Tuesday, 9 January 2018
Forget automation. The workplace is already cracking up in profound ways, and Washington is sorely behind on dealing with it.
In 2013, Diana Borland and 129 of her colleagues filed into an auditorium at the University of Pittsburgh Medical Center. Borland had worked there for the past 13 years as a medical transcriptionist, typing up doctors’ audio recordings into written reports. The hospital occasionally held meetings in the auditorium, so it seemed like any other morning.
The news she heard came as a shock: A UPMC representative stood in front of the group and told them their jobs were being outsourced to a contractor in Massachusetts. The representative told them it wouldn’t be a big change, since the contractor, Nuance Communications, would rehire them all for the exact same position and the same hourly pay. There would just be a different name on their paychecks.
Borland soon learned that this wasn’t quite true. Nuance would pay her the same hourly rate—but for only the first three months. After that, she’d be paid according to her production, 6 cents for each line she transcribed. If she and her co-workers passed up the new offer, they couldn’t collect unemployment insurance, so Borland took the deal. But after the three-month transition period, her pay fell off a cliff. As a UPMC employee, she had earned $19 per hour, enough to support a solidly middle-class life. Her first paycheck at the per-line rate worked out to just $6.36 per hour—below the minimum wage.
“I thought they made a mistake,” she said. “But when I asked the company, they said, ‘That’s your paycheck.’”
Borland quit not long after. At the time, she was 48, with four kids ranging in age from 9 to 24. She referred to herself as retired and didn’t hold a job for the next two years. Her husband, a medical technician, told her that “you need to be well for your kids and me.” But early retirement didn’t work out. The family struggled financially. Two years ago, when the rival Allegheny General Hospital recruited her for a transcriptionist position, she took the job. To this day, she remains furious about UPMC’s treatment of her and her colleagues.
“The bottom line was UPMC was going to do what they were going to do,” she said. “They don’t care about what anybody thinks or how it affects any family.” UPMC, reached by email, said the outsourcing was a way to save the transcriptionists’ jobs as the demand for transcriptionists fell.
It worked out for her former employer: In the four years since the outsourcing, UPMC’s net income has more than doubled.
What happened to Borland and her co-workers may not be as dramatic as being replaced by a robot, or having your job exported to a customer service center in Bangalore. But it is part of a shift that may be even more historic and important—and has been largely ignored by lawmakers in Washington. Over the past two decades, the U.S. labor market has undergone a quiet transformation, as companies increasingly forgo full-time employees and fill positions with independent contractors, on-call workers or temps—what economists have called “alternative work arrangements” or the “contingent workforce.” Most Americans still work in traditional jobs, but these new arrangements are growing—and the pace appears to be picking up. From 2005 to 2015, according to the best available estimate, the number of people in alternative work arrangements grew by 9 million and now represents roughly 16 percent of all U.S. workers, while the number of traditional employees declined by 400,000. A perhaps more striking way to put it is that during those 10 years, all net job growth in the American economy has been in contingent jobs.
Around Washington, politicians often talk about this shift in terms of the so-called gig economy. But those startling numbers have little to do with the rise of Uber, TaskRabbit and other “disruptive” new-economy startups. Such firms actually make up a small share of the contingent workforce. The shift that came for Borland is part of something much deeper and longer, touching everything from janitors and housekeepers to lawyers and professors.
“This problem is not new,” said Senator Sherrod Brown of Ohio, one of the few lawmakers who has proposed a comprehensive plan on federal labor law reform. “But it’s being talked about as if it’s new.”
The repercussions go far beyond the wages and hours of individuals. In America, more than any other developed country, jobs are the basis for a whole suite of social guarantees meant to ensure a stable life. Workplace protections like the minimum wage and overtime, as well as key benefits like health insurance and pensions, are built on the basic assumption of a full-time job with an employer. As that relationship crumbles, millions of hardworking Americans find themselves ejected from that implicit pact. For many employees, their new status as “independent contractor” gives them no guarantee of earning the minimum wage or health insurance. For Borland, a new full-time job left her in the same chair but without a livable income.
