Flexibility Trap: The Proliferation of Marginal Jobs

Full-time, career employment is fast becoming an anachronism in today's changing economy. Since 1973, the rate of part-time, temporary, and subcontracted employment -- what labor market analysts call "contingent" employment -- has grown far faster than the rate of full-time work. Nearly one in five workers today works part-time while the temporary help industry is one of the fastest growing sectors in the economy. Close to 30 million people -- over a quarter of the U.S. labor force -- are working in jobs outside the regular full-time work force. And while a significant number are well-paid freelancers, most contingent workers are women and minorities clustered in low-wage jobs with no benefits or opportunities for advancement.

The expansion of contingent employment is evidence of a fundamental transformation of work. These changes are driven, in part, by business's need for flexibility in a changing, competitive economy. But while the word "flexibility" connotes more creative adaptation and a sensible strategy of shifting workers to new tasks, locations, and skills, the reality is grubbier. Mainly it has to do with business's desire to trim short-run costs. By classifying workers as "part-time," "temporary," or "independent contractor," employers can shift the burden of fringe benefits and job transition to individual workers and their families. They can pay workers lower hourly wages, exclude them from better-compensated permanent jobs, save on health and pension costs, weaken labor unions, and, in the case of independent contractors, avoid payroll and unemployment insurance taxes.

At the same time, a growing number of workers welcome shorter working hours, as a strategy for combining paid work and family responsibilities, or for mixing work and school, or for phasing in retirement. But there is a mismatch between what workers want and what available jobs offer. There are more part-time and temporary jobs than people who want them, yet workers who prefer to work less than full time are severely limited in their job choices and in the benefits offered. Under the guise of "flexibility," workers are being trapped into accepting lower standards of employment.

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The real issue is not labor market flexibility -- we all want that -- but rather who will bear its costs, and how we can reconcile job flexibility with the lives of employees and the productivity of society. Employers do need flexibility to adjust the shape and size of their work force to meet changes in product demand and necessary employee skills, just as workers need flexibility to reconcile home and work. U.S. employment policies that hurt contingent workers are undergirded by three major assumptions which no longer describe today's labor market realities:

  • Public and private employment policies presume full-time workers with one life-long employer -- a prototype clearly out of date with today's workforce.
  • Federal and state labor laws exclude from protection or treat poorly the women and minority groups who predominate among contingent workers on the assumption that they are marginal or peripheral to the primary labor force.
  • Basic social welfare needs in the United States -- health care, paid time off, and pensions -- are tied to the employer-employee relationship rather than citizenship, on the assumption that employers will continue fulfilling those responsiblities.

    The full-time archetype still dominates virtually every institution governing work life in the U.S., beginning with how workers are counted, how much they are paid, what fringe benefits they receive, and what benefits they are entitled to when they lose their jobs or retire. But it leaves out tens of millions of workers who are the fastest-growing category of employee.

    Contingent work, in short, is no longer just a marginal phenomenon. It has emerged as a permanent strategy for cheapening the workforce and weakening the bargaining power of labor. It threatens the economic security of all workers by dragging down wages and increasing wage-income inequality. It weakens the public purse through lost tax revenues and higher public welfare costs for contingent workers who are more likely to depend upon public assistance. It increases the burden on good employers who are forced to subsidize the poor employment practices of others. And, finally, contingent employment threatens to undermine the productivity and efficiency of the U.S. economy.

    As public consciousness of the economic costs of "short-termism" increases, the damage done by the contingent work approach ought to be at the center of the debate. To maximize productivity, the economy needs highly skilled workers, with a commitment to their jobs. That, in turn, requires employers to view workers as long-term partners, worthy of investment in skills training and long-term career development. But contingent work is the antithesis of that model. Who Is a Contingent Worker?
    Contingent workers are often missed in official counts of the U.S. labor force. Part-time workers, the most numerous among this group, are the best documented. Today, nearly one in five U.S. workers is employed part-time -- defined as working in a job less than thirty-five hours a week -- but labor market analysts agree the real number is probably higher. Surveys only ask workers how many hours they work in a week, not how many jobs. The dramatic growth in moonlighting or multiple job-holding in recent years suggests that many workers who look like full-timers when their hours are counted may in fact hold two or more part-time jobs. Over seven million workers now have more than one job.

