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American companies are suppressing wages for many workers

142 points| ColinFCodeChef | 8 years ago |mobile.nytimes.com | reply

92 comments

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[+] michaelbuckbee|8 years ago|reply
The linked article mentions outsourcing, but it was this other _fantastic_ article [1] on the structural issues of the current wage economy that really helped me understand just how different things are:

"Thirty years ago, she says, you could walk into any hotel in America and everyone in the building, from the cleaners to the security guards to the bartenders, was a direct hire, each worker on the same pay scale and enjoying the same benefits as everyone else. Today, they’re almost all indirect hires, employees of random, anonymous contracting companies: Laundry Inc., Rent-A-Guard Inc., Watery Margarita Inc. In 2015, the Government Accountability Office estimated that 40 percent of American workers were employed under some sort of “contingent” arrangement like this—from barbers to midwives to nuclear waste inspectors to symphony cellists. Since the downturn, the industry that has added the most jobs is not tech or retail or nursing. It is “temporary help services”—all the small, no-brand contractors who recruit workers and rent them out to bigger companies.

The effect of all this “domestic outsourcing”—and, let’s be honest, its actual purpose—is that workers get a lot less out of their jobs than they used to. One of Batt’s papers found that employees lose up to 40 percent of their salary when they’re “re-classified” as contractors. In 2013, the city of Memphis reportedly cut wages from $15 an hour to $10 after it fired its school bus drivers and forced them to reapply through a staffing agency. Some Walmart “lumpers,” the warehouse workers who carry boxes from trucks to shelves, have to show up every morning but only get paid if there’s enough work for them that day.

“This is what’s really driving wage inequality,” says David Weil, the former head of the Wage and Hour Division of the Department of Labor and the author of The Fissured Workplace. “By shifting tasks to contractors, companies pay a price for a service rather than wages for work. That means they don’t have to think about training, career advancement or benefit provision.”"

1 - http://highline.huffingtonpost.com/articles/en/poor-millenni...

[+] edraferi|8 years ago|reply
I hate this. I REALLY hate this. Creating a full-time workforce by cobbling together contractors is disgraceful. Sure, sometimes contracting makes sense, but replacing your core workforce with contractors just sucks.

Here are some reasons why:

1) loss of corporate identity / camaraderie

2) reduced working training & quality... and loss of control over how work it performed. If you retain control over work methods, they’re supposed to be employees

3) double downward pressure on wages as companies compete and then the contracting firm takes a cut. Pressure increases as subcontractors show up

4) subcontracting! You hire firms with no capabilities, which then hire subcontractors who hire people who know what they’re doing (maybe, see above). Why are these companies making profits? It should all go to the workers.

5) false flexibility. Your HR system might be painful, but good luck getting rid of a toxic contractor if they’re the cheapest person who can do the work. You can take your contract to a new company but they’ll hire the same people you already had.

Contracting obviously has its place - no firm can do everything- but staff replacement just sucks.

-

[+] OscarCunningham|8 years ago|reply
What is it, in particular, about contracting that allows businesses to pay the same people less? What can they do with the contracting that they couldn't do without it?

I think this:

>“By shifting tasks to contractors, companies pay a price for a service rather than wages for work. That means they don’t have to think about training, career advancement or benefit provision.”

was an attempt at explanation. But I don't see how it leads to lower wages.

[+] Cthulhu_|8 years ago|reply
The other crooked part about temps / contractors is that they're more expensive for the party hiring their services, but the employees earn less and have worse secondary terms; that extra money? Goes to the higher-ups.

Companies need to be incentivised to hire their own people again.

[+] _m8fo|8 years ago|reply
And why wouldn't they? It's time to bring back mechanisms, legal or otherwise, to prevent this from happening again. Usually the collective workforce of a company has significant leverage over a company, but with the advent of globalization, the "gig economy", and technological unemployment in some ways this leverage is harder to capitalize on, or even worse, nonexistent.