In Washington, especially on Capitol Hill, there’s not much talk about this shift in the labor market, much less movement toward solutions. Lawmakers attend conference after conference on the “Future of Work” at which Republicans praise new companies like Uber and TaskRabbit for giving workers more flexibility in their jobs, and Democrats argue that those companies are simply finding new ways to skirt federal labor law. They all warn about automation and worry that robots could replace humans in the workplace. But there’s actually not much evidence that the future of work is going to be jobless. Instead, it’s likely to look like a new labor market in which millions of Americans have lost their job security and most of the benefits that accompanied work in the 20th century, with nothing to replace them.
The scale of the change, for many economists, clearly suggests that it’s time for Congress to rethink the social contract around work, updating it for the new relationship between employers and workers in the 21st century. Letting it slide further risks hamstringing the country with an outdated system that hurts both middle-class workers and, experts fear, the economy that depends on them. The shift is already well underway. What’s far less clear is whether Washington is paying any attention.
If anyone was in a position to help the federal government get its head around the problem, it was David Weil. A management professor at Boston University, Weil has spent the past few decades researching and documenting the changing nature of work, including informally advising the Bill Clinton administration on labor policy. In 2013, President Barack Obama nominated him to head the division at the Department of Labor that oversees the government’s laws on wages. He was confirmed by the Senate in April 2014.
When Weil looked at the landscape of American business, he saw a change that went beyond the traditional labor-employer power struggle. Instead, he saw a shift in management philosophy. “There was something bigger than just trying to outsource for the sake of lower labor costs, to get around unions, to get around labor laws,” he said in an interview last year. “All of that was true, but there was this larger theme of business organization restructuring that was going on. The more industries I looked at, the more commonly I saw that it was happening.”
The very first Washington failure he had to grapple with was the failure to measure the problem at all. There simply weren’t numbers to work with. Back in 1995, after early rumblings about outsourcing, the Department of Labor conducted a count of the contingent workforce in America. It followed it up with four surveys over the next 10 years. But under budget pressure, the department hasn’t run the survey since 2005. Officially, today, Washington has no idea how big the problem is.
Weil eventually did have some picture, though, because two economists decided to do it themselves. Lawrence Katz and Alan Krueger updated the count in 2015 by fielding a similar survey, funded with university research money, with a smaller sample size. Today, their data are acknowledged as the best measurement of the contingent workforce—they refer to it as “alternative work arrangements.” What they found was startling.
In some cases, the Katz-Krueger data confirmed what was already known about the labor market, such as that construction is a highly subcontracted industry; about a quarter of construction workers were contingent workers in 1995, a share that has stayed roughly constant over the past 20 years. But in many other industries, they found the curves had begun to bend sharply upward. Among “transportation and material moving workers,” a category that includes everything from taxi drivers to flight attendants, the share of contingent workers had doubled: In 2005, it was 9 percent; it was 18.2 percent by 2015. Among health care support workers like Diana Borland, it nearly doubled, from 9.5 percent to 17.9 percent. The share of food preparation workers in contingent work had quadrupled. And this trend wasn’t limited to blue-collar jobs: The rise in contingent work was as large for people with a bachelor’s degree as it was for those without a high school diploma.
It was also clear from the Katz-Krueger data that the shift to contingent work wasn’t driven by the rise of the sharing economy. Just 0.5 percent of workers are in the sharing economy, accounting for at most 10 percent of the labor market shift over the past 10 years. In other words, for all the concerns about Uber and other sharing economy companies using independent contractors to skirt state and federal labor laws, the shift toward these workplace arrangements predates those companies. They’re followers, not leaders.
When Weil considered how to address this, he focused on two separate but related factors in the rise in contingent work. The first was on one key question: How do companies classify their employees? From a policy perspective, worker classification is crucial. In the mid-20th century, the federal government developed a litany of workplace protections—minimum wage, overtime, collective bargaining, workplace safety, tax withholding, unemployment insurance, worker’s compensation—that apply to people only classified as employees. Even more importantly for many people, benefits like employer-sponsored health insurance and retirement saving plans are also administered by employers and are less accessible for independent contractors. As new benefits arise, they’re built on the same model. For instance, Republicans included a new credit in their 2017 tax bill that encourages companies to provide paid leave to their workers—a break that would apply to only employees, not independent contractors.