    It is a myth that most part-time workers, especially women, prefer to work part-time. In recent years, the sharpest increase in part-time employment has been due to the jump in the involuntary part-time labor force -- workers who want full-time hours but cannot get them. Women predominate in this category, accounting for over half of the five million involuntary part-time jobs in 1990. Women are also more likely than men to work part-time routinely. What looks voluntary, however, often obscures the fact that many women prefer full-time work or nearly full-time work that offers full-time benefits, but feel constrained by a lack of adequate child care -- information that is not recorded in official tallies of why people work part-time.

    The motivation for temporary employment is also misconstrued. Contrary to popular belief, women -- who make up two-thirds of the temporary labor force -- do not opt for temporary employment as a way to balance work and family needs. Research by the Institute for Women's Policy Research has shown that married women with children are no more likely to prefer temporary employment than are unmarried women in these jobs. In reality, most temporary workers are looking for permanent full-time jobs.

    Official estimates of the size of the temporary work force are also understated. The temporary work force includes individuals hired out by a temporary employment agency such as Kelly Services as well as temporary workers who are hired directly by an employer. The federal government, however, only counts workers employed by temporary help agencies. Since 1982, this category has grown nearly three times as fast as overall employment. During the course of one year, over six million persons perform some work through a temporary help agency. Private surveys of firms who hire temporary workers directly suggest that the total use of all types of temporary work is probably twice as large as the official count.

    In recent years there has been a surge of black men into blue-collar temporary employment. Low-skilled manual work now makes up the second-largest category of work in the temporary help supply industry, employing roughly one in five temporary workers. This is the fastest-growing and the poorest-paying segment of the official temporary labor force -- and nearly all would prefer full time and permanent employment.

    Contract work -- subcontracting by another firm or by an individual -- is the third leg of the contingent work force. Many contingent workers employed by a firm contracted to perform specific services such as cleaning or food preparation are counted as part-time or temporary workers. But individuals who identify themselves as self-employed or as independent contractors have grown during the 1980s from 6.2 million to 9.5 million. Some of these workers are well-paid entrepreneurs providing medical, legal, or financial services to multiple clients. A significant number, however, work illegally for only one "client" -- their real employer -- who lists them as contractors to save payroll taxes, fringe benefits, and paperwork.

    Trade unionists in the construction industry have documented the practices of unscrupulous employers who fire regular workers and rehire them as "independent contractors." The Internal Revenue Service estimates that as many as 38 percent of employers deliberately misclassify their employees as "independent contractors" to avoid paying unemployment compensation taxes as well as Social Security and workers' compensation.

    The diffused nature of contingent employment has yielded a range of estimates, from 27 million to 37 million -- about one-third of the total U.S. work force. The emergence of contingent employment mainly signals the economy's failure to create adequate employment for individuals who need full-time work. And it has consigned these workers -- especially women and male members of minority groups -- to a marginal existence of low wages, no benefits, and uncertain futures. The Problem of How to Pay
    As noted, employers hire contingent workers to cut labor costs. Part-time workers earn about 60 percent of the hourly wages of full-time workers, while temporary agency workers take in about 70 percent of the hourly earnings of all workers. Much of this wage gap can be explained by the concentration of these workers in the lower-paid retail trade and services industries and the disproportionate number of women, teens, and elders who make up this labor force. Yet even when workers are matched by industry, occupation, sex, and age, a substantial wage difference (about 15 percent) persists between full- and part-time workers.

    Minimum-wage policy reinforces the failure to pay contingent workers wages more comparable to those of full-timers. Part-time workers are six times more likely than full-timers to work for the minimum wage. Yet despite long-delayed recent increases, the minimum wage has continued to drop below its real value in 1981, pushing more of these workers into poverty. During the debate on raising the minimum wage, many opponents argued that an increase was unnecessary because more than three-quarters of minimum-wage workers hold jobs that are not essential to family well-being. Yet the majority of the people counted as nonessential are working wives.

