On October 1, United Airlines is planning to outsource 630 gate agent jobs at 12 airports to companies that pay near-poverty level wages. The airports affected include Salt Lake City; Charlotte, North Carolina; Pensacola, Florida; Detroit and Des Moines, Iowa.
As a result hundreds of employees who formerly made middle-class, living wages will be forced to transfer to other cities, take early retirement or seek employment elsewhere. Union employees who have been with the company for years -- many making a respectable $50,000-per-year salaries -- will be replaced by non-union employees who will be paid less than half -- between $9.50 and $12 per hour.
Nine-fifty an hour is a poverty-level wage if you are trying to support a family -- and $12 barely exceeds the poverty level. In fact at $12 a family of three makes so little that they are eligible for food stamps.
That, in effect, means that United and its subcontractor will be subsidized by American taxpayers for the food stamp payments made to their new low-wage workers.
United's move to convert middle-class jobs into near-poverty level jobs is shameful -- it's that simple.
And United's move to cut employee pay is emblematic of corporate America's systematic campaign to lower wages and destroy the American middle class in order to increase returns to Wall Street shareholders. It is exactly the kind of action that must come to a screeching halt if the middle class is to survive -- and our children are once again be able to look forward to prosperous secure lives.
Remember that United is not slashing wages in order to compete with firms that pay cheap foreign wages. You have to use American workers to run your gate operations in the United States.
United claims it is outsourcing these jobs to improve its financial performance. The company lost $609 million in the first quarter -- though last year United netted over $1 billion for shareholders overall. And over the last four quarters, earnings and revenue figures for the airline have been increasing quarter over quarter, which overall have left investors pleased.
On the other hand, United management is unhappy that its stock is not performing well relative to other airlines, so they have begun a systematic campaign to cut costs.
But whatever their financial needs, big companies cannot be allowed to solve them by exploiting the people who work for them by paying near-poverty wages.
In America we believe that you should have the opportunity to strike it rich. But you should not be allowed to do that by exploiting other people. You can make all the money you want so long as you pay your employees a living wage first.
Over the last 30 years per capita productivity and per capita gross domestic product have both increased by almost 80 percent. If the benefits of that increase were widely distributed, most average Americans would be 80 percent better off today than they were 30 years ago.
But instead average wages have stagnated -- and most normal people are struggling just to keep up. That's because almost all of that increase has been siphoned into the hands of the top 1 percent and out of the pockets of middle-class families.
United's outsourcing plan is one of the methods that has been used systematically by corporations and Wall Street banks to achieve this result.
And it is exactly the kind of action that we must stop if we are to prevent America from becoming a society composed of a tiny number of wealthy semi-aristocrats and a massive number of workers who barely make enough to make ends meet.
The victims of United's outsourcing will not just be the employees and their families. The move will contribute to the increased proportion of gross domestic product going to wealthiest Americans and the big Wall Street banks -- and lower the proportion going to everyday Americans.
That means that ordinary Americans will have less money to spend on the increasing number of goods and services that our increasingly productive economy produces. If this trend continues the inevitable results will be to lower demand for products and services, lower economic growth and fewer jobs.
It is ironic that one of the stations United is outsourcing is Detroit -- the very location where Henry Ford raised the wages of his employees because he understood that in the long run, it was better for business if his employees made enough to buy the cars the produce.
Today, short-term bottom lines seem to be the only benchmark that guides economic decision makers at America's largest corporations and Wall Street Banks.
United is not the only airline to resort to massive outsourcing of middle class jobs. According to the Wall Street Journal:
American said the vast majority of its domestic airports already are staffed by Envoy or other contractors. Delta said only 42 of its 230 domestic airports employ Delta employees exclusively. Thirty-three airports have Delta workers as customer-service agents and Delta Global Services workers employed as ramp workers. In 80 airports, Delta Global Services workers perform both functions. Another 75 airports use other outside vendors.