Congress didn’t create similar workplace protections for independent contractors because they were considered to effectively be their own small business, setting their own hours and responsibilities, providing their own benefits and determining their own economic outcomes. More independence came with fewer social protections, a trade-off that many Americans support. According to a 2015 Government Accountability Office report, independent contractors are slightly more likely to be satisfied with their jobs than full-time employees, and fewer than 10 percent said they would prefer a different type of employment.
Businesses prefer these arrangements, too, because they can shed expensive benefit packages and are not responsible for following federal labor laws. But that also gives them an incentive to “misclassify” their workers, overseeing them as if they were employees but officially classifying them as independent contractors to cut costs. Data on misclassification are limited, but state-level audits indicate that about 10 percent to 30 percent of American workers are currently misclassified. There are also some indications that misclassification is becoming more widespread. And even if independent contractors aren’t misclassified, they have less access to benefits and more job insecurity. The GAO study found that, compared with full-time employees, independent contractors are more than twice as likely to say that their benefits aren’t good and almost three times as likely to say that they will lose their job in the next year.
The second, and perhaps more important, trend that Weil focused on was the increasing number of Americans who aren’t classified as independent contractors but whose work has become less secure, such as on-call workers or workers whose jobs have been subcontracted out to third-party companies—often, like Borland, reporting to work at the exact same office. According to the Katz-Krueger data, the rise in contingent work is centered on these types of workers. Companies can save money by focusing on their core business, but a growing body of evidence indicates that it harms workers in myriad ways. According to the GAO study, these types of contingent workers are twice as likely as full-time employees to say they are “not at all” satisfied with their jobs; they earn considerably less per hour than their traditionally employed counterparts, even after controlling for characteristics like age, sex and education; and they work fewer hours per year and have far less access to workplace benefits, like health insurance and 401(k)s.
“[Companies] want to have their cake and eat it too,” said Weil, who refers to these shifts in the labor market as “fissuring.” In February 2014, not long before his confirmation to the DOL job, he had published “The Fissured Workplace,” a 410-page book that combines his research on the contingent workforce, an overview of the powers and resources at the Department of Labor and ideas for solving this problem. He argued that the fissuring of the workplace was bad for workers, undermining social protections and reducing wages. In 2015, in his federal job, he published an “administrator’s guidance” on how the agency intended to enforce its definition for whether a person is an employee or independent contractor, a six-part test about the control a company has over the worker and other economic factors. That document didn’t change the law, or carry any weight in court, but it effectively told companies that the agency was carefully watching them. Weil also revamped how the agency conducts enforcement, moving from a system that focused primarily on responding to complaints to one that launched its own investigations.
He tried to expand its enforcement resources as well. The Wage and Hour Division has a budget around $227 million, little money to enforce minimum wage and overtime rules for the entire country. Weil repeatedly asked Congress for an additional $50 million, much of the money, he hoped, going to hire up to 300 new investigators to reduce worker misclassification. He was rebuffed every year.
Weil’s argument that contingent workers are generally worse off in their new job arrangements is not universal. Many conservatives say the rise of the contingent workforce has positives as well as negatives, giving employers new flexibility and leading to lower prices for consumers. The business community pushed back on Weil’s efforts to strengthen enforcement, saying he went beyond his authority. “We shouldn’t be going and looking for ways to make the law to apply to situations that it wouldn’t otherwise,” said Paul DeCamp, who led the Wage and Hour Division during the Bush administration and now represents employers in federal labor law cases, “based on some normative view about what a business ought to do for a worker.”
Weil was a late-term appointee, and it’s tough to quantify his policies’ impact on contingent workers. As he cleared out his desk in January, President Donald Trump swept into office, promising to stick up for the forgotten workers and spur a new era of wage growth.
But with Obamacare repeal and tax reform dominating the agenda, Trump hasn’t spent much time on labor issues. His first nominee to head the Department of Labor was former fast-food executive Andrew Puzder, whose franchisees had racked up dozens of labor-law violations during his time at the company. (Puzder eventually withdrew from consideration after Politico uncovered a video of his ex-wife accusing him of abuse.) Trump’s second nominee, current Secretary Alexander Acosta, is a lawyer who so far hasn’t taken a clear position on issues of misclassification and the fissured workplace. Trump’s nominee to succeed Weil at the Wage and Hour division is a lawyer named Cheryl Stanton, who currently runs South Carolina’s Department of Employment and Workforce; she previously defended companies, including FedEx and Domino’s, in suits alleging they violated workplace laws.
