What is it, in particular, about contracting that allows businesses to pay the same people less? What can they do with the contracting that they couldn't do without it?
I think this:
>“By shifting tasks to contractors, companies pay a price for a service rather than wages for work. That means they don’t have to think about training, career advancement or benefit provision.”
was an attempt at explanation. But I don't see how it leads to lower wages.
One aspect of this is that it's much more difficult to "work your way up". To start at a relatively low paying position and then put in your time (accruing annual raises) and taking on roles of increasing responsibility and pay.
Previously you could start in the hotel kitchen and then become a line chef or a waiter or bartender and then a manager. And you'd be able to do so by showing you were competent and hardworking and moving up within the organization.
Now, in the extreme case, each of those roles is handled by a different outsourcing firm. The manager is quite possibly not directly taking resumes from people who walk in off the street, they're getting workers from a temp service who only supply low level kitchen help.
Put another way: who is typically going to make more? The person who has worked for Hilton Hotels for 20 years or the person who bounced around between a half dozen temp agencies doing work inside the same Hilton Hotel for 20 years?
Benefits. Benefits can cost up to 50% more on top of salary per employee, sometimes even more. The government requires full-time employees to be covered by health insurance for example. So if you switch to contractors you can save a great deal on this cost.
Lets say you own a business. You need someone to clean at night.
If you hire a cleaner directly you don't want to have to go through the hassle of hiring a new cleaner every few months so you pay them well so they will stay. Since they are your employee you probably include them in other items you give to other full time employees, such as profit sharing and vacation.
If, instead of hiring directly, you pay "Acme Cleaning Services" you know someone will show up every night to clean, even if it isn't the same person. The cleaner is no longer "part of the team." Acme Cleaning Services treats their employees like replaceable cogs in a machine, all they do is hire lots of low skilled labor and keeping pay low lets the company get more business.
There's also a psychological factor at work too. Contractors aren't part of the business "family" but a cost center. So the dynamic changes; instead of a longterm commitment to a person, it's more of a direct business relationship with the outsourcing company.
I think that contractors explain HOW it happens, not WHY.
Let's say in some city the factory was closed due to outsourcing and 3K people are now jobless. They are not applying to be a security guards in city hotels -- there are no vacancies announced, and hotel managers are not aware of opportunity to lower their costs.
But then some dude opens SecurityGuards LLC, hires former factory workers and starts sending out proposals for security contractors, paid by hour. Once proposal reaches hotel manager desk and evaluated, their current bouncer is fired and contract with SecurityGuards is signed. Hotel manager collects yearly bonus for efficient cost control.
So, the root cause is global wage arbitrage, but it appears that owners of contractor businesses are the bad guys here.
I don't know if this is what the article is meant to suggest, but in the past I think promotion from within from menial positions to lofty ones was far more common than it is now and contracting could help, in part, explain that.
Contractors can better utilize workers and equipment by spreading their usage to multiple sites. Since they can have a larger pool of employees, they can take risks on people willing to work for less money.
Basically, a contractor can turn part-time work into a full-time job.
It doesn't. The real reason is due to reduced demand for labor, partly due to increased efficiency from technology, partly due to reduced spending, etc.
At the end of the day, it's always supply and demand. The contracting just helps with creating a third party to deal with employment laws and all that hassle.
I recently stayed at a hotel and didn't even need to talk to anyone. Bought the room on via the hotel's app, the digital key in the app opened the door using the phone's NFC, the receipt was received via email.
What is it, in particular, about contracting that allows businesses to pay the same people less? What can they do with the contracting that they couldn't do without it?
A big one in the UK is it enables dodging of Employer’s NI
I think this:
>“By shifting tasks to contractors, companies pay a price for a service rather than wages for work. That means they don’t have to think about training, career advancement or benefit provision.”
was an attempt at explanation. But I don't see how it leads to lower wages.