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How the Economy Got Restructured to Screw Workers

Why should capital bother to enslave labor when it can eliminate it instead?

Hector Emanuel for The Washington Post/Getty Images

A lot of people think the gig economy is what ails the labor market, but that isn’t quite right. Granted, there’s ample potential for corporations to abuse workers by misclassifying them as independent contractors. It’s pretty easy. You congratulate your plucky recruits for their entrepreneurship and then you pay them less than the minimum wage (and no benefits). I explained how that works in my last piece (“Republicans Are Attacking a Biden Nominee Over His Stance on the Gig Economy”). But as best anyone can tell, the proportion of the workforce that consists of independent contractors (6.9 percent) is smaller than it was in 2005 (7.4 percent). That was four years before Uber’s founding.

What more often ails the labor market is the typical corporation’s off-loading of lower-wage workers (and therefore any responsibility to treat them properly) onto another, usually smaller company. That frees both businesses to concentrate on core strengths. For the corporation, that’s producing Product X or Service X. For the subcontractor or franchisee, that’s skirting Labor Law Y or Labor Law Z.

The janitors who clean your office at night? Fifty years ago, they’d almost certainly have worked for the same company as you did. Today they almost certainly do not. Either they work for a subcontractor or they work for a franchisee for one of the big janitorial franchise outfits like CleanNet USA and Coverall.

David Weil, an economist and dean at Brandeis’s Heller School for Social Policy and Management and the subject of my previous two dispatches, would say that janitors have been fissured. “Fissured” is a geological term to describe the spread of narrow cracks inside a rock. (Weil’s wife is a geologist.) The modern-day workforce can be thought of as a giant boulder webbed with ever-widening fissures. Janitors and hotel clerks and, increasingly, people higher up the food chain—even human resources workers!—have systematically gotten separated financially from the companies where they work. They may still wear the uniform, but the company name on it no longer matches the company name on their paychecks.

Weil explains all this in his 2014 book, The Fissured Workplace: Why Work Became So Bad for So Many and What Can Be Done to Improve It. I can’t name a more important volume published about the economy during the past decade; it’s a kind of update to John Kenneth Galbraith’s The New Industrial State (1967). Like that book, Weil’s is an eye-opening guide to the ecology of economic arrangements. It isn’t as witty as Galbraith—Weil is no prose master—but then again the story Weil tells is a lot gloomier. You really should read The Fissured Workplace, but if you’re impatient for a quick-and-dirty summary, try this.

Weil is President Joe Biden’s nominee to be administrator of the Labor Department’s Wage and Hour Division, a job he previously held under President Barack Obama. The business lobby is trying to block Weil’s Senate confirmation, and it may succeed; Senator Joe Manchin isn’t keen on him. That would be a significant setback for Democrats. But Weil’s ideas about how to enforce decades-old labor protections in the fissured workforce will likely drive Biden’s labor policy whether Weil’s confirmed or not.

The Fissured Workplace describes with admirable clarity capital’s disentanglement, over the past few decades, from labor. In the modern economy, capital no longer wants to make labor its slave, as Karl Marx would frame it. It wants to get rid of labor altogether. Since automation can’t yet achieve that to any satisfactory degree, the job of siphoning away workers falls to the aforementioned temp firms, franchisees, and other suppliers of contingent labor, few of which you’ve likely heard of.

But wait, you protest. We have a labor shortage! Doesn’t that contradict Weil’s thesis? Isn’t capital desperate for labor these days?

Yes. But the reason capital is desperate for labor—under unique circumstances created by a global pandemic—is that the fissuring workforce weakened whatever links in the chain connected corporations to workers. Covid-19 broke them, and the labor shortage that resulted created a temporary increase in the price of hiring someone new.

But don’t let’s kid ourselves. Capital still holds the whip hand. As The New York Times’ Noam Schreiber reported February 1, “There is little evidence that service workers are winning any meaningful, long-term gains.” Wages are up, but they aren’t keeping pace with inflation. Union membership is declining. Even as the omicron virus raged in January, the workforce grew by nearly half a million people. And economic growth during the last quarter of 2021 was nothing short of astonishing.

