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The Low Wages of Federal Contract Workers

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Mike Elk has a really great piece on the 1-day federal contract workers strike. It’s simple. First, our government should not be allowed to contract with employers who have a history of labor law violations. Second, all workers toiling for the federal government, whether directly or through subcontracts, should make a living wage. An excerpt:

“I work at Quick Pita in the food court of the Ronald Reagan Building. I work nearly 12 hours every day serving lunch to the thousands of people who work in the building. But I am not here to tell you how hard I work. I am here to tell you that my employer does not follow the law,” testified Antonio Vanegas before a hearing of the Congressional Progressive Caucus yesterday.

Vanegas is one of 100,000 low-wage workers in the Washington, DC area, according to Good Jobs Nation, many of whom are employed by federal contractors or in federally owned buildings like Union Station, the Smithsonian National Air and Space Museum, and the Ronald Reagan Building. He and about 100 of his colleagues went on a one-day strike yesterday in order to draw attention to their low pay. Despite provisions in the federal Service Contract Act stating that federal contract workers like Antonio Vanegas should make at least the local prevailing wage, up until a few weeks ago Vanegas was making $6.50 an hour–less than the federal minimum wage of $7.25 and well below the D.C. minimum wage of $8.25. Additionally, Vanegas works 60 hours a week, but claims he receives no overtime pay for hours he works past 40, in violation of the Federal Labor Standards Act.

“There are many workers in the food court who are like me, who don’t make enough to pay the rent, put food on our tables and take care of our families,” said Vanegas in his testimony. “That’s why I’m here and why so many workers like me are on strike today. We want the federal government to be a good landlord and rent prime retail space to employers who follow the law. We want the government to lead by example and guarantee that all workers who do work on behalf of the federal government earn a legal and living wage.”

This strike has made an impact within the Democratic caucus. Whether Nancy Pelosi’s vow to bring it to Obama leads to the president actually doing something about it, I don’t know. But he needs to. Again, raising the working standards of federal workers is something he can do without congressional approval, so there are zero good reasons why he should not act.

Allow me to also note how subcontracting is a malignant plague upon the working conditions of all people. Whether it is the Gap subcontracting in Bangladesh to avoid any responsibility to the workers making its products or the federal government looking to cut costs by outsourcing labor, subcontracting hurts working-class people. There is no good reason why it should exist. Corporations and governments can employ people directly.

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  • MPAVictoria

    “Allow me to also note how subcontracting is a malignant plague upon the working conditions of all people.”

    Fucking. Eh.
    /Where is the anger people? Where is the solidarity? Where is the action?

    • DrDick

      Subcontracting is the first refuge of scoundrels.

  • Aaron B.

    Allow me to also note how subcontracting is a malignant plague upon the working conditions of all people. Whether it is the Gap subcontracting in Bangladesh to avoid any responsibility to the workers making its products or the federal government looking to cut costs by outsourcing labor, subcontracting hurts working-class people. There is no good reason why it should exist. Corporations and governments can employ people directly.

    Quotes like this are why I don’t take anything Loomis says about economics or business seriously. Because even if he’s right in broad ethical strokes, the particulars of his claims are unbearably stupid.

    • Bill Murray

      so corporations and governments can’t employ people directly? Subcontracting isn’t often used as a way to get around regulations and laws? I guess what I’m saying is statements like yours are why we can’t have nice things and I suppose that I’ve gone beyond caring for those who think like you

      • Brandon

        We’re subcontracting a network engineer from an engineering firm for about 30 days worth of work since we don’t have someone in-house and only need them for one project. Why would it be better for anyone for this to be a one-month temp job and then you’re fired versus working for a contracting engineering firm?

      • Aaron B.

        A small business wants a new website. Does it make more sense to:

        a) Hire a web developer as an employee
        b) Get one of their current employees to do it, regardless of how little expertise they have, or
        c) Make a contract with an independent web developer, who knows their craft but can do the work as a single project for a fee rather than being permanently hired as an employee

        c) is the best option here. I’m not saying contracting is never used to get around labor laws, and we should certainly be enforcing and clarifying the FLSA, but it also has a very important, legitimate purpose: to enable businesses to take advantage of services that they need by people who are skilled at doing them, but are outside their core competencies.

        • JenBob’s Pancake Retch

          This is an excellent point. I have the competency to runs website for my business. I can fake my way around CSS and HTML and set everything up, but I’d rather just pay a friend of a friend to do it for me. Doesn’t make sense for me to hire a web developer to my company when this is all he’ll do.

          Anyway, subcontracting is abused. Of course. Lots of beneficial things are abused. A blanket statement against subcontracting is idiotic. You pretty much summed up Loomis’s weakness. Correct in the broad strokes, then makes these little slackjawed comments.

          • JenBob’s Pancake Retch

            “I have the competency to runs website.” Yeesh. Anyway, I get how it can be exploitative and abused, but these are big companies we’re talking about. Subcontracting makes a hell of a lot of sense for a small business. I can’t afford to hire an entire fucking IT department-and that’s just that. Theoretically, if I couldn’t hire a freelance web designer, I’d cobble something together myself instead of hiring someone full time. How is that a net positive?

        • Wooster

          I think this and Brandon’s example are distinguishable. Especially a smaller business. I don’t see what’s wrong with hiring someone for a one-off project. The web developers I’ve worked with wouldn’t take a job from my company if offered-they are running their own business.

