The 21st Century Workforce
By: Katie O’Gorman | NLC DC 2013
Progressives Must Embrace both Change and Reform to Ensure a Robust 21st Century Commitment to Workers
The American economy has evolved to demand a reinvention of the American workforce. The fundamental relationship between employers and workers is changing. Progressives must step forward to ensure that this next era of work is defined with progressive values, balancing the prospect of innovation with worker protections and opportunities.
In the past, highly integrated companies provided opportunities, protections and benefits for their employees. Their commitment to their workers reflected a view that the prospects for future success hinged on a highly-trained and motivated workforce.
Technological advances have fundamentally changed business today, presenting both tremendous opportunity and simultaneous challenges to workers. Workers may have access to flexible work hours and supplemental income, but also confront the erosion of a system of benefits and protections.
The Evolution of the Workforce
While online platform companies like Uber have raised the prominence of independent contractors, the trend is not isolated to the online platform economy. Businesses, responding to competitive pressures and new demands from capital markets, began first to outsource non-core activities to focus on key strategic priorities. Then, in pursuit of ever more flexible and inexpensive workforces, they began to rely more heavily on independent contractors, part-time workers, and seasonal hires. The result is the erosion of the worker safety net and the emergence of a new economy with few worker protections.
The result is not simply the reorganization of similar jobs. Subcontracted industries are often much more competitive than those who contract their services. This puts significant downward pressure on wages and benefits, and leaves fewer opportunities for companies to invest in their workforces.
There is little evidence to suggest that this trend will reverse. Companies continue to be under similar pressures and the digital landscape is adding further strain. Stanford lecturer Rob Siegel and Box CEO Aaron Levie recently characterized companies at risk for digital disruption. Included in their criteria were companies that own rather than rent assets, invest in physical locations rather than on-demand services, or are unable to adjust to market needs because of slow product development cycles. This will only boost pressure to further subcontract non-core functions to allow companies to adapt to a highly dynamic economic environment. It also highlights that changes to the workforce are systemic, demanding an approach that incorporates all stakeholders, from investors to workers.
Rise of the Independent Contractor
A further iteration of the changing relationship between worker and employer is the rise of the independent contractor and similar arrangements. The ascent of online platform companies that depend upon independent contractors, such as Uber or Lyft, only illustrate the increased reliance on the independent contractor. While just 0.5% of Americans currently work in the online platform economy, the sector is projected to grow to 2.7% of full-time employment by 2025.
The increase in the use of independent contractors spreads well beyond the headlines of the online platform economy; from 2005 to 2015, all of the increase in net employment across the country could be attributed to alternative work arrangements, such as independent contractors. The number of Americans working in such structures grew by over 9 million through the period. This trend spans industries, including professional services, education, manufacturing, and healthcare.
Employers have a significant incentive to move to an independent contractor workforce. By avoiding costs such as those related to healthcare, social security, or workers compensation, employers can cut labor costs by over 30%. For instance, workers rather than employers become responsible for the full amount of the self-employment 15.3% FICA and FUTA taxes. Independent contractors also give companies the flexibility to adjust to changes in market demand more easily.
Yet, the flexibility and cost savings afforded to companies further deteriorates protections available to these workers. Independent contractors are unable to unionize, often lack discrimination protections, and are not subject to minimum wage or overtime restrictions.
For some workers, the independent contractor status can be an advantage. The detachment from a traditional employer relationship allows an independent contractor to select jobs and may widen the range of jobs to select from. It can allow for flexibility in work hours, a potential asset to those raising families or those needing a secondary job opportunity. For instance, most workers in the online platform economy are using the opportunities to make up for a dip or loss of income rather than seeking their primary job through the platform.
Technological Change Altering the Future Landscape of Work
The American workforce is now confronting new technological advances. The speed of technological change is exponentially increasing, raising questions of whether workers can keep up with its progress. The cost of technology is rapidly declining; for instance, from 1980 to 2006, the cost of standardized processing fell by 60% to 75% per year. Some estimates currently project that almost half of current US jobs are at risk of computerization.
Technological advances have already improved local economies. Progressive Policy Institute’s 2015 Tech/Info Job Ranking found that communities with higher percentages of tech jobs saw higher growth rates of non-tech jobs; the top 25 ranked local economies with highest tech jobs saw a growth rate of 10.4% during 2011–2014 and non-ranking counties only saw a growth rate of 6.8%. Moreover, sharing economy businesses spurred increased spending; for example Lyft, one popular ride share business, found that in 2014 passengers contributed an increased $225 million back to their local economies. The returns to the technology economy are higher than those to other sectors. New innovation jobs create 5 additional jobs, while traditional manufacturing jobs were linked to only 1.6 additional jobs.
While there is significant conversation on how these advances are shifting opportunity, one thing is clear: the good jobs of tomorrow will rely on high-skilled workers paired with technologies that make them ever more productive. The changing relationship between employers and workers has also impacted the way the country trains workers. Because workers are now more likely to be only loosely tied to their employers, many companies have fewer incentives to invest in their workforce. Nearly all of employer’s’ current investment in their workforce supports already highly skilled workers. The result is that employees are left to bear the risk of any investment in new skills.
The opportunity and challenge now is ensuring that workers across the country are able to acquire the skills necessary to meet the needs of tomorrow’s industry.
Worker Expectations
The evolving workforce is largely the product of pressure from the market, but workers’ preferences will also shape the future of work. Millennials are now the largest generation in the workforce, recently overtaking Baby Boomers. Much has been written about the work preferences, but it is difficult to disentangle their preferences from the fact that many millennials entered the workforce in one of the deepest recessions in recent history.
