Behind shrinking middle-class jobs: A surge in outsourcing (L.A. Times)

[inanna]

June 30, 2016

For nearly 20 years Alfredo Molena made a middle-class living repairing bank ATMs in Los Angeles, despite being a high school dropout and immigrant from El Salvador.

By 2000 he was earning about $45,000 a year, enough to support his wife and two children in a spacious apartment and take periodic vacations to El Salvador and Hawaii. He had health insurance, a matching 401(k) plan, and a company-supplied cellphone and vehicle. But it all unraveled in 2005 after his employer, Bank of America, subcontracted the work to Diebold Inc., a firm specializing in servicing ATMs.

Today Molena drives a truck long-haul for about $30,000 a year, putting him in the bottom third of household incomes. He has no medical insurance. “I cannot afford it,” he snapped.

Globalization and the offshoring of U.S. manufacturing jobs to China and other cheap-labor countries are commonly blamed for driving down the wages and living standards of ordinary American workers, but there is another, less-known factor behind the shrinking middle class: domestic outsourcing.

...

Link: http://www.latimes.com/business/la-fi-outsourcing-middle-class-jobs-20160630-snap-story.html

[matt819]

2. Article is unclear

Yes, the Bank of America outsourced ATM servicing to Diebold, and over the past ten years there has been a drop in the number of ATM service people.

There was nothing in the article about outsourcing these jobs. Are ATMs being shipped to Mexico for servicing? Or is the work being done more efficiently and at less cost to the bank. If so, then it appears that the bank made a reasonable decision. They were overstaffed. Sure, BoA and Diebold are solidly in the RW camp and would be classified here on DU as evil. I'm not a fan of outsourcing, but this doesn't seem to be outsourcing of the sort where jobs are moved to countries with labor rates of a few dollars a day, and entire communities are decimated as a result (see Oreo cookies, Carrier air conditioners).

[inanna]

3. From the article:

Unlike the effect of offshoring, with its relocation of jobs and plants abroad, economists know relatively little about the extent and effects of decades of subcontracting production and services to third parties in the U.S. But what research has been done suggests the practice has played a significant role in the nation's troubling trends of stagnating wages and rising inequality.

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.

That disparity is partly because large companies are often sensitive to what is called “internal equity” or fairness in pay among co-workers at the same company. They have far less concern about paying outside employees lower salaries. Unionization also plays a role.

In a recent paper, Houseman, Batt, Annette Bernhardt of UC Berkeley and Eileen Appelbaum of the Center for Economic and Policy Research said that while the data are limited, there are indications that domestic outsourcing is much more prevalent than generally recognized and that the trend is "profoundly affecting the quality of jobs and the nature of the employment contract for a significant portion of the American workforce."

[matt819]

6. Ok

It really bugs me that companies outsource just about everything these days. Amazon fulfillment centers. Medical billing. Federal contractors. Military contractors. To say nothing of the likes of Uber, etc. And, yes, it does affect wages and protects companies legally. But the jobs are remaining in the US.

In this article, BoA was servicing its own machines. I don't think it's unreasonable to explore options of contracting out that service. As a business person I'm always looking for savings. This is not wrong. And if diebold could do the job better and cheaper, then that's okay. Again, it's not as if those jobs have left the US. And if it results in jobs being lost, that tells me they were overstaffed and that layoffs were possible anyway.

Don't get me wrong. I do have problems with this trend. In the case of Amazon we've seen all sorts of conflict, and I think Amazon has contracted out the fulfillment centers because they can wash their hands of labor disputes. And I have significant problems with federal government contractors doing jobs once held by federal employees, at higher cost and not necessarily better.

It's just that the example in this article doesn't rise to the level of that sort of concern, notwithstanding the impact on some workers.

[wolfie001]

7. The workers could've formed a Union

They may have staved off some of the cutbacks. Maybe BOA could've hired fewer executives and lowered CEO pay and used that savings to have a better paid workforce. More money would've entered the economy instead of sitting in overseas accounts outside our taxing jurisdictions. Just some of the many ways companies can return to serving Americans instead of their own greedy, soulless selves, notwithstanding the impact on blah blah blah.

[appalachiablue]

4. ^THIS^ is widespread for years in the US but is not reported enough.

[benld74]

5. Outsourcing allows corps to cut costs

Associated with a process. Whoever thinks of the cut gets bonus $$. If it affects stock price, CEOs get their bonus. The stock goes up, short term. Since the affect doesn't last forever.
Business today and in the recent past has myopic short term eyesight. Nothing for the long term.
No R&D, just buy outs to get what is needed.
Customer service suffers.
Business suffers , but stock is up, do they don't care.
It's a vicious cycle and the middle man gets hurt.
There will come a time when consolidating, buy outs and cost cutting won't work.
By that time it'll be too late
For anything

[seabeckind]

8. It's not just outsourcing and contracting to outside labor

it is also the tactic many companies use to shift the cost of what had been employee benefits paid by the company to that employee.

Such as the job of long haul truckers mentioned in the OP.

Many companies divested themselves of the trucker as an employee and define him as an independent contractor and then shift the duties that they would have supplied onto him.

He is now responsible for SS as self-employed. He has to purchase his own medical insurance. The company may or may not supply the rolling stock but if he has an accident the company's role is questionable.

I was listening a while back to an interview with the Lyft(?) guy, a company that works like Uber. All their "employees" are contractors.

Pretty dam dishonest and all in search of ways to shift costs.