Most Workers Find a Sense of Security in Corporate Life
Despite low unemployment rates, Americans remain anxious about job security. The latest figures show that mass layoffs are at the same level as in the 1993 recession, while the share of employees who say they are frequently concerned about layoffs has risen from 20% in 1990 to 43% this year. Accompanying the rise is continuing unease about the availability of “good” jobs: career-type positions that offer decent wages and benefits. Politicians are adept at tapping into this anxiety, as in 1996, when Patrick Buchanan, then running for the GOP presidential nomination, chided AT&T; as “corporate butchers” for a plan to lay off 40,000 workers.
The notion that corporations have responsibilities to employees is hardly new or radical. Its roots lie deep in the American past--back a century or more--when employers first began systematically to provide stable jobs and benefits such as health and pension programs and company housing. The system was known as “welfare capitalism.” To Americans concerned about the labor question of the early 20th century, welfare capitalism offered a distinctively American answer: The business corporation, rather than government or trade unions, would be the source of security in America’s industrializing society. Challenged by the rise of mass unions and social insurance programs during the 1930s, welfare capitalism nevertheless proved resilient. Unions became partners in the administration of benefit programs, while Social Security became a complement to, not a substitute for, corporate benefit programs.
During the past 15 years, however, welfare capitalism has experienced its most critical test since the 1930s. Heightened competition, mergers and rapid technological change have caused layoffs throughout American industry. These layoffs were--and are--a shock to those who thought themselves immune from job loss. Middle-level managers found that the elimination of their jobs was often the chief goal of industrial restructuring. Furthering the sense of insecurity is the expansion of nonstandard jobs (part-time, temporary or contractual), which today account for about 20% of employment. Those in nonstandard jobs are far less likely to receive health and pension benefits. Even in standard jobs, research indicates benefit coverage has dropped sharply for less educated males.
Yet reports of welfare capitalism’s demise are exaggerated. We are not moving to an economy made up only of short-term jobs and indifferent employers. True, the mix is shifting. But as economists often warn, don’t confuse stocks (in this case, our endowment of jobs) and flows (the jobs being created or destroyed in the current period). The stocks usually dwarf the flows.
Take, for example, the data on employee job tenure, a good gauge of long-term employment. The data show little change in job duration in the 1980s and only a moderate decline in long-term stability in the first half of the 1990s, primarily among older males. The share of men employed more than 10 years with the same employer fell from 50% in 1979 to 40% in 1996; for women, however, this share increased slightly, from 29% to 31%. Focusing on flows, one sees a modest, albeit unprecedented, drop in the prevalence of career jobs; focusing on stocks, one sees two-thirds of the labor force still employed in long-term jobs.
As for nonstandard employment, while it has grown since 1970, the increase has been small. Temporary help and day labor currently account for less than 3% of employment; regular part-time work comprises an additional 13%. Such jobs do not constitute a replacement for regular, full-time work.
Some industries--like Silicon Valley--have high employee turnover, but most of today’s workers are not job hoppers. One survey this year found that the proportion of young workers who said they were very likely to leave their employer within the next year was the same as in 1977 (22%). About two-thirds of all employees say that they definitely will stay put for the coming year.
What about fringe benefits? The stock/flow distinction is relevant here as well. Employers--not government, unions or individuals--are still the linchpin of our health insurance system and still a major provider of old-age pensions. Sixty-nine percent of full-time workers receive employer-provided health insurance; for pension coverage, the corresponding figure is 63%. And while some employers are cutting benefits, others are adopting new ones, such as flextime for parents.
Rather than killing welfare capitalism, what employers are doing today is preserving its basic structure but shifting more risk to employees. Thus, career jobs still abound, but they no longer come with an iron-clad guarantee of permanence. Employers still insure the majority of U.S. employees but are asking them to shoulder more risk via defined-contribution pension plans and higher deductibles on health insurance. And a larger proportion of employee pay is now “at risk,” that is, contingent on profit levels and stock prices.
Does this mean, then, that all risk eventually will be shifted to employees and that employers no longer will provide career jobs and fringe benefits? The short answer is: no. To assume that current trends will continue without limit is a reductio ad absurdum (just as it would have been absurd to predict in the 1940s that all jobs would become career positions). That’s because there are economic and political limits to the risk reallocation process currently underway.
One such limit is based on the economics of managing a work force. New workers have to be trained, which makes employee turnover costly. Employee skills are more important today than in the past, especially in fast-changing situations. Even after extensive layoffs, companies like AT&T; and IBM have preserved career ladders and fringe benefits because there is plenty of evidence that these practices boost corporate performance.
Pundits claim that the future lies with sectors like Silicon Valley and Wall Street. Here, workers are younger and highly educated. They move easily from job to job, and some employers welcome such mobility because it keeps them abreast of competitors. Workers are relatively well paid and can afford funding their own health and pension plans.
But these workers are atypical, and the companies employing them are dissimilar from the firms that comprise the bulk of the U.S. economy. Today, most American companies are service providers of one sort or another. Their success depends less on technological breakthroughs than on customer attraction and retention. Experienced and satisfied employees are much better at retaining customers than fresh recruits.
Even high technology companies are finding that employee turnover can be detrimental. Companies like Cisco Systems, a high-technology company, and SAS, a software giant, are throwbacks to the heyday of welfare capitalism. They offer exercise facilities, dining rooms with live music, even company doctors and massage therapists. To retain potentially mobile workers, they try to accommodate employees’ career shifts via transfers within the company. As one SAS manager said, “At 5 p.m., 95% of our assets walk out the door. We have to have an environment that makes them want to walk back in the door the next morning.”
Finally, there are political limits to the risk shifting that employers can pursue. Among the advanced nations, the United States has the lowest unionization rate and the smallest share of health and retirement insurance funded by government. Corporate managers know--or may eventually discover--that if they let welfare capitalism wither, government and unions will seek to fill the gap. In fact, unions are more actively engaged in organizing than at any time since the 1970s, while politicians--from Republican Buchanan to Democratic House Minority Leader Richard Gephardt--are poised to revisit the issue of employer responsibility in next year’s presidential campaign.
Ironically, public concern over downsizing and other forms of risk-shifting demonstrates that Americans retain their faith in welfare capitalism as an economic ideal. There still is widespread support for the notion that corporations should remain the keystone of economic security in American society.
