Work in the New Economy

Work in the New Economy: Flexible Labor Markets in Silicon Valley: by Chris Benner. Review by Andreas Ramos.

Computerization has brought about changes in the structural nature of the economy, which has reshaped the nature of companies, workers, and other groups. Benner, Castells, and other economists are trying to identify and describe the nature of globalization and computerization, so we can have some idea of where things will lead. Chris Benner's book investigates the new form of work and finding jobs in Silicon Valley (SV.)

The Industrialized Economy

The nature of the traditional industrialized economy was based on several economic factors. Factories and machines were large, expensive, and could not be moved. The nature of industrialization meant stability.

Similarly, workers learned their skills as apprentices in a hands-on workplace. Since the machines slowly changed, a skill once learned could be practiced for several decades. Factories were difficult to move around so workers stayed with the company for life. Since companies couldn't move their equipment, they were obligated to deal with unions.

Effect of Computerization on Companies

Computerization has changed the fundamental nature of the economy. The computerization of the economy is forcing a restructuralization of all entities and relations within the economy: this includes companies, workers, and the relations between them.

The computerization of products has turned most consumer products into hardware or software products. For example, cameras and vacuum cleaners were once based on different technologies and had literally nothing to do with each other. Today, both of these are driven by computer chips. Cameras are digital and now a part of a computer system. Vacuum cleaners will soon be robots with artificial intelligence. Computerization is merging many diverse markets into a general market. Sony, which once made radios, now also makes cameras, robots, and many other devices.

Companies are embedded within broad market strategies, forming clusters of specialization, where workers, skills, and processes are often shared laterally among companies. Companies subcontract or outsource so much of their activities that they often become little more than a coordination center for projects and the actual work is performed by smaller companies.

Computerization has turned companies into small units that can be quickly set up, repurposed, and shut down. Whereas companies could once exploit a market for decades, companies now pick up new tools and processes and drop them quickly as a market evaporates. This also means that workers are added and dropped quickly. If a market begins to slow down, the company begins to shed workers in order to lower the costs. This also means that SV recessions are dramatic. In the 1975 recession, the SV workforce was reduced by 33%. In the last two years, SV shed 11% of its jobs.

Effect of Computerization on Workers

Computerization also changes the nature of workers, their skills, their jobs, and their professional relationships.

Because high tech work is so technical and specialized, workers are often closer to subvendors than to their own managers or coworkers in other divisions within the company. The hardware engineers, for example, work with the semiconductor chip manufacturing suppliers to coordinate designs, materials, and processes. They will have little contact (and few shared interests) with other divisions within their company, such as marketing, human resources, and so on. The chip design work is so technical that the board of directors can't understand it.

Work is becoming individualized, as workers lose traditional benefits and must rely on their own resources. Workers are turning into independent contractors who plan their own careers, develop their skills, and manage their own benefits and retirement investments.
Work is becoming socialized. Knowledge is acquired, developed, and applied within a community of professionals that has a shared mental framework and a shared identity. This creates collective identities based on technical skills. They form a worker-centric infrastructure of social networks to share leads for jobs, opportunities, and money. Workers create their own social networks to learn information, share resources, and navigate their careers. They learn how to negotiate for higher rates, share information about what companies are willing to pay, and learn about companies that are facing downturns.

Because they have learned to collaborate in teams and they know how to use technology, they are extremely effective at carrying out their efforts.

Companies have outsourced much of their production to a wide range of smaller companies that deliver development, engineering, marketing, billing, and other services. Up to 40% of SV workers are in nonstandard employment relationships (contracting, outsourcing, self-employed, consultants, temp agencies, and so on.)

Job tenure is short. SV companies structure their market strategies around projects, and staff employees, contractors, and outsourced companies are brought aboard to perform their roles in these projects. When the project is over, the team is disbanded. Staff workers themselves are often treated as contractors; they are hired for projects and let go after the project is finished. Due to rapid change, many current SV skills did not exist five years ago and will not exist five years from now.

SV workers use the technology to communicate with each other. Because the market constantly shifts, they are aware of trends and opportunities. Since the companies aren't loyal to the workers, workers will take advantage of opportunities elsewhere.

In the crash, companies and recruiters have been basically indifferent to workers. Workers are relying on each other for information, advice, support, and help. This is creating deep, strong social relations that will last into the next recovery.

