By Peter Radford, Real-World Economics Review Blog, February 2, 2017
One of the greatest shifts in our economy over the past few decades has been the steady rise of what we call contingent workers. These are people who make their livings on a part-time or contractual basis and have no full-time job. In the US the increase in contingent workers accounted for all the increase in jobs between 2005 and 2015. Whilst there was an increase in full-time jobs during that period that increase was more than offset by a simultaneous elimination of other full-time jobs. There are many different measures of this part-time or contingent workforce because the government has not collected reliable data for over a decade, but all those private and academic efforts at measurement concur: contingent workers are now a very large and rapidly growing part of the national workforce.
Before we all lament this trend let us remind ourselves of some history. Prior to industrialization most people worked as a contingent worker. They supplemented their incomes from a variety of work, they were partly self-sufficient, they were largely based in agricultural activities, and they survived generally minimally above the barest subsistence levels. Those were the days of Malthusian economics: short burst of higher wages led to population growth, which stressed the food supply and thus brought on starvation which then reduced the population and restored the possibility of higher wages. Most economies existed in this kind of slow meandering and scarcely improving condition for centuries. Life was, to borrow Hobbes’s infamous phrase “nasty, brutish, and short.”
We then broke free from this. Why?
Because of changes in the cultural attitude towards commerce. Making a buck became acceptable. A commercial class fought off the tyranny of religion and aristocratic authority and launched us all on the path towards our current cornucopia.
The adjustment was painful and very quick. Only in a few generations whole ways of life were ripped apart and reconstructed around the new industrial world order. Resistance was fierce. Idealist of various political hues romanticized the agricultural way of life as an idyllic ideal that had been trampled upon by the greed of faceless capitalists whose only goals was self-enrichment. The value system of centuries was tossed aside in the pursuit of profit. Viewed from the perspective of 1848 the idea that industrialization and capitalism was socially beneficial, rather than simply a festival of greed, was easily criticized. Those dark and satanic mills compared poorly with the fresh air and green pastures of the older way of life.
Yet it was socially beneficial. We all live immeasurably better off than even the richest of our forbears. We live longer. We are healthier. And we generally avoid the crushing toil of eking out a subsistence living. The Malthusian era was consigned to history.
Within all this change one stands out: workers went from surviving day-to-day by cobbling together work from various sources and from being flexible in their skills, to being employed full-time and much more specialized. Critics called this new way of life “wage slavery” a less scornful description is, perhaps, a reliable income. Either way the workforce adapted to the new reality and by the so-called golden era of the post-war period in the 1950s and 1960s the shift to reliable incomes had, along with the establishment of the New Deal safety nets, allowed what we now call the middle class to emerge.
And this is the point I want to stress: it was this combination of reliable income and safety net that allowed the middle class to exist.
Think of this from a different perspective: think of it as a problem of risk management.
Prior to industrialization the risk inherent in everyday life was both large and borne mainly, if not exclusively, by the individual. They were responsible for dealing with all the risks they faced. There was no insurance and insufficient reward to avoid the consequences of poor harvests, poor health, and so on. Neither was there a concept of retirement: you worked as long as you lived, which was usually not too long.
All this risk was gradually replaced by the new institutions of the industrial era. Insurance became a reality. Various forms of benefits supplied by employers became a routine aspect of the employment contract. And even though employment itself could still be precarious, political efforts had carved out a whole panoply of state provided safety net programs to cushion the worst risks that could befall a worker.
This may not rise to your own definition of a beneficent society but it was a whole lot less risky than anything that had gone before. Full-time employment was a triumphant aspect of the industrial era. For a few precious generations it provided for a different way of life that was longer, healthier, and less prone to the slings and arrows of misfortune.
And all that is changing.
Beginning with the politically driven effort to push more responsibility onto the shoulders of individuals, whether this effort was well-meaning or whether it was driven by corporate greed, the newt effect has been to drive up the riskiness of life that workers now have to bear. We are going back to a more primitive work style and it is the workforce that is bearing the brunt of the risk. During the industrial era businesses offered benefits as an add-on to wages. It began as a competitive bid to build loyalty in the workforce, it was reinforced by union pressure to make such benefits a normal part of employment, and it became the socially acceptable norm. Workers expected to be given benefits.
But the provision of benefits is expensive: corporate workforces are small pools for insurance, the cost of health benefits rose much faster than the general price level, and the addition of more and more features eventually raised the per-worker expense onto a plane the easily became a target of profit driven managers.