          And in the world of construction, I don’t see how this helps anyone. We only hire general contractors who employ plumbers, electricians, masons, painters, etc? In construction doesn’t that privilege a big company over smaller independent people? If I get a lot of work done on my house, I’d like my general to sub out to an independent plumber and electrician etc as opposed to going with a monolith. And you can say that it’s not what you’re talking about, but that’s subcontracting! You need to write with more nuance if that’s not what you mean.

      • Aaron B.

        Also, I think a world in which there was no contract work would be substantially worse for workers. Yes, for a lot of people the employee model works really well; but how could you ever strike out on your own? Working as an independent media consultant, or a web designer, or a contract copywriter, or an interior designer, or a carpentry contractor is something that millions of people do because it provides them independence and the ability to charge what their skills are worth from a client, rather than beg for it from an employer. For many people, working as an independent contractor is a path to financial independence.

        And I think that’s pretty cool.

        • JoyfulA

          Yes, I used to be a contract worker for several companies, and it was cool. Then these companies laid off their middle management that I had reported to and hired contractors for that part, and so now I am a subcontractor to these contractors. Not so cool.

        • YankeeFrank

          Exactly Joyful. Aaron is confusing contracting with subcontracting.

          If my friend, who designs websites, hires me to program something for it, and the portion of the job I do is say 30% of the work (say on a time basis), I should get 30% of the contract amount. But it doesn’t usually work that way if your contractor isn’t your friend (or even if he is ;). Inevitably the contractor takes a cut of the sub’s work. The more layers the more profit-taking and the less the end-laborer generally earns.

          As an interesting aside, in some parts of corporate America this truth doesn’t necessarily apply. I’ve noticed that for many years companies I worked for over-estimated how much full-time employees cost them, and thus over-estimated how much they could pay to contract or subcontract out certain jobs. That is why some contractors and subs earn significantly more than their employee counterparts, and why many haven’t complained about paying self-employment taxes and health insurance costs, etc. From my experience companies have gotten wise to this situation and are bringing a lot more work in-house these days (unless they can offshore it to the third world of course).

    • Murc

      Is the stuff the people above me are describing in this sub-thread really subcontracting?

      I mean, it might meet the technical definition, I suppose. But “we hire a web design guy to complete a one-off project” doesn’t really sound like subcontracting to me. It sounds like… well, like independent contracting. Or even just a deal between two firms, honestly. When GM buys steel to make cars with instead of producing it itself, is that ‘subcontracting?’ It might be, but if it is then the term is so broad as to be nearly meaningless.

      When I hear “subcontracting” I think “job that is relatively permanent, but is being farmed out by the company doing it to another company.” The cleaning services in the building I work at now are subcontracted, for example. The building needs to be cleaned every day, that’s a job that will never end, but the company doesn’t care to do it themselves.

      More egregiously, the majority of the jobs I’ve had have been “contract” jobs, and they have, essentially, been a way to deny me decent insurance and pay. So I look dimly at subcontracting as a whole.

      • tt

        What would cause the company to pay its currently-subcontracted workers more if it was forced to employ them directly?

        • Malaclypse

          Well, ERISA would force benefits to become comparable, for one.

      • Aaron B.

        “Contract work” is work that is done in fulfillment of the terms of a specific contract (providing particular services in exchange for a fee) rather than as a part of duties as an ongoing employee of a company. See, i.e.

        “Subcontracting” is when a contractor farms part of their contract out to a third party in a similar fashion. This is often done in the building trades: since so many different specialties may be required in the course of a remodel, a single company with a wide range of expertise to tackle any possible job that may come up isn’t really economical.

        There are certainly industries where contract work is horribly abused; the gaming industry, for example. The IRS and the NLRB both have standards for what constitutes contract work, I believe, but the standards aren’t unified and are often unclear. Here’s a good set of guidelines that includes the major points.

        The major points are:
        -Employees are supervised. Contractors manage their own time.
        -Employees work at their employers’ premises. Contractors maintain their own space.
        -Employees represent their employer. Contractors maintain an independent business presence and hold multiple clients.
        -Employees have a permanent relationship with an employer. Contractors have a contract with term and expiration.
        -Employees are paid (roughly) for time. Contractors are paid for work/goals completed.

        The distinction is often a bit blurry, but there are some pretty thick distinctions that can be drawn. And I think all the examples so far in this thread – web design, IT consultants, construction contractors – pretty clearly fall on the “innocuous contractor” side of the line (AKA, the side that Loomis doesn’t even acknowledge exists).

        • Murc

          You are speaking mostly of independent contracting, whereas Erik was railing (rightly) against subcontracting as the term is commonly understood.

          I have had at least four jobs where I was supervised, working on-site, not maintaining an independent business presence (and in fact was instructed to mislead people as to the name of the company I was working for whenever possible), where the “term and expiration” of my “contract” were tacitly understood to be automatically renewed unless they felt like firing my ass, and where I was paid for my time, not goals achieved.

          And I was classified as a contractor, but I sure hell didn’t feel like an independent contractor. Work was being subcontracted to me (and several hundred other guys, usually) because it was cheaper to do so than to hire us directly and give us concomitant benefits and pay with the few full-timers floating around the sites.

          • Sherm

            The correct term is “tax fraud”, of course.

            • Aaron B.

              This.

              The solution is to clearly define and enforce laws we have on the books, not wage war against an employment category.

              • YankeeFrank

                Yes and no. The solution to the problems we in privileged first world positions face is enforcement. For Bangladeshi garment workers how would that work exactly? By forcing US companies to take responsibility for the workers who make their products we would be enabling the enforcement of laws that already exist in Bangladesh.

