VideoLast August, 185,000 employees of United Parcel Service of America Inc., incensed by the expanding use of part-time, lower-paid workers at the company, walked out in one of the most publicized work stoppages in years. Although the strike settled within 15 days, UPS estimates it cost the company more than half a billion dollars.
In 1993, independent contractors and freelance workers at Microsoft Corp. sued the software giant for denying them benefits, even though they signed contracts explicitly stating they were not employees. In July 1997, in a ruling that sent shock waves through Silicon Valley, the Ninth Circuit Court of Appeals ruled against Micro-soft--a decision that may ultimately cost the firm $20 million.
Since Delta Express pilots agreed to a new contract in December 1995, their union has been crying foul. The problem, say union officials, is that Delta Air Lines Inc. threatened to mothball the 737 fleet unless pilots for those planes agreed to less money than other company pilots. Delta Express pilots eventually caved in. Delta has since reported record profits in eight successive quarters, a fact that has some Delta Express pilots seeing red.
Given these news stories, you might think the rise of the alternative work force has left both workers and employers disgruntled and disenchanted. Indeed, given the problems--unhappy employees, nasty lawsuits, even nastier strikes--brought on by the hiring of so-called flexible workers, a sane observer might consider the alternative work force more curse than cure for corporate employment ills.
Think again. The alternative work force, which ranges from the lowest-paid temporary secretary to the regular part-timer at UPS to the highest-paid independent computer contractor, is spreading like wildfire. While unemployment has shrunk to its lowest level in decades, the use of part-timers has swelled.
According to the Bureau of Labor Statistics (BLS), in fact, the number of part-time workers nearly doubled from 1970 to 1994, while the number of full-timers rose only half as fast. What's more, the number of independent contractors and temporary workers has skyrocketed. Although exact numbers are hard to pin down, some experts estimate that there are as many as 30 million alternative workers in the United States today, nearly a quarter of the entire labor force.
This trend is no fad. Rather, economists and business consultants say the rise of the flexible work force flows from a fundamental shift in how companies do business. "This all stems from the move to just-in-time manufacturing," says David Hofrichter, vice president and managing director at compensation consultancy The Hay Group Inc., in Chicago. "You can't have just-in-time manufacturing without just-in-time workers," he states. Indeed, Edward Lenz, senior vice president of the National Association of Temporary and Staffing Services (NATSS), a trade group in Alexandria, Virginia, points out that 81 percent of firms surveyed by The Conference Board say they bring on contingent workers to cope with demand fluctuations. And William Halal, professor of management at George Washington University, estimates that contingent workers could make up 50 percent of the U.S. labor force by the year 2005.
While such prognostications raise eyebrows in business circles, Halal may not be far off. When CFOs have marching orders to raise corporate earnings 10 percent every year--and thus raise the share price of the company's stock--they have little choice but to cut costs at every turn. The company payroll makes an obvious target. On the whole, flexible workers earn a lot less money than do traditional employees. And the further down the corporate ladder, the wider the wage gap. Full-time temporaries, for instance, barely make half what full-time regulars make. What's more, only one in four is eligible for employer-provided health insurance. "This trend toward temporary workers will be difficult to reverse," says Gary Becker, Nobel laureate and professor of economics and sociology at the University of Chicago. "Fringe benefits have risen higher than straight wages. By using temporary workers, companies can get rid of these costs."
But at what price? Hiring alternative workers can have unforeseen, and often devastating, effects on a company's bottom line. "For openers, you end up with a situation where you have employees working side by side, doing the same job but making differing wages," says Reg McGhee, a spokesman for the United Auto Workers. "All it does is breed resentment." And when such resentment boils over, the results--as the UPS strike illustrates--can be costly.
As if the potential for labor unrest weren't bad enough, companies must also be mindful of scrutiny from another source: the Internal Revenue Service. Tax collectors are very interested in whether companies are trying to duck tax obligations by designating workers as contractors. "The move to part-time and contingent workers is supposed to save money," warns Robert Ginsburg, research director at the Midwest Center for Labor Research, a private research and consulting firm in Chicago. "But in the long run, it will come back to haunt a lot of companies."
SEISMIC SHIFT
Most corporate executives realize that the road to the flexible work force is filled with potholes. "We constantly weigh whether we should continue going this route," says Terry Geremski, CFO of Guilford Mills Inc., a Greensboro, North Carolina-based textile supplier that uses independent contractors. "We're looking for consistency from our workers, and that's tough to maintain with independent contractors." Some CFOs note also that the high turnover rates of many alternative workers can cause serious security headaches. And at high-tech corporations, finance executives worry that relying on outside workers may deplete talent. Says Jim Walker, CFO at San Jose, California-based Diamond Multi-media Systems Inc., an Internet multimedia supplier, "You end up in a situation where some of your expertise is transitory."
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