In this booming economy, the problem of involuntary part-time work remains every bit as bad as it was before Covid, and at restaurants and hotels, it’s slightly worse. Last-minute scheduling of hours, which plays havoc with family responsibilities, is no less prevalent. Neither is outsourcing. Gig work, despite its long-term decline, saw an uptick during the pandemic, preliminary data suggest. That’s what you’d expect after the unemployment surge we saw in the spring of 2020.

When Weil was Obama’s Wage and Hour administrator, he wrote a guidance document addressing how to enforce labor laws when workers are, at least on paper, employed by a company other than the one that they actually work for. The chief tool is a concept called “joint employment.” If the government can demonstrate that the employee of one company is controlled to a meaningful degree by another company, then it can hold both companies legally accountable for any wage theft or other labor violations that occur.

Obama’s National Labor Relations Board was extremely successful in assigning joint-employer liability to McDonald’s. McDonald’s is a corporation that can feed 25 million customers per day with a payroll of only 200,000. This latter-day miracle is made possible by an additional two million burger-flippers employed by franchisees. The NLRB made a persuasive case that the Chicago-based corporation exerted sufficient control over these franchisees’ employees to be on the hook for their labor violations, which were many. That prompted McDonald’s to settle the case. Unfortunately, by the time that happened, Donald Trump was president, and his NLRB was eager to put the matter behind it. As a consequence, the settlement was for a mere $170,000, a price that wouldn’t buy a decent one-bedroom condominium in Chicago.

Franchising, I have explained elsewhere, is a bit of a racket. A corporation absolves itself, in writing, of all responsibility for its franchisee’s workers. Then that same contract exerts so much control over every other aspect of the franchisee’s business that it becomes extremely difficult for the franchisee to eke out any profit at all without squeezing workers, often illegally. The franchiser doesn’t especially care whether or how the franchisee clears a profit because it takes its money off the top.

In the McDonald’s case, the NLRB was able to demonstrate that corporate headquarters was giving the lie to its written claim of noninvolvement with its franchisees’ employees by, for instance, tracking how fast Employee A filled an order as compared to Employee B. (For additional examples of ways McDonald’s kept its eye on franchise workers, according to lawsuits filed by McDonald’s franchise employees in 2014, click here.) The degree of control a franchiser exerts over its franchisees varies from company to company, and some franchisees have found a way to make franchising profitable (usually by scaling up). But in many cases the arrangement amounts to latter-day sharecropping. Friends don’t let friends put their life savings into sucker franchise ventures.

The NLRB’s joint-employment case against McDonald’s was brought under the National Labor Relations Act (1935), which defines employment somewhat narrowly. While the NLRB case was moving forward under Obama, Weil observed that it was much, much easier to make a joint-employer case under two other statutes: the Fair Labor Standards Act (1938) and the Migrant and Seasonal Agricultural Worker Protection Act (1983). He then shared that observation in his 2016 guidance document on joint employment.

Weil concluded his guidance by writing that, going forward, the Wage and Hour Division would “consider the possibility of joint employment to ensure that all responsible employers are aware of their obligations.” Weil didn’t say he was going to bulldoze the franchise model out of the modern economy. In fact, he didn’t mention franchising at all. (Subcontractors tend to be worse offenders.) But that’s how the business lobby took it. It persuaded Trump’s Labor Department to withdraw the document, along with Weil’s 2015 guidance document about gig work.

Now Biden has withdrawn the Trump Labor Department’s withdrawals of both directives. Going forward, the Labor Department will almost certainly follow Weil’s roadmap for enforcing labor laws written nearly a century ago. It would be better to have Weil lead this effort, because he understands the fissured workplace better than anyone else. But if Weil doesn’t do this job, someone else will. You can expect Biden’s Labor Department to continue to police labor violations in this fashion for at least two years more—even if Republicans win congressional majorities in November.

We have laws in this country about how much you have to pay people, and how many hours you can work them before you have to pay time and a half, and whether they can join a union or engage in less formal “concerted activity” concerning working conditions, and a variety of other matters, too. Enforcement of these laws has for many years been a joke. Replacing them with more up-do-date laws would be the best path, but that isn’t going to happen until the Democrats secure a bigger majority in Congress and rekindle their New Deal–era commitment to solving the problems of working people. Meanwhile, the Labor Department is hiring 100 new investigators to police wage and hour violations. That’s a good step. Getting Weil confirmed would be another one.