Despite conflicting reports, one thing is clear: Millennials are currently dissatisfied with their jobs. Over 70% of Millennials, now the largest generation in the workforce, are disengaged at work. More than 60% expect to leave their current employer within 5 years. This could either reflect a generation that prefers shorter tenure or a workforce that feels like their jobs are inconsistent with their values.
Many reports show that Millennials seek employment opportunities that reflect their values. They seek employers that invest in their development and allow them to find a sense of purpose in their work. They believe that employee satisfaction, a focus on ethics, and customer care will define a company’s success.
The recession may have dampened opportunities for Millennials to seek work opportunities that reflect these values. Despite dissatisfaction at work, Millennials have a longer average tenure than previous generations, reflecting perhaps the difficulty in finding work.
A Progressive Vision for the Future of Work
Progressives must step forward to shape the new contract for the future of work. While past structures of benefits and protections may not be appropriate for a new economic environment, a new vision should be marked by the progressive values of equality, opportunity, fairness, and innovation. Progressives need to write the playbook for ensuring safe and fair work arrangements while not impeding the same innovation that will allow America’s entrepreneurial spirit to tackle problems of inequality in some of our poorest communities.
Modernize Benefits for Today’s Economy
The rise of the independent contractor exposed the limitations of the current worker safety net. Today, the provision of benefits — such as workers compensation, health insurance, and retirement — is tied primarily to employers. Many independent contractors, temporary workers, or part-time employees are shut out from these critical benefits, leaving them more vulnerable to shocks.
A progressive vision calls for a portable benefit regime that reflects the new model of work. All workers should have access to a basic safety net no matter their employment arrangement and should not lose access to benefits when they change jobs. Employers, whether hiring workers as contractors or full-time employees, should be allowed to contribute proportional to the work performed. These principles would meet the business need to hire flexible workforces while supporting competition that is not based on eliminating the cost of benefits alone.
The Affordable Care Act (ACA) represented an important step toward a new benefit structure. Though most Americans still receive healthcare benefits through an employer, the ACA made it possible for many contractors to independently purchase affordable health care through exchanges. Yet, as recently documented by the Aspen Institute, there are other models of a portable benefit regime. For instance, New York provides workers’ compensation to for-hire drivers through a black car fund. Critically, they must both address the flexibility required by independent workers yet call for employers to contribute their fair share.
Reinstate and Expand Worker Protections
New work structures have left many workers without access to basic protections. The increased use of the independent contractor classification bars many employees from collective bargaining and other civil rights protections.
The new structure of organizations has also made it more difficult to enforce existing protections as responsibility becomes more diffuse. Today, a worker’s direct employer, particularly in a large network of subcontracted firms, may be facing pressure from its customers and competitors to cut corners on workers protections and benefits. The firm they are employed by may not be the firm that ultimately sets the price and wages for their labor.
Collective bargaining and other protections have not adapted to these new pressures, severely limiting their ability to be a balancing force to the downward pressure on workers and wages. Further, it has become more difficult to investigate potential violations of worker protections; David Weil estimated that the probability of an investigation is below 1 in 100, while industries with a more complex network of subcontracting have a probability below 1 in 1000.
A progressive vision of the future must demand an end to what many have called the race to the bottom on wages and benefits. Workers should be afforded new opportunities to bargain across multi-employer units, allowing them to bargain with a value chain or competitors. It also demands new models for worker organizing to push back against new market pressures.
The government should strengthen enforcement of worker protection and ensure that all employees are covered regardless of their employment status; violations should be made public, allowing for greater transparency.
These changes do not amount to needless regulation, but simply basic protections for workers. This distinction reflects what some workers themselves want. For instance, those in the online platform industry want better benefits, training, and protections, but do not call for greater regulation.
Ensure Opportunity for All
As the future of work develops, all Americans should have access to the new economy.
Returns to education and training are outpacing growth. The highly educated are more likely to be fully employed and earning significantly more than their counterparts. The worker today, however, bears a lot of the risk and financial burden of developing these skills and in investing in the wrong skills. The workforce of the future requires both new ways for individuals to appropriately build their own skills and new incentives to encourage businesses to develop their workers.
To help workers invest in themselves, the public should build strong schools and resources to help workers understand what skills are in demand. This requires a continued commitment to college and vocational training affordability and an improved K-12 school system. Yet, it must also meet the needs of workers retraining for the jobs of tomorrow, helping workers to develop fluency in emerging technologies. State and local governments can play an important role in helping their workers navigate the economic system around them.
Employers are also uniquely positioned to understand what skills are in demand in the new economy. This fact is why it is critically important to restore the role of businesses in developing workers.
There are examples of serious investments in workforce training. Organizations like UFCW, are providing vital training to workers and then certifying workers’ skills, providing businesses with a workforce they can be confident in and the workers with certifications they can use on the job market. Local and state entities should provide incentives for businesses and organizations to support similar trainings.
The innovation economy is disrupting major industries and creating new ones. By developing a pipeline for developing and training workers, and allowing for flexibility of this pipeline to identify new opportunities we secure the inclusivity of jobs to everyone.
Editors Note: This piece was first published in NLC’s 21st Century Economy white paper series in 2016.
Kate O’Gorman is a 2013 Fellow of New Leaders Council Washington, D.C., and served on the advisory board of the chapter thereafter. She has a dual MBA/MPA from Stanford Graduate School of Business and Harvard Kennedy School of Government.