Acosta so far has sent mixed signals on the issue. He rescinded Weil’s administrative guidance—a move cheered by the business community, which believed Weil’s working definition of an “employee” was too expansive. The Wage and Hour Division’s budget request for fiscal 2018 did not request additional money for investigators and focused largely on helping businesses comply with the law, a shift from Weil’s focus on enforcement. “That tells you a lot,” said a Democratic congressional aide.
But the agency also filed a legal brief in November in support of police officers who say they were misclassified as contractors rather than employees when they moonlighted as security guards—an action met with approval by labor advocates. The agency has also continued to renew agreements with states to share information and resources over misclassification cases, a tactic predating Weil that is generally believed to strengthen enforcement. Roughly three dozen states now have agreements with the Department of Labor, an indication that states are taking the issue seriously as well. Politico reached out to 13 states with agreements that have recently expired or will expire early this year to learn if Wage and Hour is continuing to use this tool under Acosta. Of the 10 states that responded, seven said they have renewed or will soon renew their agreements. The other three said the agreements were currently under review.
A spokesperson for the Department of Labor did not respond to questions about the agency’s budget but said the Wage and Hour Division “plans to review its [agreements] with each of the states.”
Outside the executive branch, there has been some attention paid to the issue, but it’s not yet a widespread policy concern. Mark Warner, a Democratic U.S. senator from Virginia, has been pushing for money to fund the Department of Labor’s contingent worker survey. He says he became interested in the issue via the gig economy—which he first thought was a major disruption, and then realized was just a small piece of a broader change. “Initially, I focused a lot on gig workers because here you have these hot new companies that seem to be transforming the traditional notion of work,” he said in an interview. “What I found when I dug a bit deeper … was this was the next iteration of something that had started in the 1990s where corporations decided that every function that was not core to their mission would be outsourced.”
Elsewhere in Congress, it’s hard to find people engaged on it. In part, this may be because lawmakers are hesitant to criticize their colleagues on an issue that hasn’t become polarized politically yet; they are still hoping to find common ground. But there’s frustration among congressional aides and labor policy experts about congressional inaction. “Everyone thinks of this issue as an app problem with Uber, Lyft and TaskRabbit,” said a second Democratic congressional aide. “People don’t realize that you go to a hotel and the workers are subcontracted out. You go to a restaurant and it’s the same thing. It’s becoming so prevalent, and people don’t realize it.”
To see the problem through the lens of startups, as many lawmakers do, makes it seem less like a problem for today’s workers and more a future problem, like robots and automation. In my conversations with lawmakers for this article, most said the most important thing Congress can do right now is to acquire information and collect more data to tackle the problem someday.
“Right now, we’re still trying to go through the stage where we are trying to better understand this transition,” said Senator Todd Young, a Republican from Indiana and member of the Senate subcommittee that oversees labor issues. Young co-authored a letter last year asking the DOL to request money to run its contingent worker survey annually. “This is why data collection is so important,” he said.
“We need policies that are up-to-date today, let alone forward looking, and we are behind,” said Representative Suzan DelBene, a Democrat from Washington who has co-authored legislation with Warner on the issue. She said she’s asked the GAO for a report on the impact of automation on the economy. “We first have to define the problem.”
They’re not wrong; Washington is woefully behind on collecting information. And if that seems like a bit of a cop-out—well, it’s also puzzlingly difficult to figure out what to do. Policymakers are just beginning to really consider how to reform the 20th-century social contract to fit the labor market of the 21st century. One idea, popular on both sides of the aisle, is known as portable benefits—allowing multiple companies to put money toward a worker’s health insurance, 401(k) or paid leave that is accessible even if the worker changes employers. In New Jersey and Washington, state lawmakers have introduced legislation to create portable benefits for independent contractors; neither has passed, but thanks to Democratic victories in both states this past November, there could be action on the bills this year.