Old Ideas Still Roam the Valley

Many of our concepts of company, worker, skills, job, retirement, and so on are from the industrial era. These are no longer applicable in a world where a company can last less only a few years, skills evaporate with the next software release, and companies offer no job security or pensions.

Government employment offices arose during the industrialized period, where workers were trained to work in specific companies and where they stayed for life. Due to business cycles, workers sometimes lost jobs, but unemployment checks kept them afloat until the market improved and they returned to their old companies and markets.

But in our computerized economy, we've learned that when markets go down, they don't return. The floppy disk market grew, became large, and disappeared. It will never return again. The website boom of 1995-2000 also will never return again.

Instead of hire and fire, we have a new vocabulary: downsize, rightsize, delayer, layoff, RIF (reduction in force,) restructure, repurpose. These words describe constant adaptation to a shifting economic environment.

Members on the board of directors, once the core team of the company, now often sit on more than half a dozen boards and move from one to the other as new opportunities arise or markets decline.
Once, the long-term workers in a company were the professionals with valuable skills. Administrative workers were marginal to the company. In the 90s, this flipped around: the workers with the most job security were often the night guards and low-level administrative workers. The most valuable workers are outsourced or temporarily hired from other companies, who come in for a particular project, perform the work, and leave afterwards.
Even the custodial crews have no job security. These are also outsourced, along with security firms, janitorial firms, landscaping services, and so on.

Companies Vs Workers: Intermediaries

If the economic world is made up of companies vs. workers, then there are a number of groups that mediate the contact between companies and workers. Intermediaries help companies to find workers. Or they help workers to find companies.

Benner identifies three types of intermediaries that function in the SV labor market:

Private sector intermediaries: Recruiters, job websites, and employer organizations. They sell a product (the worker) to the company.
Member-based intermediaries: Professional associations and unions. These are based on the member-centric.
Public sector intermediaries: community organizations, colleges, and city, county, state job services. They help companies to grow and they place workers into jobs in order to increase tax revenues and lower unemployment.

Each of these types is made up of hundreds of companies or groups.

For-profit Intermediaries

As companies moved towards the idea of project-based strategies and temporary workers, the recruiting industry skyrocketed. There were nearly a thousand SV recruiting agencies at the top of the boom.

By 2003, most of these are gone and the survivors have radically downsized. In 2003, Dice.com, which was the SV insider's job board for more than a decade, is on the verge of bankruptcy.

A recruiting agency is in business to make a profit. The more they take care of their interests, the greater their profits. However, this is not to the favor of the companies or workers. For example, recruiters screen workers to find workers whom they can profitably rent to companies again and again. They prefer highly-skilled and flexible workers and they ignore low-skilled workers. For low-skilled workers, recruiting agencies are a barrier to a job. Recruiters also urge workers to be contractors, not staffers, which makes the worker more expensive to companies and the recruiters earn more.

The agencies do not want workers to create social networks, which might lead to greater leverage in negotiations. Workers must sign nondisclosure agreements that forbid discussion of salaries and wages.

Agencies have an impact on wages that is not beneficial to workers or companies. Agencies earn their fees as a portion of the wages, both from the company and the worker. Companies must pay more for a worker ($10-20,000 per year in agency fees per worker) and workers earn less because often, the recruiters take a portion of the worker's wages as well, usually 30-50%, and often as much as 75%.

Thus in a downturn, when both workers and companies are cutting costs to survive, the recruiting industry is suffering near extinction.

In the discussion of for-profit labor intermediaries (recruiters, job websites, etc.), Benner points out that contracting begin in SV in the 70s, and the first contractors were women. They liked the flexible hours, they weren't committed to the idea of lifetime employment, and their husbands had the benefits. Men preferred "real jobs." By the 90s, the situation reversed and contractors were generally the most highly-skilled men.

Member-based Intermediaries

Member-based intermediaries include guilds, professional associations, and labor unions. Due to their position in the company/worker relation, these groups have a natural advantage over other intermediaries.

