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Domestic Job Killers

Domestic, not foreign outsourcing is a major problem for America. As the LA Times concludes, "The growth of outsourcing partly explains why so many millions of Americans have tumbled down the economic ladder. As a result, the middle class no longer constitutes a majority."
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There is considerable discussion of outsourcing American jobs to foreign countries, especially Asian nations like China and India, as well as to Mexico. Although it has been a powerful issue for years, there is renewed attention since Donald Trump has made it a major feature of his campaign. In his speech in western Pennsylvania, Trump declared that American companies were "moving our jobs, our wealth and our factories to Mexico and overseas," and unless steps are taken "the inner cities will remain poor, the factories will remain closed." What Trump and other advocates have missed, however, is the extraordinary amount of outsourcing going on within our borders, and its effect on the middle class.

The LA Times brought new light to this situation with a major piece, "Outsourcing Puts Squeeze on Middle Class." In an introductory anecdote, the article described the fortunes of Alfred Molena. Working for Bank of America as an ATM repairman, Molena made $45,000 a year and had health insurance and a 401(k) plan. Though hardly a lavish salary, it was enough to support his wife and two children, and take an occasional vacation. Mr. Molena, an immigrant and without a high school diploma, thus mirrored what Mr. Trump heralds as the golden years for Americans, when a good job in a union shop, in industries like auto and steel, guaranteed a decent wage for the working and middle class.

In 2008, however, B of A subcontracted the work to Diebold, Inc., a domestic firm with its cheaper labor. Molena now drives a long distance truck for $30,000 a year and has no life insurance: "I cannot afford it." He lost his job to domestic, not foreign outsourcing.

The Times reports that this is a common, not extraordinary story: "From human resource workers and customer service reps to cooks, janitors and security guards, many occupations have been farmed out by employers over the years. No one knows their total numbers, but rough estimates based on the growth of temporary-help and other business and professional service payrolls suggest that one in six jobs today are subcontracted, or almost 20 million positions, said Lynn Reaser, economist at Point Loma Nazarene University in San Diego."

These kinds of domestic, not foreign-based cutbacks have always been a part of American business. Andrew Carnegie came to dominate steel production in this country by lowering the production cost, and thus the price of his product. He continually said he wanted to see figures on cost, not on profits, since attention to one would automatically produce the other. I suspect this approach drove his partners crazy.

But research by David Brody, the great labor historian, showed that Carnegie attained his most important results by cutting the cost of labor, an area in which he achieved greater success than any other.

So it was then, so it is now. "If a firm wants to save labor costs, outsourcing is just a way of resetting wages and expectations," said Susan Houseman, a senior economist at the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich.

As in Carnegie's day, the effect is potent. "Rosemary Batt and other researchers at Cornell University found that large employers at subcontracted call centers, for instance, paid their workers about 40% less than comparable workers employed in-house at large firms, not including the value of health and retirement benefits."

This is not just a concern for unskilled workers. Mr. Molena had a highly skilled trade. Doctors and lawyers now frequently are in part-time, piecework positions. According to Forbes, 51% of faculty in higher education are part-time. This is all domestic outsourcing, hiring part-time workers with lower wages and benefits to replace full time employees.

What can be done to address this situation? For many disposed workers, training is often ineffective. Enrolling someone in a program not linked to industry's needs is a waste of money and the client's time, and produces well-justified frustration. Years ago, however, the City of Big Shoulders ran the Illinois Retail Academy through a community college, targeting welfare recipients. The program was wildly successful moving individuals into jobs with some of the best stores in Chicago. But it had started with major industry buy-in, with the curriculum designed by the Illinois Retail Merchants Association.

The other major effort should be in unionization. As in the glorified-by-conservatives 1950s, when unions achieved the wages and benefits that lifted workers to full citizenship, so they could now fight for part-time workers.

Clearly this will be harder with part-time workers, who do not identify themselves as sharing the fate of the companies that employ them. But there have been successful organizing campaign of graduate assistants, a group that is incredibly temporary and also incredibly vulnerable to pressure.

A better example would be the Pullman car porters. These men were hired on the basis of their ability to be accommodating, to care for the needs of others. If ever there was a group that was not inclined to stand up to management, this was it. Yet A. Phillip Randolph managed to create the successful Brotherhood of Sleeping Car Porters and achieve better conditions.

Domestic, not foreign outsourcing is a major problem for America. The stakes are incredibly high. As the LA Times concludes, "The growth of outsourcing partly explains why so many millions of Americans have tumbled down the economic ladder. As a result, the middle class no longer constitutes a majority."

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