Tuesday, December 10, 2013

Now outsourcing even extends to the family cook, maid and nanny

2013 Fast Food Workers Strike 26
2013 Fast Food Workers Strike (Photo credit: Stephen D. Melkisethian)
An economy of outsourced servants
David Cay Johnston

Many service jobs used to be performed in homes of the wealthy, with better benefits

At least one class of American workers is having a much harder time today than a decade ago, than during the Great Depression and than a century ago: servants.

The reason for this, surprisingly enough, is outsourcing. Let me explain.

Prosperous American families have adopted the same approach to wages for servants as big successful companies, hiring freelance outside contractors for all sorts of functions from child care and handyman chores to gardening and cleaning work to reduce costs.

Instead of the live-in servants, who were common in the prosperous households of America before World War II, better off families now outsource the family cook, maid and nanny. It is part of a global problem in developed countries that is getting more attention worldwide than in the U.S.

We are falling backwards in America, back to the Gilded Age conditions a century and more ago when a few fortunate souls grew fabulously rich while a quarter of families had to take in paying boarders to make ends meet. Only back then, elites gave their servants a better deal.

Thorstein Veblen, in his classic 1899 book “The Theory of the Leisure Class,” observed that “the need of vicarious leisure, or conspicuous consumption of service, is a dominant incentive to the keeping of servants.” Nowadays, servants are just as important to elites, except that they are conspicuous in their competition to avoid paying servants decent wages.

In the Great Depression year 1930, one in 45 urban American families had live-in servants, economist George Stigler, who later won the Nobel Prize in economics, reported in his 1946 study of servants.

In a prescient line relevant to today’s growing chasm between the richest and the rest of society, Stigler noted that “a society with relatively many families at both ends of the income scale would provide both a large supply of servants and a large demand” for them.

Room and board

That is just what America has today — a top ten percent doing well (the top tenth of one percent exceptionally so), while the bottom third remains desperate for work. But outsourcing has changed the circumstances of those who would do a servant’s work today for the worse.

Consider the family cook. Many family cooks now work at family restaurants and fast food joints. This means that instead of having to meet a weekly payroll, families can hire a cook only as needed.

A household cook typically earned $10 a week in 1910, century-old books on the etiquette of hiring servants show. That is $235 per week in today’s money, while the federal minimum wage for 40 hours now comes to $290 a week.

At first blush that looks like a real raise of $55 a week, or nearly a 25-percent increase in pay. But in fact, the 2013 minimum wage cook is much worse off than the 1910 cook. Here’s why:

The 1910 cook earned tax-free pay, while 2013 cook pays 7.65 percent of his income in Social Security taxes as well as income taxes on more than a third of his pay, assuming full-time work every week of the year. For a single person, that’s about $29 of that $55 raise deducted for taxes.

Unless he can walk to work, today’s outsourced family cook must cover commuting costs. A monthly transit pass costs $75 in Los Angeles, $95 in Atlanta and $122 in New York City, so bus fare alone runs $17 to $25 a week, eating up a third to almost half of the seeming increase in pay, making the apparent raise pretty much vanish.

The 1910 cook got room and board, while the 2013 cook must provide his own living space and food.

More than half of fast food workers are on some form of welfare, labor economists at the University of California, Berkeley and the University of Illinois reported in October after analyzing government economic statistics.

Data on domestic workers is scant because Congress excludes them from both regular data gathering by the Bureau of Labor Statistics and laws giving workers rights to rest periods and collective bargaining.

Nevertheless, what we do know is troubling. These days 60 percent of domestic workers spend half of their income just on housing and a fifth run out of food some time each month.

A German study found that in New York City domestic workers pay ranges broadly, from an illegal $1.43 to $40 an hour, with a quarter of workers earning less than the legal minimum wage. The U.S. median pay for domestic servants was estimated at $10 an hour.

How to tip your dog walker

As the nation’s largest private employer, Walmart exerts a major influence on pay, affecting not just its own workers, but what competitors and businesses seeking workers with similar skills pay. Walmart’s low pay is a major factor in the hardships of outsourced servants like the modern family cook.

Sylvia Allegretto, an economist with the Center on Wage and Employment Dynamics at U.C. Berkeley, used Federal Reserve data to compare the fortunes of the many, to the six richest members of the Walton family, which controls Walmart.

In 2007 the six wealthiest Waltons family enjoyed a net worth equal to that of the poorest 30.5 percent of Americans, Allegretto calculated. Three years later, in 2010, the Walton wealth equaled that of 41.5 percent of Americans as the Waltons grew richer and the vast majority of Americans lost ground during the Great Recession.

The workers of another big employer, McDonald’s, receive $1.2 billion annually in welfare benefits. Despite the struggles they face, the company recently posted advice for its workers on how much to tip their own servants, including dog walkers. The company erased the advisory after CNBC reported on it, but the posting revealed how out of touch executives are with the reality in their restaurants.

The plight of domestic workers in an era of growing inequality and falling incomes for many has been taken up by the United Nation’s International Labor Organization, which has equal representation from workers, employers and governments.

ILO Convention 189 calls for domestic workers to have the same basic rights as other workers, including reasonable hours, rest periods and the right to organize.

So far ten countries have adopted the convention and 13 others are in the process or say they plan do so, but the United States is not among them.

The Thanksgiving week demonstrations outside fast food restaurants and Walmart stores signal a growing popular movement to improve the lot of the servant class in America. The government subsidies to employers who pay less than a living wage are also attracting attention from the anti-tax crowd, though not enough so far to make a clean break with the major employers like the Waltons and the Koch Brothers, who enjoy massive government subsidies both directly and indirectly through benefits that subsidize lower paid workers.

In California, Gov. Jerry Brown vetoed a bill last year requiring overtime pay and breaks for meals and rest, saying it would result in fewer domestic workers. But two months ago he signed a bill that only required overtime, which is difficult to enforce.

It is a start in he right direction, but just getting servants back to the livelihood they earned a century ago remains a distant goal.

David Cay Johnston, an investigative reporter who won a Pulitzer Prize while at The New York Times, is a best-selling author who teaches the business, tax and property law of the ancient world at Syracuse University College of Law.

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