I don't know if there's any empirical proof for this, but like competition between companies, I think "competition" or tension between employees and employers for a given organization is also good for capitalism.

[+] vpmpaul|8 years ago|reply
Mechanisms legal or otherwise already exist. The problem is they "have no teeth" meaning the punishment is worth taking to get the benefit of the illegal action.

ie. Its illegal but worst case is we get fined 10% of what we will make anyway. Best case is we get away with it.

The other part is that they are not enforced due to the lack of resources to enforce them. Which again leads to the "have no teeth" since the laws are so broadly "interpreted" it can take years to pursue one case. This part is the hard part since it really is the crux of the problem and no one is working on it nor has any monetary incentive to do so.

There is not logically, morally, or non-exploitative business reason to have a non-compete for a minimum wage employee. Yet this case will probably drag out for at least 6 months if it is handled "expediently"

[+] baq|8 years ago|reply
yeah that's what unions are really about - to think about the employees for the employees good, where HR thinks about them for the good of the company. implementations of that idea are of varying quality which unfortunately gives them a bad rep.
[+] dlwdlw|8 years ago|reply
I think this is emergent behavior rather than something with a malicious source. Profit seeking is one reason but it could also be to remain competitive.

There are so many people in China and India (and allover the world but these 2 have the largest populations) that are smarter, more creative, and much more driven than us in the US that it's inevitable that we regress towards the median.

Our lifestyles are maintained primarily through moats dug a long time ago. However technology continues it flattening rampage making each human equally valuable by unlocking more and more of their potential. What was gated physically and socially is not so anymore due to the ubiquity of computers and the internet.

Ironically it's the executives making these decisions by seeing the equality in all humans. It's not that they can't reduce their own salaries and bonuses but if there are willing and driven people, by denying them they are basically giving charity to the "middle class" that expects them to do so without a thanks. In this situation it's the middle class demanding more without seeing that they are actually asking for charity that results in a schism between the ideal and reality and all the dehumanization that comes with it.

[+] Spooky23|8 years ago|reply
All of the major unions have been broken, with the public sector unions coming up next re: the Janus case.

Even though there was always a limited number of union workers, their collective bargaining set the standard. That’s not really a factor these days.

[+] randomdata|8 years ago|reply
Interestingly, unionization in Canada is still as strong as the strongest years in the US. Despite that, wages are every bit as stagnant as the US and, looking at income data, there is a lot of mirroring between the two countries. The substantial decline of unionization in the US is one thing, but what is Canada doing wrong?
[+] mrkstu|8 years ago|reply
The problem with public sector unions are that they are a reverse monopsony. They collude with politicians to elect those who are willing to ignore economic reality and pay unsustainable wages/pensions/benefits[0].

Looking at places like Connecticut/Illinois/New Jersey it is causing starvation of public services to meet pension obligations despite already high taxation.

They are caught in a trap since if they raise taxes further (and/or decrease services) they will lose those most capable of moving- who also happen to pay the most taxes. This is already starting to play out[1].

Private sector unions are tasting the fruits of their corruption via the mafia and general unwillingness to integrate with long term industry needs, ala the German model.

Its incredibly unfortunate, since a modern, ethical and foresightful private union would serve the greater good of the country better than just about anything else I can think of.

0: https://www.forbes.com/sites/adammillsap/2016/06/01/public-p...

1: http://www.courant.com/opinion/editorials/hc-ed-tax-migratio...

[+] expertentipp|8 years ago|reply
Post-contractual non-compete without any compensation. It’s starting to be a thing even in EU. 5-10 years ago I could sign an employment contract blindfolded, now it’s a freaking minefield where in couple of years I can end up without a job, unemployable, and owning multiple monthly salaries to the employer. We have too many bored lawyers.
[+] mindvirus|8 years ago|reply
For non competes, I wish the law was that companies could bench you, but they'd have to pay you 200% of your best comp of the past 5 years. I think it'd solve a ton of problems.
[+] baq|8 years ago|reply
amazingly california bans non-competes. another reason for silicon valley irreplicability.
[+] falcolas|8 years ago|reply
Worse, post-contractual IP assignment clauses are becoming more common as well. I ran into two the last time I was job shopping (out of 3 where it reached the offer phase).
[+] kyledrake|8 years ago|reply
Non-compete clauses are a pretty weird thing and I've seen them in contracts before. Definitely read up on them. I've refused to sign contracts with them before. They're totally unenforceable in California and a few other states.

