Neil Irwin,
NY Times, Sept. 3, 2017
ROCHESTER–Gail
Evans and Marta Ramos have one thing in common: They have each cleaned offices
for one of the most innovative, profitable and all-around successful companies
in the United States.
For Ms. Evans,
that meant being a janitor in Building 326 at Eastman Kodak’s campus in
Rochester in the early 1980s. For Ms. Ramos, that means cleaning at Apple’s
headquarters in Cupertino, Calif., in the present day.
In the 35 years
between their jobs as janitors, corporations across America have flocked to a
new management theory: Focus on core competence and outsource the rest. The
approach has made companies more nimble and more productive, and delivered huge
profits for shareholders. It has also fueled inequality and helps explain why
many working-class Americans are struggling even in an ostensibly healthy
economy.
The $16.60 per hour Ms. Ramos earns as a janitor at Apple works out to
about the same in inflation-adjusted terms as what Ms. Evans earned 35 years
ago. But that’s where the similarities
end...
Ms. Evans was a
full-time employee of Kodak. She received more than four weeks of paid vacation
per year, reimbursement of some tuition costs to go to college part time, and a
bonus payment every March. When the facility she cleaned was shut down, the company
found another job for her: cutting film.
Ms. Ramos is an
employee of a contractor that Apple uses to keep its facilities clean. She
hasn’t taken a vacation in years, because she can’t afford the lost wages.
Going back to school is similarly out of reach. There are certainly no bonuses,
nor even a remote possibility of being transferred to some other role at Apple.
Yet the biggest
difference between their two experiences is in the opportunities they created.
A manager learned that Ms. Evans was taking computer classes while she was
working as a janitor and asked her to teach some other employees how to use
spreadsheet software to track inventory. When she eventually finished her
college degree in 1987, she was promoted to a professional-track job in
information technology.
Less than a
decade later, Ms. Evans was chief technology officer of the whole company, and
she has had a long career since as a senior executive at other top companies.
Ms. Ramos sees the only advancement possibility as becoming a team leader
keeping tabs on a few other janitors, which pays an extra 50 cents an hour.
They both spent
a lot of time cleaning floors. The difference is, for Ms. Ramos, that work is
also a ceiling.
Eastman Kodak
was one of the technological giants of the 20th century, a dominant seller of
film, cameras and other products. It made its founders unfathomably wealthy and
created thousands of high-income jobs for executives, engineers and other
white-collar professionals. The same is true of Apple today.
But unlike
Apple, Kodak also created tens of thousands of working-class jobs, which
contributed to two generations of middle-class wealth in Rochester. The Harvard
economist Larry Summers has often pointed at this difference, arguing that it
helps explain rising inequality and declining social mobility.
“Think about
the contrast between George Eastman, who pioneered fundamental innovations in
photography, and Steve Jobs,” Mr. Summers wrote in 2014. “While Eastman’s
innovations and their dissemination through the Eastman Kodak Co. provided a
foundation for a prosperous middle class in Rochester for generations, no
comparable impact has been created by Jobs’s innovations” at Apple.
Ms. Evans’s
pathway was unusual: Few low-level workers, even in the heyday of postwar
American industry, ever made it to the executive ranks of big companies. But
when Kodak and similar companies were in their prime, tens of thousands of
machine operators, warehouse workers, clerical assistants and the like could
count on steady work and good benefits that are much rarer today.
When Apple was
seeking permission to build its new headquarters, its consultants projected the
company would have 23,400 employees, with an average salary comfortably in the
six figures. Thirty years ago, Kodak employed about 60,000 people in Rochester,
with average pay and benefits companywide worth $79,000 in today’s dollars.
Part of the
wild success of the Silicon Valley giants of today–and what makes their stocks
so appealing to investors–has come from their ability to attain huge revenue
and profits with relatively few workers.
