The unsustainable contingent workforce

Den Howlett Profile picture for user gonzodaddy January 8, 2018
The rise of the contingent workforce is not a new phenomenon. But it's a dead end that couples a failing business model to an outdated view of work.

via gapingvoid
In the lead up to the holiday period, I spent a good amount of time endeavoring to get a handle on what the contingent workforce is about. I'd asked some vendors to give me their take. None were overly keen on discussing the topic. I now understand why.

In all the discourse around people, I see a wide and deep gulf emerging. There are those who are considered 'talent.' And there are those who aren't, or won't be.

Talent can (mostly) pick or choose what they do, where and when they do their thing and, in many cases, at whatever pay/benefits level is right for them. These are the folk for whom the so-called 'war for talent' is real and they're in the driving seats. They have jobs in the conventional sense, where even though the 'hire at will' Sword of Damocles may hover close, it ain't close enough to cause concern. These are a small but likely growing minority.

Talent wars are real

Think I'm wrong? Check this from Phil Wainewright's conversation with Kenneth Renneberg Head of Candidate Attraction Northern Europe, Specsavers where there is a heavy demand for well-qualified people:

Literally nobody applies in this business. It’s not a Specsavers problem it’s an industry problem. Because there are so few people and they all know each other, they are used to being tapped or being introduced to a company.

The corporate banking world used to be the first choice for PhD's with Game Theory talent. These were the folks writing high speed algorithmic trading programs and being paid fortunes for doing so. Silicon Valley is luring them away in droves. (FT subscription needed)

Big banks have more or less given up on trying to retain people with higher pay. Ever since the financial crisis it has been clear that if you want to get seriously rich, you go to Silicon Valley. Ruth Porat laid down a big marker in 2015, swapping an annual $13m or so salary as CFO of Morgan Stanley for a package at Google (now Alphabet) about five times bigger.

I'm sure you can think of other examples.


For his part, Holger Mueller casts the net a little wider, arguing that:

  • Talent is short in supply - We know that the first world is suffering from a workforce qualification problem, enterprises need to prepare for that.
  • The silver tsunami is coming - Most developed countries also see an aging workforce as a key challenge on the road ahead.
  • Life / Work Balance matters - For the first time we are seeing people en masse deciding for a better Life / Work balance and opting for Life.
  • The shift to Projects - We are seeing a departure from lifelong employment, baked positions held for decades to a more flexible composition of teams that get work done.

He sees the answer in something he calls 'transboarding,' where he envisages systems that:

  • Seamlessly onboard existing employees, potential hires and external contractors and freelancers.
  • Have a project approach to positions and a temporary view on project team composition.
  • Consider project position timelines and upcoming projects skill needs in Learning systems
  • Formalize project start and end charters.
  • Formalize position transfers in a transparent and scalable way.
  • Formalize project transitions in a transparent and scalable way.

Note that Mueller is not suggesting that staff come and go but that they are moved about as more work is done in project fashion. These ideas all fit with the general exhortation that people should become polymaths as their careers move from one specialty to another. How well that works out has yet to be determined. It is not as easy as might be imagined.

Is that the future of work? Try this instead from Phil Fersht:

I would go as far as declaring 2018 as a new beginning of the value of the full-time employee – where alignment with the mission, spirit, culture, energy and context of an organization has never been so important.

You've been outsourced. Get over it - or not

That's fine as far as it goes. But then what do you do when, as is happening at the UK NHS, the non-core job you thought was as necessary as that of the care staff, is about to be outsourced to a company on terms that might undercut both your security and your pension rights? That IS happening right now and is leading to all manner of covert, subversive activity by those who are most likely to be affected. Then there are the cases where employees about to be outsourced were misled. Check this from Politico:

A UPMC representative stood in front of the group and told them their jobs were being outsourced to a contractor in Massachusetts. The representative told them it wouldn’t be a big change, since the contractor, a firm called Nuance Communications, would rehire them all for the exact same position and the same hourly pay. There would just be a different name on their paychecks.

Borland soon learned that this wasn’t quite true. Nuance would pay her the same hourly rate—but only for the first three months. After that, she’d be paid according to her production, 6 cents for each line she transcribed. If she and her coworkers passed up the new offer, they couldn’t collect unemployment insurance, so Borland took the deal. But after the three-month transition period, her pay fell off a cliff. As a UPMC employee, she had earned $19 per hour, enough to support a solidly middle-class life. Her first paycheck at the per-line rate worked out to just $6.36 per hour—below the minimum wage.

This kind of labor attrition has been going on for many years and is only set to accelerate as companies attempt to pull more levers in an effort to reduce labor costs.