Delta Global Services is Delta's own non-union subsidiary.
The new round of outsourcing just builds upon United's past actions:
According to the Journal:
United said it employs its own workers at 47 of 227 domestic airports and 27 airports use a mix of United and vendor employees. Fully 153 airports use outside handlers. United has said that as many as 30 more airports may be targeted for outsourcing...
United's move to cut employee wages also reflects a broader view of big corporations and Wall Street banks, that the work of ordinary people should not be remunerated with middle-class salaries at all.
"It does make economic sense," Michael Boyd, a consultant at Boyd Group International, told the Wall Street Journal. "It's not a $40,000 job to load bags. Cleaning planes is not a $20-an-hour job."
Really? I suppose clipping coupons and hanging out at the country club is a multimillion-dollar job. Or making successful bets on Wall Street is a billion-dollar job.
In fact, much of corporate America simply does not respect the value of the work performed by ordinary employees. That is not a view shared by most Americans.
A recent poll by Public Policy Polling sponsored by Americans United for Change found that three-fourths of American voters agree that someone who works full time should not be paid so little that he or she lives in poverty.
United's moves are part of its own systematic attempt to cut costs by outsourcing its services, since the airline also appears to be using more and more lower-wage "United Express" sub-contractors to supplant United's flights managed directly by the airline.
But the airline may be outsmarting itself with its cost-cutting moves. Its increasingly frequent delays and smaller more uncomfortable airplanes -- have resulted in increased discontent among the airlines bread and butter business travelers -- including "1-K" travelers like me.
Management Consultant Michael Boyd went on to tell the Wall Street Journal that: "....When outsourced, the work offers 'no career path, no loyalty. By its nature, it's temporary, until the next bid comes up. When you replace employees with Air Fred, you'll see the bottom line improve, but you'll get more lost bags.'"
What will prevent this increasing use of outsourcing by American corporations in general and airlines in particular in the future?
First let's be clear, the "market" will not some how slow this kind of attack on middle-class wages of its own accord. The "market" did not create middle-class incomes in the first place it will not restore them. Left to its own devices the increasingly globalized labor market drives a race to the bottom -- to child labor, sweat shops and 60-hour workweeks with no overtime pay.
Listen carefully and you'll hear corporations agreeing that this is true. When corporations say "competitive pressure made me do it" they are admitting that by itself, the market will not solve the problem.
The "market" may be a fine way to price corn or beans, but by itself it is not an appropriate way to price wages. That's because people are not commodities. Their well-being is the point of the economy. Everyone who works for a living deserves a living wage.
There are, however, ways to stop this race to the bottom. We need new rules of the competitive game that apply to everyone.
1). Change labor laws to make it easier for workers to exercise their basic right to form a union and collectively bargain over their wages and working conditions.
In this case the union representing United's gate agents fought to save as many jobs as possible -- and succeeded in reducing the number of locations where this outsourcing was originally planned.
But the problem is that there are non-union companies that pay near poverty wages to which these jobs can be outsourced in the first place.
The most critical element necessary to defend middle-class wages from this kind of attack is the need for a much higher percentage of American workers to belong to unions and receive descent wages.
But right now the rules are rigged against employees when they try to form unions. That would be fixed by proposals like the Employee Free Choice Act (EFCA) that was blocked by threatened Republican filibusters during the first two years of the Obama Administration when Democrats had control of both the House and Senate -- but lacked a filibuster-proof Senate majority.
2). Government action should be taken to limit the right of government contractors to outsource jobs to low wage sub-contractors. Why should American taxpayer dollars be used to support this kind of attack on middle-class incomes?
United Airlines does a substantial amount of business with the federal government and state and local governments throughout the country. Government can simply refuse to do business with airlines that systematically outsource good paying jobs to low wage sub-contractors.