                • Brandon

                  So what’s the idea here, then? Gap can’t place an order with a Bangladeshi factory for garments but must actually own the garment factory itself and employ the labor force there? Because Gap isn’t “subcontracting” that. They are placing an order with a manufacturer. Should every company be 100% vertically integrated from the production and gathering of raw materials to the sale of the final product? Otherwise the Gap-owned factory in Bangladesh would just be “subcontracting” the growing, harvesting, and processing of the cotton.

          • Josh G.

            What you describe is very common, but it’s already illegal under existing US employment laws.

            • YankeeFrank

              Hahahaha.

            • YankeeFrank

              Sorry, my laughter was glib. Illegal and enforced are clearly two different things in two-tier justice USA.

              • Sherm

                Its incredibly prevalent. My firm has been consulted a few times over the years regarding potential wrongful discharge claims, only to commence an ERISA action against the employer for mis-classifying the discharged employee as an independent contractor and to recover the costs of the benefits they were denied and the employer’s share of the FICA contributions paid by the employee. Its only worthwhile for us financially (we usually work on a modified contingency basis) if the discharged employee can get a co-worker or two to join in the action, but each case has been resolved in our favor.

                And what’s really amazing is that the people never knew that they were getting fucked. Its the “everybody does it so it must illegal” assumption. But, of course, even if they had known, they were powerless to do anything about until after they were terminated.

                • Brandon

                  Yeah, I’d say that the abuse of “independent contractor” is just as much of a concern as outsourcing.

      • Wooster

        I think your intuition is correct. The problem is the lack of nuance. Subcontracting can mean many things-as Aaron lays out, it’s a pretty vague and imprecise criticism.

      • Right–obviously there’s a gigantic difference between a small business needing a specialized skill for a short time and the government subcontracting the workers at the Smithsonian food court. These examples people are providing are completely irrelevant.

        • Aaron

          It’s the exact same process and legal mechanism. Why should, say, Nike hire a bunch of cafeteria workers when they can just pay for the service from a contractor? As long as both entities are subject to US laws I can’t see how this affects the workers’ compensation or legal rights. And it would be a tremendous waste of money and economic potential to force every company to develop capacity in so many dramatically different areas.

          Here’s another example: five companies are all headquartered in the same high-rise. What is gained by forcing them each to hire a cleaning crew instead of contracting out the cleaning for that building?

          • Yeah, cleaning is one of those things that sounds like a bad use of contractors at first blush, but in actuality there’s a lot to be said for the efficiency of hiring out (namely, getting expensive/specialized equipment is most more cost effective for a cleaning company than it would be if everyone had to hire people directly to do their cleaning), and in cases where you REALLY want the space to be clean (restaurants), a ton of benefit to the public/consumers as well.

            As for this specific example, I still think the crux of the matter is getting hung up on food courts specifically since, by definition, a food court is going to be contracted out to the private firms who have space therein. That’s just what the thing is!

            • YankeeFrank

              When you place “efficiency” above everything else then its a wonderful practice. But if efficiency were the only goal why bother with hiring cleaning staff in the first place? Why not have each employee clean their desk and work area every evening before going home… and have a rotating list for cleaning the bathrooms. Oh, efficiency isn’t everything? Except when it is used to justify paying non-living-wages. I see.

              • Okay, sure. We’ll have every employee work a full day, and then however many days a week it needs to be done we’ll require them to stay at the office and FULLY (vacuuming, dusting, disinfecting, etc.) clean their office space to boot. I’m sure they’ll drastically prefer that to having their employer farm the job out.

                Also, I didn’t say anything about wages, which is a totally different matter to who is writing the paychecks.

                • YankeeFrank

                  Since when does efficiency care about the preferences of employees? And who is writing the paychecks is NOT “a totally different matter” than the amount of those paychecks. In fact, this whole discussion is premised on the fact that most subcontractors exist to steal earnings from employees.

                • That…um…doesn’t make any sense. Wouldn’t ALL businesses exist to steal earnings from workers under that formulation?

                • YankeeFrank

                  But they do silly. Business (sole-proprietorship being the obvious exception) is about exploiting labor for a profit margin. If workers earned what they are worth there would be no profits.

                  Subcontracting is just another layer that exists to squeeze more out of labor.

                • Brandon

                  Why is a sole proprietorship different, Yankee? That just means the business is owned and run by a single person and there isn’t a legal shield between that individual and the business. They may have many people working for them.

              • It’s more efficient to have employees do work they’re not hired to do? You may as well ask why it wouldn’t be more efficient for me to have my web designer spend 20% of his time doing accounting.

          • YankeeFrank

            The reason the kind of subcontracting Loomis describes is bad is because it DOES affect wages and working conditions in a strongly negative way. The subcontractors in the cases you describe (cleaning staff & service workers) are charging money merely for being middlemen in the labor-hiring process. Perhaps if they took a one-time fee to connect an employer to a pool of potential employees that is okay but the ongoing skimming of profits on the backs of workers is abusive and wasteful. I can’t tell you how many companies took upwards of 25-40% of of my wages on an ongoing basis in order to connect me to work. Its potentially cheaper for the company that hires the subcontractor because they don’t need to manage the staff themselves but it causes poverty and encourages a parasitic class to prosper. Just because it may be cheaper and avoids responsibility does not make it an ethical practice. On the contrary.

            • tt

              I don’t get it. If companies save money from not having to manage the subcontractors, then, in the absense of the subcontractor, it would cost them more in management costs (rather than in paying wages to workers). I don’t see how this would result in you getting more money.

