash reserves. Having loaded the balance sheet of the company with debt–debt incurred in the purchase of that very company–they hire managers to run as lean and ruthless an operation as possible. They borrow even more money to pay themselves ‘special dividends,’ to recoup their initial small equity outlay many times over even if the operating company goes broke. The big losers in this game are the company’s workers….
Since the general partners of private equity firms make such outsized returns, investors want a piece of that action. But Applebaum and Batt cite data showing that most of the returns to limited partners do not beat the performance of the S&P 500. Even more peculiar is the fact that some 35 percent of the investment capital put up by limited partners comes from pension funds–which represent the deferred wages of workers. So workers’ own funds become part of the financial system that drives down workers’ wages and often plunders other pension systems.”
“For reasons unrelated to education or technology, a great many jobs can be configured either as casual labor or as normal payroll employment. In many states, for example, home health aides are individual contractors with low wages and insecure employment to match. But in states with strong unions, such as California, home health aides have won the right to form bargaining units and are compensated as payroll employees. Warehouse workers for Walmart are hired and employed by logistics contractors; they are low-paid and subject to arbitrary dismissal. Elsewhere, however, many warehouse workers are salaried employees and receive middle-class compensation….The general trend to lower-paid work has little to do with education, technology, or management ‘efficiency.’ It is a pure transfer from labor to capital.”
The best way to halt job degrading is, one, to enforce the laws on the books; and two, to strengthen workers’ rights to join unions, “since unions remain the best defense against gratuitous job job-degrading.”
When you think about education “reform” in the context of job-degrading and rising inequality, the pieces begin to fit together with the larger transformation of our economy to the highest levels of inequality since the age of the Robber Barons.