https://wikipedia.org/wiki/Non-compete_clause

[+] jacknews|8 years ago|reply
In addition it seems to me that labor is not a free market, simply because there is no choice to not offer your labor, since you'd starve. In large parts of the world anyway, and globalization has brought them into the 'free' market.
[+] emodendroket|8 years ago|reply
Sarah Bagley in 1845:

> Whenever I raise the point that it is immoral to shut us up in a close room twelve hours a day in the most monotonous and tedious of employment, I am told that we have come to the mills voluntarily and we can leave when we will. Voluntary! Let us look a little at this remarkable form of human freedom. Do we from mere choice leave our fathers’ dwellings, the firesides where all of our friends, where too our earliest and fondest recollections cluster, for the factory and the Corporations boarding house? By what charm do these great companies immure human creatures in the bloom of youth and first glow of life within their mills, away from their homes and kindred? A slave too goes voluntarily to his task, but his will is in some manner quickened by the whip of the overseer.

> The whip which brings us to Lowell is NECESSITY. We must have money; a father’s debts are to be paid, an aged mother to be supported, a brother’s ambition to be aided, and so the factories are supplied. Is this to act from free will? When a man is starving he is compelled to pay his neighbor, who happens to have bread, the most exorbitant price for it, and his neighbor may appease his conscience, if conscience he chance to have, by the reflection that it is altogether a voluntary bargain. Is any one such a fool as to suppose that out of six thousand factory girls of Lowell, sixty would be there if they could help it? Everybody knows that it is necessity alone, in some form or other, that takes us to Lowell and keeps us there. Is this freedom? To my mind it is slavery quite as really as any in Turkey or Carolina. It matters little as to the fact of slavery, whether the slave be compelled to his task by the whip of the overseer or the wages of the Lowell Corporation. In either case it is not free will, leading the laborer to work, but an outward necessity that puts free will out of the question.

[+] tdb7893|8 years ago|reply
Food always seemed a pretty free market to me, even though it's necessary. I was taught that free market is more about competition and access to information while necessity of the product mainly affected price inelasticity but that was econ 101 so idk if it's entirely accurate.
[+] lettergram|8 years ago|reply
Free market means you're free to choose, where you work, what to buy, where to sell. Its not free from consequences. You can most definitely not provide your labor, go and start a self sustaining farm ( you probably only need 1 - 2 acres of land in the right location )
[+] justaman|8 years ago|reply
I think the labor market is free. If you choose not to offer your labor then you're not actually in the labor market are you?

Perhaps rather the market has become overly populated with workers and there isn't much choice in which opportunities you pursue.

[+] gaius|8 years ago|reply
a flagrant monopsonistic tactic that brought down the wrath of the Justice Department.

Wrath? It was barely a slap on the wrist or a mild scolding.

[+] zentiggr|8 years ago|reply
Describing it as wrath is in proportion to the overwhelming lack of action against corporate issues these days... so yes, slap on the wrist on an objective scale, but 'hey, look, they DID something!'
[+] CompelTechnic|8 years ago|reply
One thing I wonder- to what extent has the digitization of the job search process contributed to reduced wages? I can imagine several mechanisms that would cause this to reduce wage growth: 1. Widely available data on wages tends to introduce a lagging effect on wage inflation, because workers tend to look at data that is a least a couple of years old (imagine what pool of data is currently being used on glassdoor.com to create the salary estimate of that junior developer job you just looked at) 2. Recruiters have large amounts of data on current wages, and can negotiate from a greater position of power. 3. Recruiters have a larger pool of candidates to draw from and force to compete against eachother.
[+] swiley|8 years ago|reply
More like "widely available outdated data." Better (real time) access to data would help the situation, but the wording there makes it sound like you mean to say the opposite.

