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Temp Firms and Occupational Sorting
January 30, 2018
Five of the world's largest private employers are outsourcing firms that provide workers and/or services to other firms, led by Ranstad, a Dutch temp agency with 660,000 workers. UK-based G4S and Compass Group each have about 560,000 employees, and US-based Accenture and Danish-based ISS AS each have about 430,000 employees. Walmart is the world's largest employer, with 2.3 million workers in 2017.
Outsourcing firms group workers by skill, which means that a company that provides janitors to clean banks will likely pay janitors less and offer them fewer benefits than a bank that employs janitors directly and includes its janitors in bank-wide benefit programs. After outsourcing janitorial tasks, the bank is left with a mostly high skilled workers and the cleaning firm has mostly low-skilled workers.
The occupational sorting associated with firms outsourcing routine tasks increases inequality. Workers employed by outsourcers tend to remain in routine jobs, moving from one building to another to provide cleaning services, but they may find fewer opportunities for upward mobility in a janitorial firm than at a bank. Competition between outsourcers for the business of cleaning buildings, providing security guards, and serving food can put downward pressure on the wages of the workers employed by these firms.
Outsourcing and occupational sorting have a long history in agriculture, where farmers often rely on nonfarm labor contractors to bring especially seasonal workers to their farms to perform specific tasks such as pruning or harvesting. As with outsourcing in the nonfarm economy, most workers brought to farms by nonfarm crop support employers earn less than the average wage of directly hired workers.
Special tabulations made by California's Employment Development Department for 2015 determined the total wages paid and the average employment of workers in crop, livestock, and crop support agriculture. EDD divided total agricultural wages of $12.8 billion by average employment of 421,300 to obtain an average annual wage of $30,300 for a full-year employee in California agriculture, which is $14.56 for a worker employed 2,080 hours. Most workers employed in California agriculture work less than 2,080 hours an earn less than $14.56 an hour.
Crop support services, the nonfarm employers who bring workers to farms, have the most variance in average hourly earnings. There are relatively few high-wage support jobs, as with soil preparation and postharvest crop activities such as grading and packing harvested crops that pay an average $18 an hour, but most support jobs are low-wage, including the two-thirds of the support jobs provided by farm labor contractors that paid an average $10.80 an hour.