              • And, in most practical cases, it’s not going to mean more jobs, but more work for everyone else. Consider a restaurant: how many restaurants can you think of who hire people solely to do the task of cleaning the kitchen? Not bus-boys/dishwashers or whatever, but jut to go around mopping, cleaning surfaces, emptying grease trays, etc.? Basically none…they expect the cooks, wait staff, and other employees whose primary job is to do something else to handle the task of cleaning on top of it. So if you bring in a professional cleaning crew once a week or every week or something, not only are you probably making your kitchen cleaner than it would have otherwise been (a good thing in its own right, obviously), you’re probably supporting more jobs at the same time relative to the actual management styles practiced in the real world.

                • YankeeFrank

                  A restaurant is not a good example here. Almost all restaurants, in the US anyway, pay one or two Central American immigrants to work 12 hours or more per day doing every odd job there is, including opening and closing the restaurant and constant cleaning.

              • YankeeFrank

                One reason is that there is an additional layer of profit-taking above and beyond the cost of management.

                Of course its not a fait-accompli that removing the subcontracting layer would lead directly to wage increases and better conditions. The point is that the company that is actually deriving the primary benefit from the employment would be responsible for the treatment of those employees, and they could not fob off their obligations to follow the law, etc., by claiming they are not “our employees”.

                • So are we going to have to apply this rule to households who use contractors too? Shall we hold them liable if the company that employs the plumber or HVAC tech who makes a service call is cheating them out of overtime? Require everyone to keep a plumber on retainer and pay them directly?

                • YankeeFrank

                  That is a red herring. Work that is truly independent contracting work is a different beast entirely. We are talking about ongoing labor employment, not one-off type jobs where the laborer is already working for a contractor. Not only that, but your example isn’t a good one because most plumbers and HVAC techs (at least in my neck of the woods) are unionized and earn a prevailing wage regardless of whether they are contract or subcontract or whatever-type workers.

                • Brandon

                  Let’s not pretend that “independent contractor” isn’t a huge source of labor exploitation now.

                • I’d argue that improperly classifying employees as independent contractors is probably a bigger problem than actual subcontracting for workers.

            • DrDick

              Yep. This is the reason for my comment above. Subcontracting of this sort is generally an opportunity for companies to dramatically lower labor costs for essential services without bearing the responsibility for substandard wages and benefits.

              • tt

                Do you mean moral responsibility or what? Because in my experience most companies are perfectly willing to give their own employees substandard wages and benefit.

                • Yeah, what really isn’t being explained here is why we assume that firms hiring employees directly would be paying said employees more than the contractors pay their employees. It actually seems quite the opposite, to me.

                • YankeeFrank

                  No, because its much easier for a company to shirk responsibility for paying minimum wages and overtime if they are not the ones doing the paying. And its all forms of responsibility we are talking about.

                • But, if they’re not the ones doing the paying, they don’t have any responsibility for that, the *employer* does.

                • YankeeFrank

                  No, they are the de facto employer, because they are paying for ongoing labor of a specific nature. The only reason they aren’t doing the (direct) wage-payment is to avoid responsibility for following the law and treating workers humanely and giving them a fair wage.

                  Of course that’s not why they SAY they maintain the arrangement. They SAY its for FLEXIBILITY and EFFICIENCY.

            • ” The subcontractors in the cases you describe (cleaning staff & service workers) are charging money merely for being middlemen in the labor-hiring process.”

              WTF? No, really, WTF? This is so obviously not true I can’t even believe it actually made it through self-edit.

              • YankeeFrank

                So if its so obviously not true, please point out the obviousness to those of us less clear-sighted than you.

                • Well, for starters, if we’re still talking about a food court as it’s commonly understood, we aren’t even talking about contractors at all, but rather businesses renting space to have mini-restaurants. As for a cleaning service, or some similar professional service company, there’s a basic economy of scale involved w/r/t things like specialized equipment, know how, and so on.

                  Seriously, just judge your own silly view of things on its own merits: why in the hell would a business pay additional money to another firm as opposed to paying whatever that firm is paying their employees if the only thing the subcontractor was offering was to skim off the top from the purchaser?

                • YankeeFrank

                  “why in the hell would a business pay additional money to another firm as opposed to paying whatever that firm is paying their employees if the only thing the subcontractor was offering was to skim off the top from the purchaser?”

                  Why in the hell indeed. The reasons companies SAY they hire subcontractors and the real reasons are usually not the same. In fact, companies regularly pay MORE to subcontractors to avoid the “headache” of having exposure to lawsuits/damage awards for ignoring the FLSA and other wage/employment laws.

                  With regard to outsourcing, many companies have offshored work over the past decades with little in the way of economic justification. The labor portion of manufacturing costs is typically 10%. That is nothing compared to raw materials and plant. So why engage in the massive effort to offshore so much manufacturing when the maximum savings would be south of 10%? For a variety of reasons. One major reason is that it weakens labor bargaining position at home. Another is that the stock market (rather irrationally) rewards such behavior. Another is that it justifies higher management salaries and expanded management roles (managing some employees is one thing, managing the logistics and the output of an entire offshore company is another entirely).

                  In fact, subcontracting of any kind very often doesn’t lead to savings in management costs — just the opposite. But who makes the decisions? Management. Get the pattern here?

        • Brandon

          Is the government sub-contracting these workers or contracting them? Does Gap sub-contract factories in Bangladesh, or do they contract with them to provide some amount of goods?

          Why are examples of non-terrible subcontracting irrelevant to your broad, unqualified claims on the evils of subcontracting?

