Thirty or 40 years ago, companies like General Motors and Chase Manhattan Bank hired their own janitors and clerical staff, not just top executives and engineers. Today, low-skilled jobs are often outsourced, with effects that are rippling across the American workforce.
Throughout the 2016 election cycle, immigrants and globalization proved politically popular scapegoats for the disappearance of American jobs. But according to Allison professor of economics Lawrence F. Katz, erecting physical walls or championing protectionist legislation won’t staunch the losses. The truly responsible parties, he says, are American companies that subcontract jobs in areas such as security, custodial services, and dining. And complicit in this mounting problem of eroding job opportunities are American workers themselves, who are increasingly moving toward “alternative work arrangements” as temps and freelancers.
Although traditional labor statistics suggest that self-employment and multiple-job holding are in decline, the increase in tax filings indicating sole proprietorship and multiple sources of income during the past few years led Katz to doubt this. He and Alan B. Kruger, Bendheim professor of economics and public affairs at Princeton, teamed up to conduct their own research, examining data from February 2005 to late 2015. They documented a 4.9 percent increase in workers engaged in alternative work arrangements: comprising not only those who are either on-call or placed through a temporary help agency, but also contract workers and freelancers. More than one in five of those individuals worked in health services or education; only 2.6 percent found manufacturing jobs that had been contracted out.
Katz believes that making these “alternative” jobs more meaningful and rewarding—both in compensation and career development—is the key to building a robust workforce today. “We’re just not going to bring back 1950s production jobs and manufacturing,” he says. “And even if we did, no one wants to buy black-and-white TVs or drive Studebakers, which is essentially what we’d have to be doing to produce jobs like that.”
The “alternative work arrangement” spectrum encompasses very different experiences for the workers themselves. Freelancers are theoretically able to choose their own hours, set their own rates, and accept work that challenges or intrigues them. But for on-call or temporary workers, the situation is far less desirable: “Theirs is a much more precarious situation where they don’t get the same benefits,” says Katz. “And the nontraditional schedules of on-call workers cause [them] a lot of dissatisfaction.” Somewhat surprising to those unfamiliar with the labor market, the alternative workforce does not consist predominantly of young people with full-time jobs who want to make a few extra dollars on the side. Katz finds that in reality, the niche provides ample opportunities for those of retirement age. The one group with rising labor-force participation, he says, are those over 55, “and it doesn’t seem to be that…they’re desperate for work.…This is a way to combine activities like caring for grandchildren, but still doing work and staying involved.”
Involuntary displacement—being fired or laid off—is another key reason for people to turn to alternative work engagements, of course. Katz has found that workers are roughly three times as likely to transition into such arrangements after a job loss, and that 76 percent to 80 percent of these involuntary temp workers desire permanent jobs. In contrast, 80 percent of those Americans who find themselves in the alternative workforce as freelancers and independent contracters value the flexibility and agency they gain by doing so.
Yet challenges abound for the 16 percent of the U.S. workforce engaged in alternative work arrangements. “The way our labor laws are written,” Katz explains, “a lot of issues…arise from the use of freelancers and contractors.” He cites Uber as a popular example of a company that has resisted calling drivers “employees,” because doing so would give them collective-bargaining rights; instead, all Uber drivers are independent contractors. “There are cases in which Uber and drivers would both be better off if they could pool for some kind of insurance,” he points out, “but the current legal environment means it makes no sense for Uber to want to do that.” To rectify the situation, Katz envisions the government supporting a portable-benefits system that would allow workers to pay into a fund for necessities like health insurance or retirement benefits, regardless of how an employer classified them.
His recent research has left Katz somewhat skeptical about the potential to reduce inequality in the United States. Employers are placing an ever higher premium on education, he says, and those with college degrees are almost certain to earn more, enjoy more job security, and have steadier access to benefits than someone with a high-school diploma, regardless of location. As one palliative measure, he calls for a more generous earned-income tax credit to expand the safety net for Americans who currently reap fewer of its benefits, such as young people without dependent children or older workers whose children have left home. “We’re trying to test whether [making] work pay will help make work for more people,” he says, referring to a related survey he is currently conducting among low-income Americans in New York City and Atlanta. But expanding the earned-income tax credit alone is insufficient to even the playing field for all workers. The real challenge, Katz says, lies in finding ways to make alternative work engagements higher paid and more meaningful.