The 10 most
valuable tech companies have 1.5 million employees, according to calculations
by Michael Mandel of the Progressive Policy Institute, compared with 2.2
million employed by the 10 biggest industrial companies in 1979.
Major companies
have also chosen to bifurcate their work force, contracting out much of the
labor that goes into their products to other companies, which compete by
lowering costs. It’s not just janitors and security guards. In Silicon Valley,
the people who test operating systems for bugs, review social media posts that
may violate guidelines, and screen thousands of job applications are unlikely
to receive a paycheck directly from the company they are ultimately working
for.
And the
phenomenon stretches far beyond Silicon Valley, where companies like Apple are
just a particularly extreme example of achieving huge business success with a
relatively small employee count. The Federal Express delivery person who brings
you a package may well be an independent contractor; many of the people who
help banks like Citigroup and JPMorgan service mortgage loans and collect
delinquent payments work for contractors; and if you call your employer’s
computer help desk, there’s a good chance it will be picked up by someone in
another state, or country.
Across a range
of job functions, industries and countries, the shift to a contracting economy
has put downward pressure on compensation. Pay for janitors fell by 4 to 7
percent, and for security guards by 8 to 24 percent, in American companies that
outsourced, Arindrajit Dube of the University of Massachusetts-Amherst and
Ethan Kaplan of Stockholm University found in a 2010 paper.
These pay cuts
appear to be fueling overall inequality. J. Adam Cobb of the Wharton School at
the University of Pennsylvania and Ken-Hou Lin at the University of Texas found
that the drop in big companies’ practice of paying relatively high wages to
their low- and mid-level workers could have accounted for 20 percent of the
wage inequality increase from 1989 to 2014.
The same forces
that explain the difference between 1980s Kodak and today’s Apple have big
implications not just for every blue-collar employee who punches a timecard,
but also for white-collar professionals who swipe a badge.
Phil Harnden
was coming out of the Navy in 1970 when he applied for a job at Kodak, and soon
was operating a forklift in a warehouse. He made $3 an hour, equivalent to $20
an hour today adjusted for inflation. That is roughly what an entry-level
contracting job testing software pays.
The difference
between the two gigs, aside from the absence of heavy machinery in Apple’s
sleek offices, is the sense of permanence. Mr. Harnden put in 16 years
operating forklifts before he left in 1986 to move to Florida. When he returned
10 years later, he was quickly rehired and even kept his seniority benefits.
In interviews,
tech industry contractors in Silicon Valley describe a culture of transience.
They can end up commuting to a different office park that houses a new company
every few months; in many cases 18 months is the maximum a contractor is
allowed to spend at one company.
“I would rather
have stability,” said Christopher Kohl, 29, who has worked as a contractor at
several Silicon Valley companies, including a stint doing quality assurance on
Apple Maps. “It’s stressful to find a new job every 12 to 18 months.”
The
compensation these white-collar contractors receive puts them squarely in the
middle rungs of workers in the United States, and the most skilled can make six
figures (though that doesn’t go far in the hyper-expensive Bay Area housing
market). Apple, based on its consultants’ report, expected to be indirectly
responsible for nearly 18,000 jobs in Santa Clara County by now at an average
pay of about $56,000 a year.
There are some
advantages. If they work for one of the companies like Apple or Google that
feature a subsidized, high-quality cafeteria, contractors can enjoy the food.
They can tell their friends that they work at one of the world’s most admired
companies, and enjoy predictable, regular hours. Once in a while, a contractor
will be hired into a staff position.
“It’s not
evil,” said Pradeep Chauhan, managing partner of OnContracting, a site to help
people find tech contracting positions. “They have a job and they’re getting
paid. But it’s not ideal. The problem with contracting is, you could walk in
one day and they could say, ‘You don’t need to come in tomorrow.’ There is no
obligation from the companies.”
And that is the
ultimate contrast with the middle-skill, middle-wage jobs of earlier
generations of titans–a sense of permanence, of sharing in the long-term
success of the company.