      • Brandon

        I was filing out the subcontractor approval forms to submit to our customer for this project yesterday.

        This is why Erik is being criticized, for overreaching. If he meant a specific type or certain situations of subbing, he should have said so.

    • YankeeFrank

      Um, Loomis gave concrete examples of abusive subcontracting. It was completely clear to me we was not talking about valid subcontracting whereby a truly temporary arrangement that is beneficial to all parties is worked out. He’s talking about subcontracting that is permanent and is only used to avoid paying fair wages and taking responsibility for the workers you employ. His wording could’ve been better but unless you are purposely trying to be obtuse his meaning was abundantly clear.

      • Aaron

        subcontracting hurts working-class people. There is no good reason why it should exist. Corporations and governments can employ people directly.

        Clearly I have misconstrued the plain meaning of his statement.

        • YankeeFrank

          Clearly you have, because you refuse to see the difference between independent contracting and subcontracting, and you quote Loomis out of context in order to make his argument seem broader than it is.

          • Brandon

            His statement is clear in that it condemns all corporate and government subcontracting and argues that these companies should hire everyone directly.

            I think, if anything, both you and Erik are the ones confusing contracting and subcontracting. e.g.: MegaCorp or Government Agency contracts with Cleaning Company, Inc to provide cleaning services; Cleaning Company subcontracts with a staffing firm to provide the labor. MegaCorp isn’t subcontracting anyone here. Smithsonian hiring a food services group is just plain ol’ contracting the work out, not subcontracting.

            What Loomis is concerned about is outsourcing. Smithsonian is outsourcing the food service jobs to a private company. Businesses outsource cleaning jobs to outside companies. Many businesses outsource IT to outside companies. They also outsource security to outside companies. They don’t subcontract it.

    • Pretty much this. People here seem to think that it’s a simple matter for businesses to expand into new areas. I suppose that’s why they see the subcontractors as middlemen that merely suck up money. Management, expertise, having a sense of who to hire? Not necessary, any company can just jump into a new field and expect to do as well as one that is established. Economies of scale? They don’t exist, work only comes in chunks that correspond to the workload of a full time employee. Eh eh eh.

      The funny thing about saying that this is why companies subcontract overseas is seeing how many companies that do subcontract attempt to start up their own shops overseas, and often fail miserably. For smaller companies it involves the owner moving to a foreign country and making a huge capital investment in a place where they don’t know the language, aren’t used to the customs, and don’t have many connections. Why would anyone contract with a local company that actually is from the country, has their factory already built, and knows how things work there?

  • rea

    Subcontracting is being abused, but it actually serves a useful purpose when not abused, allowing a business to bring in a specialist when needed. If a pipe bursts at a business, do they have to have a plumber as an employee in order to get it fixed?

    • Linnaeus

      That’s pretty much how we do it where I work.

      • YankeeFrank

        That’s contracting, not subcontracting.

        • Right. Hiring a plumber is contracting and fine, calling a plumbing company is subcontracting and bad.

        • Sherm

          Correct. And if the plumbing company you hire has a staffing company which sends over workers for the job, then its subcontracting.

        • Linnaeus

          That’s contracting, not subcontracting.

          Right, but I should have been more specific. I work for a consulting firm, and so we’re the contractor that provides certain services for our clients. We usually provide these directly, but occasionally will bring on temporarily help when we need additional specialized expertise for a particular project.

  • Corey

    Allow me to also note how subcontracting is a malignant plague upon the working conditions of all people […] There is no good reason why it should exist.

    Wait, what? There are obviously very many good reasons why companies subcontract work. There is a pretty big economic literature on why they do so, maybe you could check it out?

    And there’s obviously nothing uniquely exploitative about subcontracting vs. direct employment; subcontracting doesn’t cause poor working conditions.

    • YankeeFrank

      The “economic literature” on the subject is generally self-justifying garbage in – garbage out horsehockey.

      • Corey

        Really? Tell me about what you’ve read.

  • BigHank53

    Lest anyone think that only low-wage positions are populated with subcontractors, let me disabuse you of that notion. When I worked at Goddard Space Flight Center, there were about 1700 civil servants that worked there…and about 10,000 contract workers. Technicians, scientists, secretaries, machinists, security guards. I met someone who had been employed by four different companies and he’d never even moved desks; all that changed was the company his pay filtered through on its way to him.

    These people weren’t abused like poor Antonio above. But you can’t tell me that giving a massive slice of everyone’s paycheck to Raytheon or Sperry or whichever contractor greases the skids is the best use of our tax money, either.

    • medrawt

      I work for a contractor in a pretty low-budgeted and low-profit-margined sector of gov’t work, and one where politicking matters on some level but no one is making enough money to be greasing the skids (congresspersons would only know who the relevant contractors are if a constituent complained about poor service). I see a lot of different mechanisms driving the contracting out of services, some of them legitimate, some of them unfortunate but hard to avoid (funding contraction), some of them purely unfortunate. This last point also doesn’t really apply to the abuse of pita vendors, but as a Pro Union Big Government Liberal it’s the most personally annoying to me: at times I complain that the agency at which I am a contractor seems to use my company less for the experience and wisdom of its senior personnel and more for our value as an employee management company, because they just kind of lack the political cover or institutional will to deal with underperforming employees, and they’d rather have a contractor do it. Where I work one department in particular, which interacts regularly with multiple programs administered by this agency, is chronically undependable and problematic. There has been some noise that when the contract to manage the program I work on is put up for re-bid, those functions will be privatized specific to that program (though not for the agency overall). This would honestly probably make things better, but what would actually be better would be for the agency to just deal with the problem at its source.

