In 1990, 22.5 percent of all workers in Silicon Valley were in high tech, whereas 4.6 percent of people working in low-wage service occupations were employed by high-tech companies. By 2016 employment in high tech increased 25.3 percent of all workers in the valley, but low-wage workers employed by high-tech companies dropped to 2 percent. The decline doesn’t mean there was suddenly less demand for landscapers or cafeteria workers. Instead, those jobs were just being outsourced.
Contractors can help keep costs low because contract workers don’t get the same benefits, such as health care or 401(k) matching. On a larger level,
the trend toward more contract workers
can be seen as another sign of widening inequality as it creates an underclass of workers who are, by all appearances, working full-time but don’t get any of the benefits of full-time employment.
More than a third of the workforce, or 57.3 million Americans, are now freelancing, according to a 2017 report by Upwork. In San Mateo and Santa Clara counties alone, there are an estimated 39,000 workers who are contracted to tech companies, according to one estimate by University of California Santa Cruz researchers.
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Increasingly, it’s not just low-wage jobs that are being outsourced. In a 2016 study, economists Lawrence Katz and Alan Krueger found that workers with jobs in higher wages are more likely to have their services contracted out than jobs associated with lower wages.
“The old way, companies would source and accumulate talent for decades. That’s not how it works anymore,” said Brian Hoffmeyer, senior vice president at Beeline, a company that helps companies manage their contingent workforce.
Benner recalled a conversation he had with an investor who visited IBM’s headquarters in the 1980s and was warned to be careful about how to talk to the janitors.
“And he said, ‘Why? I mean, of course I’ll treat them with respect, but why should I be careful?’ and he was told ‘Because many of them are millionaires,'” Benner said. “It was because they had a lifetime of employment in IBM, and part of the compensation that IBM gave them was shares in the company.”
Tech giants today are more likely to contract out sanitation workers, landscapers, security guards and the like. Contract workers often not only don’t have benefits such as 401(k) matching or health insurance, they most certainly don’t get shares in the companies they work for. That’s true not only for lower-paid labor but also for higher-skilled workers, such as software developers, administrative assistants, human resources professionals and sales representatives, who are increasingly hired on a contract basis rather than as employees.