So, beginning in the 1980s, and with accelerating force in the 1990s, businesses began to cut into their benefit programs and, eventually, to offload more and more of the cost onto the shoulders of individual workers. In-house training was jettisoned first. Other forms of benefits started to go, and the biggest to fall was the guaranteed retirement, or “defined benefit” program that was a bedrock of middle class financial security. Defined benefit plans were replaced with what are called “defined contribution” plans where it is left to the employee to determine both the level of savings and the investment strategy applied to those savings. Since most workers are hardly qualified as investment experts it is hardly surprising for us to find a few decades after the shift that most middle class families have insufficient savings for retirement.
But my point is a larger one: the entire effort by business to reduce employee costs by shedding benefits was only one part of a broader campaign to boost profit at the expense of wage earners. It manifested itself also in a second great wave which was the switch in employment itself away from fulltime to more and more contingent work.
Contingent workers do not receive benefits of any kind. They are not eligible for unemployment benefits. They have to bear the full cost of any time off. They have to manage their own savings. They are unpaid when they are sick. And they need to source all their own insurance. While this may appeal to those of a libertarian point of view, it represents a massive and historic shift of risk from the financial statements of business and onto the far smaller and less diversified financial statements of families.
The results are manifold. The most discussed being the enormous divide that opened up between rising productivity and stagnant wages. Business have benefitted from the productivity whilst they have hammered down on the wage and benefits they pay. The two ought move in lock step. Since about that late 1970s they have gone separate ways. So even while society has asked families to shoulder more and more risk – in the name of individual responsibility – the resources needed to manage that risk have not been shared. They have remained in corporate income statements and, ultimately, in the pockets of the management class and shareholders.
It can be little wonder then that this uncompensated shift in risk has had the effect of dampening risk appetite in the general population: new business formation has slowed appreciably; people are more risk averse in their career choices; innovation has declined; and attitudes towards consumption are in the process of changing too. We have produced a less optimistic and enthusiastic workforce. And this production was deliberate.
Not only this, but our institutions are radically out of date. With the industrial era closing behind us and with contingent work now the most rapidly growing segment of work on offer none of our state policymaking institutions have kept pace with the new risk dynamic. We do not, for instance, enforce the portability of benefits. Nor do we provide insurance to smooth the variability of incomes that nowadays are less reliable month to month than they were in an era of full-time employment.
But, enough, the workplace has changed. The nature of work has changed. The prospect before a young employee is that he or she will be constantly bouncing from “gig” to “gig.” This unreliability brings with it non-financial benefits: freedom to establish the pace and amount of work, the avoidance of the crushing bureaucracy of corporate life, the easier match of specialized skills to the work performed and so on. Surveys of contingent workers who choose to follow that lifestyle show them to be happier than fulltime workers. But that risk gap yawns wide.
We need to close it.
Our Comment
Some, like Karl Polanyi (The Great Transformation), would take issue with the idea that “full-time employment was a triumphant aspect of the industrial era.” In the forward to The Great Transformation, R.M. MacIvor points out that, “with a new liberation went a new servitude” – that, “the reduction of man to labour and of nature to land under the impulsion of the market economy turns modern history into a high drama in which society, chained protagonist, at last burst its bonds.”
In the concluding chapter, “Freedom in a Complex Society,” Polanyi asserts that “if industrialism is not to extinguish the race, it must be subordinated to the requirements of man’s nature.” On a positive note, he declares that “an industrial society can afford to be free” – that, “the passing of market economy can become the beginning of an era of unprecedented freedom.”
His perception that society had, at last, seen the end of the market economy has, alas, proved somewhat premature.
Before the enclosure movement which herded people into industrial centres, at least people could sustain themselves in the sharing of the commons in a largely agrarian society.
To suggest that “businesses [offered] benefits as an add-on to wages” neglects the reality that both wages and benefits were hard won at considerable cost and sacrifice to struggling workers.
The suggestion that the demolition of those hard-earned benefits might have been “well meaning” is not a little surprising! The point that it was really “to boost profits at the expense of wage earners” and part of a broader campaign that has morphed into “[switching] employment itself away from full-time to more and more contingent work is closer to the truth. The deliberate lowering of expectations within the work force, and the rosy pictures of “non-financial benefits” like “freedom to establish the pace and amount of work” are hardly satisfactory.
Given, especially, the possible next phase, subject of The End of Work, by Jeremy Rifkin, chances of closing “the risk gap” without significant change – such as a guaranteed annual income – are zero.
Élan