There are a variety of ways that these regulations should be structured, but the key point is that the leverage of government purchasing power could be used effectively to reduce the incentive for companies like United to hire contractors that pay near poverty level wages.
3). United Airlines -- and all commercial airlines -- use a massive array of public goods. These include the public's airspace and airports that are often heavily subsidized by the federal, state and local government.
Companies that outsource middle income jobs to subcontractors that pay near poverty wages should be denied access to gates at airports and Congress should strictly regulate these kinds of actions as conditions for granting operating licenses to airlines.
4). Raise the federal minimum wage. An increase to $10.10 would be a start, but what is really needed is a minimum wage of $15 or more -- like the one recently passed for the city of Seattle.
A major increase in the federal minimum wage would massively decrease the incentive of corporations like United to outsource jobs to super low-wage sub-contractors.
Remember, these subcontractors don't pass all of the savings in wage rates along to United. The whole idea is that a portion of that savings is pocketed by the sub-contractor's management and shareholders. But by paying super low wages, these subcontractors can still charge companies like United prices that are cheaper than United's own employees -- even after giving sub-contractor shareholders a slice of the money that used to go to pay middle class workers.
If these non-union subcontractors were forced to pay $15 per hour instead of $9.5 to $12 their margins and ability to compete with United's own workers would greatly diminish.
5). Of course, to stop this attack on the middle class, it may be necessary to more fundamentally restructure the system of shareholder-only power that predominates in the American economy.
God did not send the idea that shareholders are the only constituency to which corporate management should be accountable as part of the Ten Commandments. It is a rule for our economy that our government has established, and it can be changed.
The Germans -- who have been very successful economically since World War II -- control their corporations differently. In Germany corporate governance does not fall exclusively to "shareholders" as it does in the United States.
It's system, is sometimes known as "Rhenish capitalism" or the "stakeholder model." There, firms are managed not only by representatives of the shareholders, but by the representatives of other stakeholders as well -- including the firm's workers, regional governments, consumer groups, and environmental organizations.
In Germany representatives of workers and other groups have voting positions on corporate boards. That approach might be exactly what the doctor ordered for the United States, since the recent action of United and other American corporations have proven the old adage that if you're not at the table, you're on the menu.
By focusing slavishly on short-term profits and maximizing the portion of corporate income going to shareholders, American corporations threaten to destroy the American middle class -- and the buying power of American consumers.
That threatens the long-term viability of the American economy. Worse it runs directly contrary to the essence of American democracy.
The American Revolution was fought to create a new democratic nation that could escape the hidebound society of 18th-century Europe where a tiny minority of aristocrats prospered at the expense of the vast majority of ordinary people.
The facts are now clear. America must take dramatic action to save its middle class and the American Dream.
And as a small start, United Airlines should abandon its plan to outsource the middle-class jobs of its employees and replace them with personnel who are paid so little that many would qualify for food stamps. Some of the United employees who will lose their jobs, or be forced to move to another city, or take early retirement have worked for United for 30 years.
If you agree tweet, your agreement to #ShameOnUnited. Tell United that it should add another slogan to its current ad campaign touting how it is "O'Hare Friendly" or "Wireless Friendly." How about "Middle Class Friendly."
An Addendum from Steve Silberstein, Executive Producer of the Documentary, Inequality for All featuring Robert Reich:
United CEO Jeff Smisek gave himself $8.1 MILLION dollars in 2014. If he had cut his salary to a "lousy" two million dollars a year instead -- that would save about as much money as the purported saving of lowering the pay of those 630 jobs.
As a point of comparison, the CEO of Southwest airlines, Gary Kelly, gets paid "just" $4 million a year.
In other words. an extremely successful airline is run by a CEO who gets HALF of what the less successful CEO of United gets.
The CEO of Lufthansa Christoph Franz got 2.3 million euros (i.e. less than $3 million dollars) in 2013.
The problem in the US is not that workers are highly paid -- it is that many many CEOs are outrageously overpaid.