The affect of bad data on the labor market almost looks like the affect of fake news in politics doesn't it?

[+] emodendroket|8 years ago|reply
> For a long time, economists believed that labor-market monopsony rarely existed, at least outside old-fashioned company towns where a single factory employs most of the residents. But in recent decades, several compelling studies have revealed that monopsony is omnipresent. Professionals like doctors and nurses, workers in factories and meat processing plants, and sandwich makers and other low-skill workers earn far less — thousands of dollars less — than they would if employers did not dominate labor markets.

This is the most shocking part of the article for me. How could economists for years have denied something so plainly obvious?

[+] pixl97|8 years ago|reply
> How could economists for years have denied something so plainly obvious?

And this is why we are surprised every time the economy crashes, yet again.

[+] wfo|8 years ago|reply
Interesting the authors cite unionization as an effective protection against this in the past but do not recommend it as a remedy for the future. The problem with simply passing laws as they suggest is that those laws once in place will be opposed by everyone with power simultaneously and forever, with no powerful organized collective force to defend them it is just a matter of time until corporate power grinds them into dust.

Unions give actual power to workers (and are great at motivating them to vote according to their interests!) instead of just passing laws out of the goodness of our heart to protect them and hoping they last through billions of dollars in corporate bribes.

[+] matte_black|8 years ago|reply
Like global warming, this may be a problem that we are unable to do anything about except adapt. We need to lean into the gig economy, instead of pulling away.

What we need are mechanisms to ensure that there's always a constant and steady stream of gigs available for any person to work. Many of these gigs might not be full-time or part-time jobs but rather micro-jobs or micro-tasks, that some entity needs to have completed to fulfill some larger mission, which is irrelevant to the gig worker.

The requirements for completing a task could range from simply "Being a human" to "Specialized skills in a specific domain". Profiles for workers could contain all sorts of information that could help them find relevant work quickly and easily, consisting of things like education and trade skills to even body metrics and IQ if necessary. And of course workers can be rated based on previous work history to help them better find future jobs without needing to keep a resume.

A worker should not need to get anything more out of their job than payment for services rendered. Healthcare should be handled by the government, and vacation time is handled by whenever the worker doesn't feel like working.

[+] hiram112|8 years ago|reply
Corporate America has trained the plebs well.

Every time a discussion on unions or any sort of organization to "push back" against the big companies in just our own industry is met with a good 50% of HN readers dismissing the idea outright.

And even talking about cutting off the supply of H1Bs - or at least the body shops that probably aren't as prolific at the top companies which are overrepresented here - is flagged and downvoted in minutes.

It doesn't surprise me, given the age of the average HN reader. Once you have a family, house, and have experienced age discrimination at 40, you'll have different views, I'm guessing. Maybe even sooner for many here if the blatant discrimination of white and asian males gets more traction.

I guess the thing that is so disappointing to me about this industry is that we're supposed to be smarter than the rest. But we have completely ignored the history of this country and the battles that our predecessors fought.

[+] wfo|8 years ago|reply
Tech folks are incredibly smart on technical subjects. When it comes to politics, power dynamics, seeing through propaganda, empathy, we are not trained in or likely to be interested in any of these "softer" but very important issues at all and it shows. Why do you suspect there are so many Libertarians in tech? It is the quintessential political philosophy of a smart successful person who does not understand these issues.
[+] ManlyBread|8 years ago|reply
I am always amazed how many excuses and how many arguments are there when big businesses profit at the cost of the average Joe, but God forbid when a mere employee tries to do the same.

I see no reason to be "ethical" anymore when it comes to employment because I know that it will be one sided - in this case I will act purely in my own interest, just like the businesses do. There's zero reason to play the game where the other side gets to change rules at will and forces you to get along with it.