      I know private companies aren’t free of these problems, and government isn’t hopelessly beset by them, but it is one of the reasons why work gets contracted out, alongside the more obvious (for good and ill) reasons.

    • Sherm

      But you can’t tell me that giving a massive slice of everyone’s paycheck to Raytheon or Sperry or whichever contractor greases the skids is the best use of our tax money, either.

      And that’s what its really all about. Form the federal government on down to the local municipalities handing out waste disposal contracts. Politicians get donations; company owners get profits which could be going to government workers in the form of decent wages.

    • Marek

      Not to mention mercenaries, I mean, private contractors overseas.

      • Cody

        The magical disappearance of the word mercenary in the American vocabulary was peculiar. All the sudden we hired people to fight as independent contractors in battlefields…

  • herr doktor bimler

    the federal government looking to cut costs by outsourcing labor,

    A federal program run by corporations, who outsource the client-information database maintenance to India, is evidently not such a good idea.

  • “Subcontracting,” is a fancy-schmancy word for “Privatization.”

    We do that now, even with the military.
    My late Father, when he was in the Army, had to do KP duty.
    That, was during the Korean War.

    In Iraq, we hired some privatized “sub-contractors,” and paid them more than $30 an hour per worker – to have some guy they brought in from some 3rd World country do what the KP duty soldiers used to do when they were on that duty – at a fraction of the cost. And the poor schlub’s who actually did the work, got only a few dollars an hour for his/her work – IF that! And the “sub-contractor” kept the rest.

    Privatization, is the greatest scheme our Conservatives have ever thought of, to move tax-payer money from the pocket’s of government, where it’s shared, to the private wallet’s of people who’ll charge multiple times what a government worker could have done, and pocket the hugely profitable difference.

    • YankeeFrank

      Yes, you nailed it.

  • md rackham

    I’m not sure about the Reagan Building, but aren’t we talking about contracted caterers? In other federal office buildings they hire McDonalds, or Sbarro, or Subway to run a restaurant for employees. I think you’ll find the employee’s far happier with (unhealthy, over-processed) fast food than with some cafeteria run by government employees who produce generic cafeteria food.

    Of course those companies should have to obey labor laws and pay (at least) minimum wage, but I don’t think that the concept of subcontracting to a catering company is the root of the problem.

    (Note that in most cases the contract is not with McDonalds et al, but rather with a franchisee of the brand. Every fast food franchisee I’ve ever met is a devout Republican, usually of the tea party variety.)

    • Yeah, if we’re using common understanding of words, a “food court” is basically like an outlet mall of fast food franchises, as opposed to an on site cafeteria or something. So if you have a food court in your building, there’s just no way around contracting out the food service, since it’s not like the government can just appropriate the trademarks and food preparation methods/recipes of private businesses.

      Which, of course, is a totally different matter than how employees ought to be paid/treated.

  • Bruce Vail

    Erik’s point is well taken, but there is something terribly wrong with this story.

    Vanegas is said to be an employee of the Quick Pita at the Ronald Reagan Building food court in D.C. But employees of food retailers in these venues are NOT federal contractors or sub-contractors. The landlord (presumably the federal govt or its agent) leases out the space to a food retailer. The food retailer employs the workers and is responsible to follow all applicable labor laws.

    I’m sympathetic to Vanegas but he really isn’t a federal contract employee.

    • Bruce Vail

      For the purposes of analogy, the US Dept. of Interior leases out drilling blocks in the Gulf of Mexico to oil exploration companies. Those companies put up a rig, and then crew it up with its own employees, who drill for oil. The roustabouts are NOT federal contract employees and the feds aren’t responsible for working conditions or liable for accidents. Ask BP

    • YankeeFrank

      The point is he is paid with federal money, and so the federal government has a special responsibility to make sure he is paid according to federal law. The government has a responsibility to make sure all employees are paid pursuant to federal laws, but in the case where they are providing the source money for the wages being paid, they have an even higher duty.

      • Bruce Vail

        Well, no, he is not paid with federal money. That is my point.

        I’m all for better pay for the DC food workers, but the simple fact is that they are not federal contractors or subcontractors

        • YankeeFrank

          The federal government has created the environment these workers labor in: the building, the customers are all federal. The company would have no profit in this context without the federal government. The government could just have well set up its own food court and employed government workers. These workers are literally ensconced in federal government property, and provide a direct service to government workers.

          But aside from that, the point isn’t really whether its federal money paying them, its that wage and hour laws created by the federal government should be enforced. If businesses that provide services directly to the federal government don’t have to abide by wage and hour laws then who does?

  • Hogan

    all workers toiling for the federal government, whether directly or through subcontracts, should make a living wage.

    Friendly amendment?

    • Linnaeus

      That’s just commie talk, right there.

      • Hogan

        Why thank you.

  • YankeeFrank

    Methinks there are quite a few happy subcontractors that read LGM. Which is cool. But you are all college educated white collar workers and are apparently happy with your arrangements. You are NOT who Loomis was talking about. But let me ask you this, every time you were hired by a contractor and paid, say the equivalent of $25 per hour instead of $40, would you have preferred the $40? Years ago I worked as an IT tech for law firms on the third shift. I earned $35 an hour. My contractor was paid $70. How is that even remotely efficient or fair?

  • William Berry

    POd rant here, so, . . . well, whatever.

    I agree with Erik 100%. Those of you hammering him on the contract (not “subcontract”) work are obviously clueless when it comes to actual work in actual workplaces. Hiring temp web designers, plumbers, et al, isn’t remotely similar to large-scale contract work. These are much more akin to consulting contracts. Most of the time, they are not formally contracted at all.

