September 03, 2017
This is an important point that Neil Irwin slips up on in an otherwise excellent piece on the growing practice of outsourcing among major corporations. The piece contrasts the experience of Gail Evans, a black woman working as a custodian for Eastman Kodak in the 1980s, with the experience of Marta Ramos, a Hispanic woman who is currently employed doing custodial work at Apple’s headquarters. While the woman working at Kodak was actually an employee of Kodak, the woman working at Apple is employed by a company that contracts with Apple.
Irwin notes the growing practice of outsourcing many tasks and in the third paragraph writes:
“The approach has made companies more nimble and more productive, and delivered huge profits for shareholders.”
As the piece subsequently explains, it is not at all clear that this outsourcing of jobs had made companies more productive. It has almost certainly made them more profitable since there is considerable evidence that workers employed by contractors are paid less than they would be if employed by the parent organization. But this is just shifting the location of a relatively low productivity job from the company to the contractor, it does nothing to increase economy wide productivity.
In fact, from an economy wide perspective, it may well do the opposite. As the piece points out, Kodak employees enjoyed considerable job security. If there was no need for their work in one part of the company, it would look to transfer them to another part where they could be used. This meant that the company was effectively preventing workers from suffering unemployment and turning to government services during a downturn or shift in demand.
The piece also describes how Kodak created an internal job ladder through which Ms. Evans was able to rise into managerial and eventually executive positions. There are no comparable job ladders for Ms. Ramos. This also shifts a responsibility from the company to the government. While Kodak was prepared to devote resources towards training and developing the skills of its lower level employees, Apple is leaving this to the government. This may improve Apple’s profitability, but there is no reason to believe that this shift in responsibility leads to any productivity gains for the economy as a whole.
Essentially Apple and other leading tech companies have profited in part from being able to shift to the government responsibilities to workers that major companies had carried themselves in prior decades. This is to a large extent the point of Irwin’s piece, but it is important to be careful about wording. There is no evidence that this shift has led to any gains in productivity, even if it has increased profits at a small number of giant firms.
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