David Weil’s provocative new book explores corporate structure and the nature of work in the United States. In his telling, the last 30 years have seen the rise of what he refers to as the “fissured workplace” in which lead companies have systemically redefined the boundaries of the firm. Numerous tasks that were formerly performed by direct employees of these firms have been converted into arms-length contracting arrangements. As an example, Weil compares GM and Apple, Inc. At its height GM employed over 600,000 workers whereas Apple, according to its 2103 10K filing, employed over 80,000 people directly (more than half of those working in its retail division) while relying on a global workforce of 750,000 employees (pp. 7–8). Similarly, the next time you appear at a major hotel it is unlikely that any of the staff you encounter, from the front desk to the housekeepers, are actually employed by the hotel brand you recognize, notwithstanding the name badges emblazoned with familiar corporate logos.
Weil acknowledges that outsourcing, subcontracting, and the like are nothing new and have some positive effects, especially for consumers and capital owners. But this is not his emphasis. Stated succinctly, he argues that “deftly crafting franchise manuals, delivery standards and systems, and monitoring arrangements, these lead companies often profess a lack of knowledge about the work conditions that flow from the very same standards. Or they absent themselves from the coordination functions that might compromise their arms-length status. And the social consequences of these actions are significant with respect to compliance with labor standards, impacts on worker health and safety, and more generally the distribution of income overall. ” (p. 183)
Weil writes in engaging prose suitable for an audience of policymakers, advanced undergraduates, and graduate students. The literature on industrial organization and the theory of the firm can be highly technical. Weil does an excellent job of communicating core ideas from this tradition in accessible, non-formal terms. The evidence he marshals is culled from regulatory filings, government reports, corporate documents, and journalists.
The book is organized into three parts. Part I explains firms’ organizational decisions in terms of both motive and opportunity. Firms at the technological frontier largely compete on product attributes other than price. Innovation-intensive firms and those commanding brand loyalty have an element of monopoly, allowing them to earn economic profits. Intermediate products and services become increasingly commoditized as we move away from innovation-driven, branded goods. Responding to demands from investors, firms at the frontier have incentives to divest themselves of as many of these low-profit activities as possible.
These motives are nothing new, though Weil claims they have become more powerful in recent decades. What has really changed is the opportunity structure. He understands firms as organizational responses to transaction costs, namely contractual incompleteness, hold up, and agency/monitoring problems. Declining transactions costs drive lead companies' decisions to shift various functions outside the firm.
Weil outlines a variety of ways in which the information technology revolutions lowered the costs of monitoring everything from factory production to trucking and distribution. These new technologies also enabled a more geographically dispersed execution of some corporate functions such as customer and IT support as well as human resources management. He describes the minutiae of subcontracting and franchising agreements, contrasting the mind-numbingly detailed standards governing product specification, delivery timing, and franchisee responsibilities with the virtual absence of any contractual obligations around worker conditions, pay, or safety (environmental concerns are largely absent). Core firms use high-powered incentives to win compliance with their production requirements but appear unwilling to use these same incentives to demand suppliers’ compliance with labor law and other regulations. Arms-length contracting relationships allow lead companies to plead ignorance when it comes to regulatory violations among contractors even though the terms of the contract make regulatory compliance incompatible with profitability in some cases.
But this raises a question: How can all this save any money if the workers are paid their marginal products, the firms are subject to the same regulations, and the newly-created contractors still make a profit? Weil argues two main channels. First, workers in large firms, especially workers at the lower end of the productivity distribution, are often paid more than their marginal product due to the functioning of internal labor markets and higher rates of unionization. Second, smaller firms are often not subject to the same level of de facto regulation. It is far easier for smaller firms to avoid compliance with laws governing wages, hours, safety, collective bargaining, and contributions to social insurance programs. When these contractors are caught they are often too undercapitalized to be effectively punished. Pushing “non-core” activities outside the firm generates savings to the lead firm, effectively redistributing rents from low skill workers to capital owners.
Part II goes into the details of “how,” presenting a series of industry case studies organized by the mode of “fissuring” they represent. Chapter 5 explores the modern forms of subcontracting, comparing A.T. Massey (bituminous coal), Cingular/AT&T Wireless (mobile communication), and Hershey (food manufacturing). Chapter 6 focuses on franchising, with case studies of the fast food, janitorial services, and hospitality industries. Chapter 7 concerns supply chain management, modular production, and out sourcing with extended discussions of logistics management and retailing (Wal-Mart and Schneider Logistics) and consumer electronics (Apple, Foxconn, and Hewlett-Packard).
Each of these chapters narrates the rise and subsequent consequences of the various forms of fissuring. Weil chooses examples where fissuring pushes costs and risks further away from the core firm, ultimately onto those least capable of managing them. For example, A.T. Massey contracted out operations in the most difficult and expensive mines. Contractors were often small, undercapitalized firms—many of which went out of business rapidly. With so many precarious firms operating on tight margins, Weil documents an increase in mine accidents, lost wages and benefits, and employment volatility. Fissuring in the mobile communications business prevents effective coordination across contractors, putting cell tower maintenance workers at elevated risk. Franchised fast food outlets are more prone to wage/hour violations than outlets operated directly by the brand company.
Part III focuses on policy responses in three areas: legal liability (Ch. 8), enforcement (Ch. 9), and the ability of workers to defend their own interests (Ch. 10). He presents examples of innovative enforcement strategies and state-level legal changes. Weil is pessimistic about the ability of the U.S. Congress to legislate any reforms to our labor and regulatory institutions. As such, he concentrates on enforcement strategy, skipping over the political question of why some bureaucracies might choose one enforcement strategy over another. In Chapter 10 he recognizes that enforcement is hindered when workers on the ground are unable to raise the alarm for fear of retribution. This is a particularly crucial problem considering the weakness of American organized labor. Like many before him, Weil is stymied trying to articulate an alternative way forward for American unions and workers.
In Part III the book’s near-exclusive focus on the United States becomes more of a liability. The discussion of U.S. legal doctrine and enforcement, while informative, fails to provide adequate context for understanding the more general consequences of fissuring, especially in countries where access to health care, union membership, and other social welfare benefits are not as tightly tied to specific employment relationships.
Weil’s work on fissuring resonates with personal experience, reinforced by the many examples he presents. Nevertheless, the book’s main weakness lies in data and measurement. From the very beginning Weil claims to have identified “fissured industries” and makes extensive and broad claims about the growth of fissuring. I have no reason to believe he is incorrect in his assessment, but Weil fails to offer an operational definition of “fissure,” relying instead on a variety of illustrative cases and some choice statistics. As a result, he cannot actually demonstrate the extent of fissure in industries across time and space, much less evaluate causal claims about the effect of increased fissuring. Instead, the reader is left with the impression that this is largely an American phenomenon—but that hardly seems plausible. Weil does recognize the difficulty in measurement in the penultimate chapter. Unfortunately, he fails to suggest alternate approaches to the challenges of measuring organizational fissure in future research.
Weil coherently identifies what appears to be a pattern in U.S. industry that is possibly applicable to other economies. He provokes a series of interesting questions for workers, activists, policy makers, and social scientists. But in his effort to arouse interest—or even outrage—he seems to have stepped far ahead of the existing data and measurement abilities. Indeed one way to interpret the book is as a compelling plea for systematic data gathering.
