THE PROBLEM

Beginning in the late 1980s and early 1990s, many companies, facing increasingly restive capital markets, shed activities deemed peripheral to their core business models. The restructuring of business that followed can be likened to fissuring in geology. The shedding of activities starts in a limited area: cuts in the corporate periphery and functions that were cost rather than profit centers. Over time, fissuring deepens as tasks judged peripheral to core operations—maintenance, security, custodial care—are cut. It then spreads to include activities many of us would assume were more central to these well- known businesses: the front desk staff at hotel check- in; the drivers for the package delivery companies who come to our homes or offices; the tower workers who help assure uninterrupted cell phone service promoted in the commercials (and for which we pay a premium). Even the lawyers who handle our business transactions and the consultants who work for well-known accounting companies may now have an arm’s-length relationship with those by whom we think they are employed. 

Information and communication technologies have enabled this hidden transformation of work. These technologies provide the glue that allows lead companies to promulgate and enforce product and quality standards key to their business strategies, thereby maintaining the carefully created reputation of their goods and services and reaping price premiums from their loyal customer base. 

By shedding direct employment, lead business enterprises select from among multiple providers of those activities and services formerly done inside the organization, thereby substantially reducing costs and dispatching the many responsibilities connected to being the employer of record. In so doing, lead companies change a wage-setting problem into a contracting decision.

Three Impacts of the Fissured Workplace 

First, subsidiary companies providing services to lead businesses face pressure to reduce costs in order to win work. Since the contracted activity is often labor intensive, the pressure to reduce labor cost is severe. The result may be violations of federal and state minimum wage and overtime standards and other workplace laws.

Second, splintering work activities across companies, often with ambiguously defined responsibility for safety, leads to holes in coordination. This can trigger workplace injuries and fatalities as documented in a variety of industries such as underground coal mining, petrochemicals, cell tower maintenance, and even retail.

The third implication links the fissured workplace to widening income inequality. Wages set by businesses for their own workforce reflect both economic concerns and recognition of fairness norms. If the janitor working alongside a production line worker is employed by the same company, the janitor’s wages will tend to be pulled up. This means that integrated businesses share more of their value creation with their workforce through wages and benefits, even in nonunion settings. But if that janitor is someone else’s employee, this link is severed. In the fissured workplace, wage-setting is undertaken in many different orbiting tiers surrounding the lead business. And that tends to lower how much of the value created by the lead business is shared via the compensation of the people who do the work.

Responses to the Fissured Workplace

Laws originally intended to ensure basic labor standards and to protect workers from health and safety risks now enable these changes by focusing regulatory attention on a subset of the parties responsible for workplace conditions. Core federal and state laws that regulate employment, often dating back to the first half of the twentieth century, often assume simple and direct employee/employer relationships. They make presumptions about responsibility and liability similar to those we make as customers, presumptions that ignore the transformation that has occurred under the hood of many business enterprises. Traditional approaches to enforcing those laws similarly ignore the myriad new relationships that lie below the surface of the workplace. As a result, the laws crafted to safeguard basic standards, to reduce health and safety risks, and to cushion displacement from injury or economic downturn often fail to do so.

In essence, private strategies and public policies allow major companies to simultaneously profit from the core activities that create value in the eyes of customers and the capital markets and shed the actual production of goods and services and their associated social responsibilities. In so doing, they have their cake and eat it too.

How did the workplace fissure? What are the wider impacts? Is continued shedding of employment the inevitable outcome of a modern, flexible economy? Are there ways to assure that workers are treated fairly and responsibly given the continued pressure to fissure employment? These are the central questions explored in The Fissured Workplace.