Earlier last spring, Warner and DelBene introduced national legislation to create a $20 million grant program for states or nonprofits to pilot portable benefit plans. Young co-sponsored the Senate bill, giving it bipartisan support, but the legislation has yet to receive a vote in either House and, if it passes, it remains just a first step toward a broader portable-benefit regime.
“We can all agree that we need to do something there,” said Representative Bradley Byrne, an Alabama Republican who chairs the House subcommittee that oversees workforce protections. “But when you get down to details, that’s where it gets a lot more difficult.”
The one real effort in recent years to extend workplace benefits to independent contractors was also the most controversial American law in a decade: the Affordable Care Act, which enabled independent contractors, even those with expensive pre-existing conditions, to buy health insurance through the individual market. Viewed through the lens of labor policy, the ACA was a big win for independent contractors and other people without traditional employer benefits, effectively using a federal tax credit to level the playing field—though not fully—with people getting insurance through employer plans. GOP efforts to repeal the law would generally continue to offer Americans who don’t receive employer-sponsored health insurance a tax credit to buy insurance, although those credits would be less generous for many working-age Americans.
If the workplace is changing so much, would it be possible to invent a new kind of worker? One solution that has begun to arise among labor experts is to create a third, hybrid worker classification—something between an employee and a contractor, offering protections to people, like Uber drivers, who might not be “employees” but work chiefly for one company. But this argument has already started to break down along partisan lines. Republicans tend to support it as overdue acknowledgment that many workers in the modern workplace don’t fit neatly into the employee or contractor box. Democrats are wary of creating a category that might let employers shift even more employees into less-stable work arrangements.
On the Democratic side, the push has been more to strengthen enforcement of current laws, cracking down on misclassification, and raising labor standards for all employees. Brown, the Ohio senator, has released one such proposal, a 77-page plan published last year that called for more resources to investigate misclassification and a $15 minimum wage, among many labor provisions—policies that have little appeal among Republicans who believe they would hurt growth and lead to lower wage growth.
“The key positive is that [contingent workers] still have a job,” said Alex Passantino, who was acting head of the Wage and Hour Division during the Bush administration and now represents companies in federal labor law disputes. “I don’t want to be too blunt, but the economics are driven by this ancient law and ancient legal structure. They are causing those types of decisions.”
Congress, however, hasn’t shown much interest in providing extra resources for enforcement, and some on the left are skeptical it ever will. In the meantime, business moves faster than Congress can keep up, and the fissuring continues apace—leaving workers like Diana Borland in its wake. At UPMC, according to the hospital, new voice-recognition technology reduced the need for transcriptionists, and led to outsourcing to avoid “significant reductions” in staff. When the change came for Borland, she and her colleagues were never reclassified as independent contractors; she was just passed from one employer to another. She wasn’t fired, or replaced. But the change still led to a huge cut in her paycheck and, after she quit, a two-year period of instability in her life, creating real financial challenges for her four kids. And hers is something of a best-case scenario.
Nuance, her contract employer, declined to answer questions on Borland’s situation. Eric Tinch, vice president of global services for Nuance Healthcare Solutions, said in a statement that the company offers “a highly competitive benefit package to full-time and progressive part-time employees who work more than 32 hours per week.”
When Borland visited Allegheny General Hospital for a job interview in 2015, a supervisor asked her why she had left her previous job at UPMC. It would’ve been easy to disparage her former employer, but Borland simply answered that she had retired. “I don’t care where you go,” she explained. “You don’t burn bridges.”
A few decades ago, that answer—the refusal to criticize a former employer—may have been considered part of the implicit social pact between workers and companies, in which both sides had responsibilities to each other. For Borland, the entire episode has left her asking bigger questions, wondering about the future of the country and the ability of the economy to continue delivering widespread benefits and protections to working Americans.
“I would like to know where the American dream is for our children, for my 13-year-old, for my two granddaughters who are 2 years and 4 years,” she said. “We made UPMC what it is. I can tell you, I missed one day of work in 13 years. I never called off—ever. Where is the American dream?”
There are a host of incredible opportunities to partner with us on this world class innovation event. If you are interested in becoming a partner or creative collaborator for the upcoming conference, please contact: