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9 Bipartisan Ways To Rebuild The Social Contract Between Businesses And Workers

Businesses need to change how they support American workers. Here are some simple, non-revolutionary, ways to tweak the system designed to appeal to both labor and capital.

9 Bipartisan Ways To Rebuild The Social Contract Between Businesses And Workers
[Photos: PN_Photo, vipdesignusa via iStock]

The short history of how the postwar “social contract” between workers and companies emerged and then broke down goes something like this. In the 1950s, corporations worried about strikes instigated by still-powerful unions came to sweeping labor agreements, like the influential Treaty of Detroit between the United Auto Workers and General Motors. Workers were promised benefits, vacation time, wage increases, job security, and retirement benefits. In return they promised to be loyal and work like demons until they passed into retirement.

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This contract basically operated for 30 years, until companies started to worry about mounting liabilities in terms of wages, benefits, and pension payments, and Wall Street and business schools started to call for changes. In the 1980s, corporations began reducing wages and benefits and, where they could, began contracting out activities to non-union workers, outsourcing to faraway places, and franchising their brand to anyone who promised to uphold it. Executives faced increasing pressure to maximize short-term earnings and drive down costs. And globalization, technology, and management theory combined to tilt what had been a balance of social interests in favor of financial firms and highly compensated executives. Middle-class living standards plateaued, and an arrangement that once spread broad-based wealth was substituted for one where a lot of people still did well, but increasing numbers of people didn’t, and the chances to become one of the people who was doing well became a lot more difficult to navigate.

And that’s where we are today: with an uneven labor economy where a lot of people still work on traditional contracts, but more and more people are contracted out, freelancing, or in various “alternative” work arrangements (all net employment growth between 2005 to 2015 was in nontraditional work, one study found). Contingent work is growing, union power is dwindling, and corporations are now spending less on training and human development than they used to, harming the ability of people with low skills to rise up the ladder. At the same time, we’re seeing the rise of labor platforms, like Elance and oDesk, that make contracting out work easier.

An important new report from the Future of Work Initiative, a project of the Aspen Institute, recounts this history in admirable clarity. But rather than turn back the clock, it argues we need to embrace the reality of globalization and technology that allows companies to act independently of worker power, and more flexibly. Whatever the morality of this, the problem is that if government simply regulates more aggressively–for example, through minimum wage legislation and overtime requirements–companies have an incentive to move toward looser forms of employment. “Perversely, these arrangements provide even less security to workers,” the report says. Arguably, the Affordable Care Act is a case in point. By mandating companies to provide health insurance, many employers have shifted workers from full-time to part-time hours, so they don’t meet a threshold where they have to contribute the benefit. Instead of regulations, therefore, the bipartisan report calls for less obtrusive reforms that change business incentives, improve the quality of public information about work, reengineer corporate governance, and empower workers.

“We’re trying to make the relationship between businesses and workers more of a mutual enterprise, giving businesses more of a stake in their workers, and workers more of a stake in their businesses,” says Ethan Pollack, the initiative’s research director. “It’s a non-ideological agenda to policy-making. Relying solely on the regulatory mechanism to achieve these goals and not looking at other options is a mistake.”

The report comes in two parts: a narrative part that lays out problems and consequences, and an accompanying “policy agenda” that proposes 25 ideas for achieving the goals. We picked out 10 of our favorites:

1. Give companies a stake in the future benefits of training

When companies train workers, they run the risk those workers will leave at a later date, taking their new skills with them. The investment is essentially lost and there’s a good chance it could even harm the company, as the employee might go to a competitor. One idea in the report is to give businesses a sort of equity stake in the benefits of training. So, if a worker earns more money down the road, even if it’s with a different employer, companies would be able to claim a tax credit equal to some of that extra amount. In such a way, they would be incentivized to train workers, and society as a whole would gain from having more workers with higher skills.

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2. Create Responsible Corporations (R Corps)

One of the principles of the report is to reward companies that treat their workers well. It proposes creating a new corporate form, called the R Corp, where companies that invest in training, that give workers ownership rights, and that set up worker councils would get tax incentives, simplified reporting requirements, and some regulatory holidays. Doing good wouldn’t be its own reward; it would be rewarded in ways companies can use.

3. Disclosure around pay, training, and contracting

The Dodd-Frank financial reform law requires public companies to report ratios of CEO pay to median employee pay. But why stop there? Why not require companies to report on worker compensation more widely, on the benefits they pay, and on their training expenditures. That would allow investors and other interested parties to compare companies’ approaches to their workforces, and begin to create a sort of market around that information. Just Capital recently did extensive analysis on worker pay levels based on Dun & Bradstreet, Glassdoor, and other data. But requiring disclosure of social-type business information might create more accurate, consistent results.

4. Put workers on corporate boards

The report calls for profit sharing for workers, incentives for shared employee ownership, and more worker representation on boards (as well as worker councils). “Greater worker participation in decision-making can lead to higher job satisfaction, organizational commitment, identification, motivation, and workplace participation,” it says. The idea is an alternative to unionization and takes something from the German concept of “codetermination” that has been highly effective in maintaining both wages and productivity.

5. Long-term shareholder rights

Executives often say they can’t make long-term decisions because of short-term pressures, like the pressure to meet quarterly sales targets. Often that means workers get squeezed in the process, with managers, for example, making layoffs to hit a quarterly profit number even though it hurts a company’s deeper strategy. One solution might be to give long-term shareholders more power within companies: Stock exchanges could change their listing requirements to give long-term investors extra voting rights.

6. Experiment with portable benefits schemes

More than other countries, the U.S. provides social benefits through employment; many of us get health insurance, for instance, from our employers, not from a public plan like Medicare. When people aren’t fully employed, they fall between the cracks. The idea of portable benefits allows workers to access unemployment insurance, disability insurance, and time off for illness, vacation, and paternity leave, even when they’re not on a full-time contract. The benefits, pro-rated for hours worked, would be generated wherever anyone earned money–not on the basis of one work relationship. In 2015, 40 platform economy companies, labor advocates, and academics came together to propose such ideas, and there have been various academic proposals for security accounts and rainy day funds aimed at nonattached workers.

7. Create a Voluntary, Skills-Based Credentialing System

Companies have a hard time communicating the skills they need, and workers have a hard time communicating the skills they have. Establishing a standardized “common vocabulary” for skills across employers, industries, and occupations could make for a more efficient, dynamic labor market, and help create a bigger and better market for training services, the report says.

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8. Reform occupational licensing

In Florida you need an occupational license to become a florist. That’s right, you need state accreditation to sell flowers. Ending unnecessary licensing of jobs could open opportunities for workers, from massage parlors to cosmetologists. “This evidence suggests that many covered occupations . . . are perfectly capable of evaluating themselves, with little health risk,” the report says.

9. Use the on-demand economy as a back-to-work transition tool

While driving for Uber may not be a job in the fullest sense, it’s better than having no job, no money, and sitting at home. It can fill in while you’re looking for something else. The report proposes ways for the on-demand economy to become a transition tool when people are out of work. One way to do that is to be more flexible about unemployment insurance, not cutting it off when people are only doing interim and relatively small amounts of work. “States should ensure that their unemployment insurance eligibility rules allow workers to seek part-time work,” the report says.

Pollack stresses that he’s not necessarily anti-regulation. But at the same time, the idea that we’re going to recreate the social contract of the 1950s by, say, mandating minimum wages, is unrealistic, and not likely to gain wide support. The 25 ideas in the report are an attempt to find common ground between left and right, and reestablish an equilibrium between businesses and workers without resorting to old strategies. If we want to move forward, the approaches are certainly worth considering, debating, and experimenting with. See more here.

About the author

Ben Schiller is a New York staff writer for Fast Company. Previously, he edited a European management magazine and was a reporter in San Francisco, Prague, and Brussels.

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