    As long as women's earnings are deemed peripheral to family income, policy makers will continue to ignore the critical importance of raising the minimum. Small business is currently lobbying Congress to legislate a permanent small-business exemption to the minimum wage -- a move that would do further harm to the contingent workers who make up the bulk of the work force in small firms. Business costs are an important consideration in evaluating proposals to increase the minimum wage. But an equally important consideration is the weakening effect of an inadequate national pay standard upon the entire wage structure. In fact, according to University of Massachusetts economist Chris Tilly, 42 percent of the growth of wage inequality in recent years can be attributed to the growth of part-time work and the widening gap between the earnings of part-time and full-time workers.

    When employers fail to pay decent wages, not only do contingent workers get poorer, the rest of us get squeezed. According to research by Sar Levitan and Elizabeth Conway, one in six part-timers and one in five involuntary part-timers have family incomes below poverty compared with only one in thirty-seven regular full-time workers. Involuntary part-time workers are almost twice as likely as all other workers to depend upon public subsidies. The pressure to liberalize the earned income tax credit, at taxpayer expense, arises primarily because not enough work pays a wage that families can live on.

    An important strategy for boosting the pay of contingent workers is wage parity. In the U.S., we have laws requiring that blacks and whites or men and women doing identical jobs receive equal pay, but no equal hourly pay laws. There is no federal labor standard assuring that a part-time telephone operator who performs work identical to the full-time operator sitting in the next chair will receive the same hourly pay. Ignoring the equal-pay rights of part-time workers underscores the low status accorded them in public and private employment policy. On the other hand, in much of Western Europe official labor standards and collective bargaining agreements, as well as proposals to the Social Charter governing labor standards under a united Europe, recognize equal pay guidelines for part-time and many temporary workers. Fairer pay standards for contingent workers -- including wage parity and a more adequate minimum wage -- would boost the wages of contingent workers and restrain employers from exploiting this labor force. Contingent Work: Bad for Your Health
    Contingent workers have become a major weapon in the employer's fight against escalating health care costs. Part-time and temporary workers are three times less likely than full-time workers to receive health insurance coverage through their employers. More private insurers are simply refusing to underwrite employer coverage for part-time workers. Employers and policy makers alike assume that these workers receive health insurance through their spouses, yet dependent coverage is an item employers are dropping from employee health benefits packages. In addition, the growing number of single-parent families weakens the notion that contingent workers can count on a spouse for health insurance.

    In today's market, the costs of buying individual health insurance are prohibitive for most contingent and other low-wage workers. Tax policy is also stacked against the contingent worker. Tax laws permit employers to exclude certain classes of workers from their company health care plans and, not surprisingly, contingent workers get excluded most often. In addition, employers can fully deduct the cost of health care premiums. The self-employed, on the other hand, can deduct only 25 percent of the cost of their insurance. Working families can only deduct medical costs if their expenses exceed a certain level -- which keeps rising -- so that, in practical terms, low-income working families get no tax breaks for their health care costs. And contingent workers are ineligible for most public health insurance programs like Medicaid. One of the few attempts by Congress to fill in the gaps in employee health coverage by offering extended coverage to laid-off workers excludes part-time workers from coverage. As a result, the vast majority of part-time and contingent workers simply go without health insurance.

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    Happily, the question of universal health care is back on the table, and even the administration has proposed remedying some of the inequities. One way to evaluate the proposals currently flooding Congress is to examine how each one treats contingent workers.

    For instance, mandating employers to provide health benefits may only induce employers to create more worker categories to avoid their obligations to this workforce. It provides some protection for part-time workers (meeting a minimum work-hours requirement), but overlooks workers who are deliberately misclassified as short-term hires, temporary employees, or independent contractors. A better approach would be to sever the workplace tie entirely, and opt for a more inclusive system that provides equal access to health care conditioned by residence or citizenship and not by relationship to a particular employer. Vanishing Pensions
    Contingent workers are also the have-nots in the U.S. public and private pension systems. Only one in six part-time workers is covered under an employer's pension plan compared with one in two full-time workers. And where part-timers are covered, their shorter job stays virtually ensure they will not be able to vest their pensions, get back their contributions, or carry their pension credits with them to another job. Public policy often sanctions this discrimination. For instance, federal law allows companies to exclude from their pension plans workers employed fewer than twenty hours a week or 1,000 hours a year, or workers who fall into certain work classifications including part-time and temporary employment.