    Large-scale contract firms such as Manpower and Defenders (N.B., the name. It was meant to “defend” the corporatocracy from organized labor) are slimeball scab outfits in their very essence. For instance, how many here are aware that the contract workers are supposed to be (usually six-month) temp workers? That they are let go and then, after a few days, weeks, are rehired for another “temporary” stint, if they were good workers? That they are hired primarily to deflect criticism from the contracting entity for the low wages and illegal working conditions and to prevent unionization in the workplace?

    At one non-union P&G plant I have tried to help organize, they are gradually encroaching more and more into the plants main production operations (first, some years ago, rework, then some shipping, then more shipping and receiving, then janitorial, on and on). As this progresses, the number of regular employees decreases through attrition, as they are not replaced. The regulars earn 15-20$ per hour. The “contract workers” earn the MO minimum wage; about half of the regular, full-time rate.

    Now, here’s the thing about the pay. The contracting firm pays the scab operation something close to its regular wage per employee. They save a shitpot load of money just on the benefits and supervision (the scabbers have their own supervisors). The scabbers pocket the huge difference (well, they pay their supers, staff, themselves. but we are still talking one hell of a RONA here).

    The white middle-class community couldn’t effing care less about the contract workers. They are the marginally employable “dregs” of society, minorities, semi-literates, single mothers working 12-hour night shifts for freaking minimum wage! A young Mexican man was run over by a semi in the truck dock and had his guts mashed out. Turned out to be undocumented. Wasn’t even a story in the STL PD, unless a paragraph somewhere inside. Didn’t cost P&G jack shit.

    You think the scabbers have to follow the law like other employers? Why would you think that? Do you think these poor workers know what to do to go to the Wage and Hour Division? Do you think there is a Labor Dept. cop force out there enforcing the law?

    One company I have been dealing with (IANAL, just representing some people before the Division of WC) has underpaid its WC workers who have been brought in on “modified work” (what the WC Div calls Temporary Partial Disability, as opposed to Temporary Total Disability) by tens of thousands of dollars over the past 10-15 years. It must involve a hundred or more employees. So far, I have got some guys paid their money. But it will be a long process, and getting anything done with these bureaucracies is like pulling your own teeth. And there is no way that this could be anything but deliberate. But will there be any proof of fraud, any penalties? No. The best I can hope for is to get these people paid; that will be a big victory in itself. I mention this case just to illustrate what it’s like to get something done even when there are egregious violations.

    This effed up society doesn’t give a flying f**k about its own workers, let alone Bangladeshis, Chinese, or Guatemalans.

    You college-boy Company Men need to get a life.

    (Yeah, that last bit was gratuitous, I know, as I was once a college boy myself, but I am damn’ sure no Company Man!)

    WSB, born-again hard USW guy.

    • YankeeFrank

      Nailed it.

    • DrDick

      Thank you!

    • Sherm

      Well said!

  • William Berry

    Also, thnx Erik, MPA @1, and the rest of you who get it.

  • William Berry

    BTW, I meant to say in my long comment above, but forgot: the “temporary” contract workers get zero, nada, zilch, in the way of benefits. No vacations, no insurance, no sick days, nothing. They are even defrauded of WC (“don’t worry, we’ll pay your medical bills, let you work on light duty until you’re OK; left unsaid: “then, when you’re back to work full-time, we’ll fire you for having had an acci . . . er, for some made-up reason”
    ).

  • YankeeFrank

    This thread has been very enlightening to me. It shows how far we have to go to educate even educated Americans on the true relationship between capital/ownership and employee rights. The neoliberal agenda has brainwashed nearly all of us, even those who should know better, into parroting the typical justifications for exploitation: “efficiency” and “freedom”. The first can be used to justify any exploitation imaginable, and the second has been twisted into meaning freedom to use money in any way that gains me more of it. Freedom means freedom from poverty and ignorance. And efficiency is a red-herring, as anyone who has ever worked at a large corporation well knows.

    • Actually the only thing it shows is that you have a very cartoonish view of anti-capitalism, as you’ve been completely incapable of stopping at the obviously true problem (lots of employers don’t pay their workers enough and treat them well) and have instead tried to spin off some crazy view of the world where contractors are unique companies who don’t add any value beyond driving up costs for the people who employ them and give them money because they like spending more on labor, so long as it doesn’t go to people classified as employees, or something.

      Seriously, working people need to be paid better, and there needs to be better enforcement of existing labor law. This has fuck all to do with subcontracting.

      • YankeeFrank

        Read William Berry above, and my comments above, for why companies pay contractors and subcontractors when it doesn’t save them money.

    • And, to wit, the idea that people would make more through direct employment makes very little sense on the face of it. I mean, if a company thinks it’s more cost effective to hire another company to do a job for them than to employ someone directly to do it, what would actually happen if we didn’t let them use a subcontractor? They’d suddenly hire someone at a living wage and give them a 40 hour week? Or they’d hire someone at minimum wage (or whatever they could get by on), and make them a part-time employee?

      • YankeeFrank

        You are ignoring the fact that companies routinely and on a massive scale replace well-paid, benefits wielding employees with minimum-wage subcontracted workers. Get a clue.

      • DrDick

        Try looking at the actual evidence, which clearly shows that when companies contract out for these kinds of services, the workers performing them are routinely paid less that the workers they replace and have no benefits.