The stealth march to reduce cost

That leads us neatly into the idea of the contingent labor force, those that will follow the project mantra or are only required on a part-time basis. Here is how Politico put it:

Over the past two decades, the U.S. labor market has undergone a quiet transformation, as companies increasingly forgo full-time employees and fill positions with independent contractors, on-call workers or temps—what economists have called “alternative work arrangements” or the “contingent workforce.” Most Americans still work in traditional jobs, but these new arrangements are growing—and the pace appears to be picking up. From 2005 to 2015, according to the best available estimate, the number of people in alternative work arrangements grew by 9 million and now represents roughly 16 percent of all U.S. workers, while the number of traditional employees declined by 400,000. A perhaps more striking way to put it is that during those 10 years, all net job growth in the American economy has been in contingent jobs.

Optimists naturally point to the historically low levels of unemplyment, but those same people ignore the fact that labor participation is falling and that even where there is work, the value going back to the general workforce continues to decline in real terms. And before anyone throws the AT&T bonuses that were widely touted following the US tax cuts, it's worth remembering that no sooner had we drawn admiring breaths from that then we learned that AT&T plans significant layoffs. Without wishing to sound too cynical, companies are going to accrue for bonuses when they see their Federal Tax bill falling from 35% to a flat 21%. The impact of bonus payments is much greater in reducing last year's tax bill. In AT&T's case, it amounts to $28 million. A decent chunk of change.

The Politico story looks for political solutions to the pay problem that is inherent in the contingent workforce model, suggesting that Washington has been glacially slow in both recognizing and then figuring out how to help those who are impoverished as a result of these trends.

Those who support the idea of the contingent workforce argue flexibility and agility when in reality they mean cost reduction. Who foots that bill? Umm..guess.

A race to zero

The problem I see is more fundamental. For all the exhortations around the need for impacted workers to magically find something new, the assumption appears to be the eventual elimination of labor, whether through fancy footwork in the reclassification of workers via outsourcing to 'contingent' and/or through robotic replacement. That's fine if you're an amoral corporation that only cares about continued performance improvement. But nobody seems to be asking the obvious question - what happens when you've gotten rid of most/all the labor?

Is it realistic to assume that 100%, 80%, or even 50% of those displaced can be retrained or brought to as yet new and unheard of job types of the kind that are considered valuable?

If the track record of the last 30-35 years is an indication, then the answer is a resounding 'no.' The strictures under which business is currently organized leave no room for thinking about the new types of people required or the new job types that will be needed. You only have to consider how the concept of the apprenticeship has all but faded from the workplace, how skills once coveted have been altogether lost as machines have replaced that skilled work, or how training has become (almost) a thing of the past for all but the most enlightened organizations. Neither does the current pursuit of improved corporate performance come with any real sense of a broader social contract that provides the wherewithal for improved lives.

There are ways in which this evolving tragedy can be overcome but it will require a wholesale rethinking of what it means to be a for-profit 'business.' If that smacks of the political, then you'd be correct. As far as I can tell, the idea that the market is always right only works one way - in the interests of the corporations which, I suggest, are on the wrong path to creating long-term sustainable businesses. As has been said many times in the past, you can be as efficient as you want and stoke the GDP figures accordingly. But if in the process, you shrink the market for goods and services then no amount of improved output can compensate. Sooner or later, the business implodes.

My take

Working as a contractor can have benefits. Potential employers can get a feel for the suitability of candidates without the incumbrance of employment contracts and legislation that ties both sides up in a plethora of regulation. Potential employees can show their worth, while simultaneously assessing whether the employer is likely to make a good fit. Those benefits should not be under-estimated but then only available to a relatively small number of people.

While the process of shifting employees out to less secure, contingent work situations has been ongoing for years, and still accounts for a modest proportion of the workforce, my concern is that we will see a marked acceleration in the coming few years, augmented by robotic automation that adds to the pace at which people are displaced.

It doesn't seem (at least to me) that there is much by way of safety nets or policies in place to help these people beyond extolling the virtues of 'choice' and 'flexibility' as contingent workers. It is all very well for optimists to talk in terms of mass STEM education programs and alternative types of work as ways of improving people's opportunities, but it is hard to see how that has the kind of impact where experience is more relevant than rote education or where the cost of re-education or even relocation is out of reach.

I hesitate to blow the 'universal basic income' horn because that in itself doesn't solve the problem. It merely kicks the can down the road, albeit alleviating the worst effects of unemployment in the short term.

As I have said, the fundamental premise upon which business is oriented needs to change. But it will require corporate pain coupled with enlightened policymaking that recasts the social contract. Right now I see little appetite for that.

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