    Pension reform in the 1980s did strengthen benefits for temporary and leased employees by requiring employers who hire these workers for more than a year to include them in company pension plans. Current proposals, however, would take back some of these protections.

    Once a contingent worker gets over the hurdle of pension coverage, she or he must confront policies that make it difficult to vest in a pension plan or carry pension credits over to a new job. Most workers stay on the job for less than five years, while the job stays of part-time workers average only three years.

    Economic downturns and family responsibilities increase the likelihood that such workers will fail to vest and thus forfeit pension benefits. Congress has changed the vesting requirement from ten years to five years for companies with single-employer pension plans and has adopted three-year vesting for many small companies.

    These reforms, however, still leave many workers without a realistic chance of vesting. One solution would be to standardize vesting requirements across all employers using a more realistic measure of job tenure; an even better solution would be to make an earnings-related pension a fully portable citizenship right, as many European nations do.

    Contingent workers change jobs frequently yet to date there is no federal mechanism that allows workers to carry their pension credits with them from job to job. Proposals to enact pension portability have been repeatedly rejected by Congress yet in some employment sectors, such as university teaching, professors freely move from school to school carrying their pension credits with them. This is a good model to follow in fashioning pension reform that fits the real experiences of today's workers.

    Obviously, universal pension plans offer the best protection for contingent workers. In Western Europe, national schemes of employer-sponsored pensions coexist with Social Security. In both France and Finland, special private pension plans have been developed for seasonal workers and the self-employed. During the early 1980s, Congress considered a minimum universal pension system (MUPS) that would have permitted immediate vesting and pension portability. A universal pension system would benefit contingent workers more than the current policy favorite, Individualized Retirement Accounts (IRAs), which rely solely on workers' contributions. Any new proposals for a MUPS-type system must include protections for part-time workers -- a group left out of earlier proposals.

    When contingent workers cannot get pensions it increases their dependence upon Social Security -- a system designed to supplement, not supplant, other retirement income. The varying work schedules of part-time and other low-wage workers bring lower earnings and thus lower Social Security benefits. Family members who reduce their number of paid work hours to care for children or sick relatives end up with fewer Social Security credits and lower benefits in contrast to care-givers in other advanced economies, such as England, who receive Social Security credits for their work at home. Similarly, persons who are laid off or forced into a contingent work schedule suffer losses in Social Security credits during their time away from the labor force.

    When the economy is unable to provide workers who need full-time jobs with adequate work, or when women reduce their paid work time to resolve work-family conflicts that are ignored in the workplace, these same workers should not be condemned to poverty in old age. Such workers could be granted Social Security credits for their reduced participation in the work force as a way to boost retirement income and curb old-age poverty earnings. Outside the Unemployment Insurance System
    It you work part-time and lose your job, don't expect to get unemployment insurance (UI) benefits. States' eligibility standards and employer practices effectively eliminate most contingent workers. Some categories of workers, including the self-employed, independent contractors, and casual or seasonal workers, are excluded outright. In addition, an unemployed worker must meet a minimum earnings test to qualify for benefits. But in half the states, the average part-time worker does not earn enough to pass the test. In recent years, to save money, several states have tightened UI eligibility standards, a move that has hurt part-time and low-wage workers the most.

    Unemployment insurance policies that disadvantage contingent workers are another reflection of the archetype of full-time, permanent employment. They can also reflect the gender discrimination built into the unemployment compensation system. For example, if you regularly work full time but your employer cuts your hours in half, you and your dependents can still receive benefits for the work hours you have lost. However, if you choose to work part time to accommodate family care responsibilities, you are likely to be considered "not available" for work and you will lose your benefits.

    Ironically, a woman who forgoes paid employment to care for family members is more likely to receive a "dependent allowance" as the wife of a laid-off husband than as an unemployed worker looking for a part-time work job. Such inequities have produced a profile of the insured unemployed that is grossly out of sync with the real unemployed. Policy makers could help by fashioning a federal standard for UI eligibility that strengthens the ties among contingent workers, employers, and the state and respects the changing work lives of family care-givers.