        • Well, sure, but what I don’t see is why we’re assuming that Company X can’t pay their workers every bit as little as Company Y just because Y is a “subcontractor.”

          • YankeeFrank

            Its not that they can’t, its that in the real world they normally don’t. And one of the big reasons is that the sub has a profit motive, and will skim some of the payment that used to go to workers for their own profits. More layers of profit-takers means less left over for wages.

            • No, this makes no sense. The base company has a profit motive as well, and if the sub-contractor can “skim” off some additional profit margins, it simply doesn’t stand to reason that the base company wouldn’t prefer to keep that money for their own profit, rather than giving it to another firm/employees.

  • William Berry

    @YankeeFrank: Right on, brother!

    Pay no attention to the “serious, responsible” neo-liberals like Brien Jackson. They are so full of it it is running out of their ears.

    • Yeah, go ahead and pay attention to people who appear to think the the government is paying Subway and Chik-Fil-A to open restaurants in their office buildings instead, I guess.

      • William Berry

        Okey-dokey!

      • YankeeFrank

        What are you blathering about? Chik-fil-a? Subway?

        If the government hires ANY firm to work on their premises, or indeed to work on ANY government contract, they owe a responsibility to the workers of those companies to ensure they are paid according to federal law. How hard is that to understand? Unless you are paid to do otherwise…

        • This is amusing, given, ya know, the genesis of this post.

    • YankeeFrank

      @William Berry — what amazes me is that so many people whose incomes and employment rights have been obliterated by the neoliberal cabal come at us defending the principles used to disenfranchise them. When your own victims trumpet your lies you know you have won. Its a shame because many of our ancestors gave their lives to fight for rights we are letting die on the vine through ignorance and decadence.

  • YankeeFrank

    The world so many of you (and I) inhabit is probably less than 1% of the labor market in the USA. Its probably not that helpful to extrapolate from our experience to the broader experience of labor.

    Its also not helpful to make the arguments of labor’s enemies for them. So please don’t trumpet efficiency on behalf of the owners when its an argument that is almost always used as a cudgel against the rights of labor. We all know what efficiency really means: less money for labor and more for management and owners. Efficiency is never stressed when its focus is on management as exhibited by the massive growth of the size and wages of the management class over the past few decades. Management justifies its own existence. Labor doesn’t get that chance unless we take it.

    I have a relative that was a high-up business consultant for the Major government in Britain. He was fervently pro-union despite his bona fides. His take was that unions provide the ONLY voice for labor. He also worked as a turnaround specialist for failing companies. He had already earned enough money to be comfortable for the rest of his life and only took on jobs where he was given complete control over the reorganization. Inevitably, management would welcome him with open arms, and right off would begin to give him advice for how to make the workers more efficient, etc. The first thing he would do was to go to the factory floor or wherever the main work of the firm was being done. He would spend the bulk of his time there learning the processes and organization of the company and then, once that was done, he would analyze the management structure. Inevitably it was management that was bloated, over-important and overpaid. That was in the 80s and 90s. Does anyone think this trend has actually gotten better over the past 20 years?

    The point is, when management trumpets efficiency as the justification for subcontracting or any other labor practice, its usually a front for disenfranchising labor and increasing management importance and scope. Management bloat is almost never discussed in the USA but its a huge problem, and the more layers of subcontracting the more management is required, not less. Ask anyone who works in outsourcing whether management responsibilities grow or diminish… if they are honest they will tell you they grow. But of course management economics books written by and for managers will never raise these issues because it cuts against their key demographic.

    • John Protevi

      This is a superb comment. It holds, point for point, for the big state university in which I have worked for 20 years, and for all the others I have read about and which employ my friends. So much so that my buddy Jeff Nealon once said that we should welcome honest management consultants into universities, because the fat they would cut would be administration, not faculty. The trick is to find the honest management consultants! http://www.tandfonline.com/doi/abs/10.1080/08935690601054563?journalCode=rrmx20#.UZ9r-mTF2d8

  • Brandon

    Yankee and William are both painfully missing that Erik is being criticized for overreaching, not that every instance of subcontracting is being defended.

    And yes, some people are conflating contracting with subcontracting.

  • William Berry

    @Brandon:: I am not missing anything. Half of this thread has been you guys missing the real point while flailing away at straw men.

    There was no over-reaching, just mild hyperbole. Out here in the real world, where actual workers lives are being destroyed, we recognize that righteous anger can sometimes produce a little overstatement. In the face of the serious issues involved here, your fixation on a trivial matter is telling.

    Get over it.

    • Brandon

      My “fixation” on the “trivial matter” that a condemnation of the entire concept of “subcontracting,” when really what Erik’s worried about (rightfully so!) is outsourcing, is telling of what?

      What is the “real point” here that we’re missing? Where are people defending the specific examples posted by Loomis and not pushing back against a stupidly broad statement that just makes it look like he’s not really thinking this through?

      Why are you pretending that internet comments on a small blog matter “in the real world” where there are “serious issues”?

      • William Berry

        Looking back at the thread, I don’t see where I “pretended” anything, but whatever. I quite agree that these comments don’t matter, in and of themselves, but it’s good to vent sometimes.

        Now, since this doesn’t matter, we must be wasting our time, and I do have actual work to do, so I’m checking out.

        Y’all have fun now, y’hear. One of these days it’ll be all right.

  • YankeeFrank

    For everyone’s edification, here is a video of the inimitable Yves Smith discussing some of the real reasons for offshoring and outsourcing. Enjoy!

    http://www.nakedcapitalism.com/2013/05/your-humble-blogger-appears-on-rts-truthseeker-2.html

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