“There were
times I wasn’t happy with the place,” Mr. Harnden said of his Kodak years. “But
it was a great company to work for and gave me a good living for a long time.”
When an
automaker needs a supplier of transmissions for its cars, it doesn’t just hold
an auction and buy from the lowest bidder. It enters a long-term relationship
with the supplier it believes will provide the best quality and price over
time. The company’s very future is at stake–nobody wants to buy a car that
can’t reliably shift into first gear.
But when that
same automaker needs some staplers for the office supply cabinet, it is more
likely to seek out the lowest price it can get, pretty much indifferent to the
identity of the seller.
Labor exists on
a similar continuum.
The right
product engineer or marketing executive can mean the difference between success
or failure, and companies tend to hire such people as full-time employees and
as part of a long-term relationship–something like the transmission supplier.
What has changed in the last generation is that companies today view more and
more of the labor it takes to produce their goods and services as akin to
staplers: something to be procured at the time and place needed for the lowest
price possible.
There is plenty
of logic behind the idea that companies should focus on their core competence
and outsource the rest. By this logic, Apple executives should focus on
building great phones and computers, not hiring and overseeing janitors. And
companies should outsource work when the need for staff is lumpy, such as for
software companies that may need dozens of quality-assurance testers ahead of a
major release but not once the product is out.
There’s no
inherent reason that work done through a contractor should involve lower
compensation than the same work done under direct employment. Sometimes it goes
in the other direction; when a company hires a law firm, it is basically
contracting out legal work, yet lawyers at a firm tend to be paid better than
in-house counsel.
But as more
companies have outsourced more functions over more time, a strong body of
evidence is emerging that it’s not just about efficiency. It seems to be a way
for big companies to reduce compensation costs.
Linda DiStefano
applied for a secretarial job at Kodak during Easter week of her senior year in
high school in 1968, and was hired to start immediately after her graduation
for $87.50 a week, today’s equivalent of $32,000 a year. She put in four
decades at the company, first as a secretary, then helped administer corporate
travel and other projects.It bought her a
house off Lake Avenue, a new car every few years and occasional long-distance
trips.
Ms. Ramos, the
Apple janitor, lives down the road in San Jose. She pays $2,300 monthly for a
two-bedroom apartment where she and her four children live. Before overtime and
taxes, her $16.60 an hour works out to $34,520 a year. Her rent alone is
$27,600 a year, leaving less than $600 a month once the rent is paid. Overtime,
in addition to the wages from one of her teenage children who works part time
at a grocery store, help make the math work, though always tenuously.
She works from
6 p.m. until 2 a.m. On days when one of the other cleaners doesn’t show up, she
may get a few extra hours, which is great for the overtime pay, but it means
even less sleep before it is time to take her children to school.
There is little
chance for building connections at Apple. “Everyone is doing their own thing
and has their own assignment, and we don’t see each other outside of work,”
said Ms. Ramos in Spanish.
Ms. Evans, who
was a Kodak janitor in the early 1980s before her rise to executive there and
at other leading firms like Microsoft and Hewlett-Packard, recalls a different
experience.
“One thing
about Eastman Kodak is they believed in their people,” said Ms. Evans, now
chief information officer at Mercer, the human resources consulting giant. “It
was like a family. You always had someone willing to help open a door if you
demonstrated that you were willing to commit to growing your skills and become
an asset that was valuable for the company.”
The shift is
profound. “I look at the big tech companies, and they practice a 21st-century
form of welfare capitalism, with foosball tables and free sushi and all that,”
Rick Wartzman, senior adviser at the Drucker Institute and author of “The End
of Loyalty,” said. “But it’s for a relatively few folks. It’s great if you’re a
software engineer. If you’re educated, you’re in command.”
But in the
21st-century economy, many millions of workers find themselves excluded from
that select group. Rather than being treated as assets that companies seek to
invest in, they have become costs to be minimized.
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