    Parents who seek part-time work hours to care for children are no less deserving of unemployment insurance benefits when they lose their part-time jobs than a full-time worker forced to work part-time as a result of economic conditions. Policy makers should also consider how the method of unemployment insurance financing encourages employers to misclassify employees and manipulate work hours. Employers pay a tax based on how many "regular" employees are laid off and workers who are not defined as "regular" -- such as contingent workers -- escape these counts. Western European countries have addressed this problem by guaranteeing to all workers a minimum UI benefit guaranteed augmented by a privately financed scheme. Better Jobs
    As workers largely outside the "core" of regular employment, contingent workers get none of the benefits that accrue to permanent workers, including most rights based on seniority. Contingent workers seldom enjoy the right to bid for a full-time job. As a result, the contingent strategy reinforces the invisible barriers between what economists call the primary and secondary labor market. And it reinforces gender and race divisions at work by preventing these workers from moving into better jobs. For example, employers can avoid compliance with federal equal employment opportunity laws by reducing their core or "regular" workforce to just below the legal trigger for affirmative action and hiring contingent workers -- whom they are not obliged to protect -- to pick up the slack.

    The growth of contingent work signals declining employer commitment to career development. Internal labor markets, which provided avenues to career advancement in the large firm, have contracted in the wake of corporate downsizing and are practically nonexistent in the smaller firm. And public employment and training programs, like the federal Jobs Training Partnership Act, constrained by shrinking budgets and eligibility rules that exclude working persons, are unlikely to fill the void.

    In the short run, the contingent work strategy saves business money, but over the long term, workers who are unfamiliar with company practices and products, have no loyalty to the firm, and leave as soon as they can find a better job, undermine efficiency and drag down productivity. Who Speaks for the Contingent Work Force?

    Labor unions remain the most effective tool for curbing the worst abuses of contingent employment. Unions do this both by representing workers, and by serving as a political constituency for higher-quality jobs generally. However, rotating work schedules and shifting job sites make it difficult to organize the contingent work force. At the same time, U.S. labor law, by ignoring changing employer practices, has hindered the ability of labor unions to represent part-time and temporary workers. Consequently, only 8 percent of part-time workers belong to labor unions compared with nearly 22 percent of full-time workers. And even unionization of full-time workers is decreasing.

    Contingent workers are more likely to be organized in workplaces where less than full-time work or irregular work is the norm and in industries where labor unions have traditionally been strong such as the building trades, entertainment, and retail food. In the manufacturing sector, unions have been successful in restricting or prohibiting the use of part-time and contingent employees. In the public sector, unions representing service workers have successfully bargained for restrictions on the use of part-time and contingent labor, hourly pay parity, seniority rights, pro-rated and full benefits, and opportunities for more permanent employment.

    Organizing drives to represent contingent workers in non-union shops have been more difficult. In fact, many employers have used the contingent work strategy to undercut union organizing drives or to exact concessions during contract negotiations. Much of this difficulty derives from the complex employee classification schemes employers develop to thwart union organizing efforts as well as the failure of labor law to protect contract workers.

    The National Labor Relations Board (NLRB) plays the major role in determining "appropriate bargaining units" and has been inconsistent in deciding whether contingent workers should vote along with full-time workers in union elections. Under the original National Labor Relations Act (Wagner Act), the NLRB was instructed to determine bargaining units according to "employees' preferences." However, later reforms under the more business-friendly Taft-Hartley Act outlawed this practice.

    Another stumbling block to representing contingent workers, especially contract workers, is the increasingly complex nature of the employment relationship today. Workers often have more than one supervisor. Taft-Hartley's ban on secondary boycotts makes it difficult for sub-contracted employees, such as janitors or food service workers, to protest collectively the practices of the leasing employer.

    The Wagner Act guaranteed to workers the right to collective bargaining. Yet the failure of labor law to keep up with changes in the employment contract challenges the very foundations of collective bargaining in the United States. The public sector, with its own set of labor laws and with less vehement opposition to unions, provides a more congenial environment for organizing contingent workers.

    * * *

    In reforming labor law, policy makers should also examine how the NLRA regulates external labor markets operating in such industries as construction and entertainment. In these sectors, unionized workers, like continent workers, work intermittently and are often not attached to a particular employer yet the NLRA preserves their right to collective bargaining.