[+] internetman55|8 years ago|reply
I think software developers are dumber than average cause their skills are in such demand that they don't bother learning how to generate/use leverage like professionals in other niches do
[+] gaius|8 years ago|reply
Yep, this one has already been flagged
[+] turc1656|8 years ago|reply
No-poaching agreements are very clearly illegal and should have resulted in immediate charges being levied against a metric shit-ton of people as the only way that works with all these franchises is if many people are involved. The DOJ has formally acknowledged these practices are illegal and a serious violation of existing laws: https://www.justice.gov/atr/file/903511/download Well...it's been nearly 18 months since that announcement. Why haven't I seen a whole bunch of people get charged with felony antitrust violations, as per the DOJ's own statements about its intent to "proceed criminally against naked wage-fixing or no-poaching agreements"?

Where are the handcuffs?

[+] shady-lady|8 years ago|reply
Suppressing wages & over-working employees.

For salaried jobs in all companies, the only requirement for unpaid overtime should be responding to emergencies. So for engineering, this would mean always 40hr week unless dealing with out of hours production downtime.

There is way too much abuse happening(frequently implicitly).

[+] JustSomeNobody|8 years ago|reply
How utterly pathetic that a company like Jimmy Johns, whose employees probably make single digit per hour salaries, would do this[0]! This is just one more way the rich crap on the poor.

[0] I realize the article said they stopped, but I still can't help but be very upset about it.

[+] nukeop|8 years ago|reply
There was similar wage suppression (or should I say, wage theft scheme) in Silicon Valley until very recently. That's why the wages skyrocketed. If the scheme could be broken up in one industry, it can happen again in others.
[+] charmander_IRL|8 years ago|reply
Why are low skill non-competes bad? You can just lateral into another low skill job in an unrelated industry. It’s not as if you have a huge amount of human capital sunk into sandwich prep.
[+] zelon88|8 years ago|reply
It still causes the same problem. It limits the opportunities people have available to them. Lets say 5 Guys opens up shop right next to Subway and is offering $3 more per hour than Subway. With non-compete's at Subway, those workers would be stuck and there would be no onus on Subway to improve their wages or benefits.

Without the non-compete Subway workers would apply for work at 5 Guys, which would force Subway to become a more competitive employer.

No matter what rung of the ladder you're on, non-compete's hurt employees and benefit employers just as they were intended to do.

[+] kakarot|8 years ago|reply
It's often not that easy, and what if people don't want to change industries every time they lose their job?

If something like that became standard, it would be used as a tool to further divide our socioeconomic classes. Social pressures from friends, family, children, as well as economic pressures will force people into signing these non-compete contracts.

The issue is that, as a member of a overpopulated labor pool, a low-skilled worker has no bargaining power and so without bans on things like non-competes, corporations could walk all over their labor force. That is a social regression.

[+] karmajunkie|8 years ago|reply
Because low-skill isn't unskilled. Employers know that even in these jobs a modicum of experience gives an applicant a decided advantage in applying for new jobs, and not having it serves as a bar for employment which means that this underpaid labor also has to beat the cost of retraining, then likely accept a below-market training wage to get work.

At the same time these clauses reduce the number of potential employers for any given candidate, so any given employer has less incentive to meet a higher salary demand.

[+] JustSomeNobody|8 years ago|reply
When you go to lunch today, show the people making and serving your food the article and ask them if they'd like to be tied to a non-compete. Ask them if it would be easy to "just lateral into another low skill job in an unrelated industry."

It may be rather eye opening for you.

[+] kauffj|8 years ago|reply
The claim that sandwich-making is monopsonic seems dubious.

Statista has the largest employer at 12.7% market share and "Other" at 55%: https://www.statista.com/statistics/307965/market-share-of-f...

Research Gate has similar figures, though I believe this one is international: https://www.researchgate.net/figure/Market-Share-of-major-pl...

[+] karmajunkie|8 years ago|reply
The claim is not that it is intrinsically monopsonistic but becomes so through the use of non-compete clauses.