Because they get their funding from member dues, they must consider their member's needs, both present and future. It's in the group's interest to invest in their members. (Recruiters, in contrast, sell workers as commodities to companies, and because they most likely will never see the worker again, they will not invest in the worker.)
Members of guilds and unions are skills-centric and active participants in their professions. They are developing the next generation of technologies, so they notice changes and share information with co-professionals about future technologies. In fact, no one else has such hands-on knowledge and experience; neither companies, universities, recruiters, nor government employment agencies. For example, the sysadmin association has the best understanding of the profession, skills, and the job situation for systems administrators.
Members have extensive social networks and can move quickly from company to company. Members can tap into a network of hundreds of professionals.
Some of these organizations are politically sophisticated and have the social, legal, and financial resources such that they can explicitly change the conditions of their field. They engage in collective strategies, changes in state and federal legislation, IRS tax policy, and so on.

These groups include the SysAdmin Guild, the HTML Writers Guild, the Web Guild, STC, the NWU, Graphic Artists Guild, United Association of Plumbers, and the South Bay AFL-CIO Labor Council.

Chapter five is a fascinating account of these organizations and how they articulate their interests. These organizations perform services and understand their situation in a way that no other group (corporate, recruiters, educational, or government) can.

Companies can be created and dismantled, but a worker spends his lifetime with his skills. During the boom, some 5000 companies and 1000 recruiting agencies were created, and in the crash, more than half of these have disappeared. But the professions of sysadmins, web developers, technical writers, and others will continue. The workers associations are more enduring than companies. Since companies tend to act self-centered and self-interested, workers associations may become stronger than individual companies.

Nonprofit Intermediaries

These intermediaries cover a range of groups: government, educational, industry-sponsored associations, private industry councils (PICs,) and so on. This chapter is an excellent systematic overview of the bewildering array of job training or education opportunities.

In general, these intermediaries try to understand the situation and needs of employers, and then train workers to work for those employers. For example, NOVA PIC produces employment outlook handbooks that describe the current state of jobs and try to forecast future opportunities.

Funding comes from government (both national and local) plus grants from industry and foundation, including donations. NOVA PIC gets its funding from 35 sources.

Are these groups serving the companies or the workers? Since these organizations get their funding and cooperation from corporations, they have an incentive to see things from the corporation's side. They are not going to encourage workers to ask for wage increases, take on lobbyist actions to improve worker conditions, and so on. In effect, they act as a hiring department of the corporations.

As the chancellor of Foothill-De Anza College puts it, the companies request certain skills, the college creates workers with those skills, the companies consume them, throw them out, and request new workers with new skills. It takes six months to two years go bring a student through the pipeline until she has a job, but her job may not last as long as her training. The problem isn't the length of the pipeline; maybe the problem is that the companies are consuming workers too fast.

Other Issues

Here are some interesting items from Benner's book.

There are widespread ideas that SV is based on a meritocracy of skills, racial equality in the computer industry, technology workers are highly rewarded, and increased productivity leads to higher wages. Anyone, regardless of race or sex, can do well in SV if they work hard. Here are some facts.

In nearly every other industry, workers earn more as they gain experience. In SV, wages actually begin to fall as workers become older.
Certain racial groups have much higher incomes than others. Japanese, Indians, and Chinese have managed to keep the best jobs and highest wages among themselves. Other groups earn far less. Certain racial groups dominate the high-status, high pay professions, while low-status low-pay jobs are left to other racial groups.
Despite spectacular increases in productivity during the 90s, fully half of SV workers saw their salary stagnate or fall.
A few elite workers do well, but most workers are cast aside.
Since workers are hired through temp agencies, they often lack legal protection. Workers who point out noncompliance with environmental or safety regulations are immediately fired.
The constant shifting of jobs and lack of stability leads workers without professional networks to become dependant on the job market. When the market shifts too fast, they are left behind.
Workers, as individuals, tend to have few financial resources and practically no legal resources. Companies and recruiters can invest in lawyers, lobbyists, Congressional representatives, and so on. Workers without strong worker-centric networks are at a severe social and political disadvantage.
See Income vs. Race and Age

Notes

The book is recommended if you are interested in economics, globalization, the SV recruiting industry, or the nature of the SV job market.

Work in the New Economy: Flexible Labor Markets in Silicon Valley. Chris Benner, faculty of economic geography at University of Pennsylvania. 293 pages with tables and charts. Blackwell Publishing, Oxford, 2002.)