    The decline in union representation in the U.S. and the difficulty in organizing part-time and contingent workers suggest the need for new strategies to ensure their representation. One approach would be to introduce works councils or workers committees into the U.S. workplace. Works councils operate in Canada and parts of Western Europe, playing a role in a variety of workplace decisions involving occupational safety and health, layoffs, and technological change and often pave the way for union representation.

    Works councils also serve as a permanent constituency for a definition of jobs that is more friendly to workers. One proposal in this spirit would amend the Occupational Health and Safety Act to require a selection of a safety steward to monitor the health and safety of all workers. Labor law reform could include similar forms of representation on workplace issues beyond health and safety, including the determination of work hours and job contracts. Policy Directions
    Policy makers must begin to challenge management's version of flexibility and create the kind of flexibility workers genuinely need. Involuntary part-time jobs, long-term temporary assignments, and the growing numbers of women in two part-time jobs are poor options for people who need and want full-time work. And for men and women who choose to work less than full-time -- to raise children, go to school, or semi-retire -- society needs part-time jobs that dignify workers instead of penalizing them. We also need public and private policies designed to combat the gender and race basis of many of these inequities.

    Reform should take place on three fronts. First, there are work-specific issues, such as how to shift contingent workers into regular employment, or how to boost hourly pay. These goals require reforms specifically targeted to changing the rules of the workplace. Second, there are structural concerns, such as how to generate more full-time jobs or how to meet the short-term hiring needs of employers. Those issues demand broader economic reforms such as shortening the work week, or creating publicly owned employment services that hire out temporary workers while ensuring these workers adequate pay, hours, and benefits.

    And finally, there are social welfare issues, such as health care, pension coverage, unemployment insurance, sick leave, vacations, and family leave that do not require employer-specific solutions. Most advanced democracies regard these benefits as universal rights rather than as privileges of employment. If we continue to view the employer as the key provider of social welfare, we run the risk of creating incentives for employers to marginalize more workers, and of generating policy solutions that perpetuate rather than ameliorate this marginalization -- and then hand the bill to U.S. taxpayers.

    The proposed Family and Medical Leave Act, which was vetoed last year by President Bush, is a case in point. In Western Europe, subsidized family leaves are available to all workers -- regardless of regular work hours -- through the Unemployment Compensation system.

    In the U.S., by contrast, this reform legislation has been tied to private employers. Consequently, the debate has focused upon restricting the number of workers considered eligible for a family or medical leave in order to garner business's support. An amendment to the latest bill approved by Congress raised the minimum work requirement from twenty hours to twenty-five hours per week, a cut-off point that effectively excludes most part-time workers from coverage. Benefits such as family and medical leave, health care, pension coverage, and unemployment insurance are basic needs that, at a minimum, should not be exposed to the pressures of the marketplace or the whims of an employer. Rather, they must be protected as social guarantees critical to the growth of a healthy economy.

    While western European policies vary, these basic social provisions are largely extended as rights, rather than a privilege of employment. That reality has cushioned the impact of economic restructuring in western Europe, and thus facilitated it. Similarly, policies implemented at the national level in the U.S., particularly universal health insurance, pension portability, and wage parity, can act as buffers against a volatile economy and ensure that "flexibility" in the marketplace benefits workers as well as managers.

    An administration committed to restoring a labor market made up primarily of good, "core" jobs and lifelong career ladders would have to proceed on multiple fronts. These include shifting job-related fringe benefits to citizenship entitlements; insisting on either broader pension coverage through social insurance or full pension portability; and regulating the conditions of part-time work to require the same wages and benefits as comparable full-time work.

    Finally, and perhaps most important, the contribution of the labor movement toward defending and improving the quality of working life must be reinforced. Unions offer the best private remedy for bringing equity to part-time and other contingent workers. Labor law reform, including reinstating workers preferences to determine the scope of a bargaining unit, allowing greater rights for contract workers, as well as restoring the effective right to unionize in the first place, can open up opportunities for unions to represent contingent workers. Workplace committees, in union and non-union shops, would also increase employee bargaining power over work schedules and job design. As a nation, we need to give far higher priority to this reclamation of tens of millions of marginal jobs. At issue is not just the well-being of workers, but the productivity of society.

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