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October 2023, Volume 29, Number 4

Labor, Fissures

The US unemployment rate remained below four percent in 2023 even as the labor force expanded. More workers joined the labor force as the labor force participation rate reached 63 percent. Of the 267 million US residents 16 and older, 167 million are in the labor force.

Some 134 million US workers had private sector nonfarm jobs, including 22 million in goods-producing industries such as construction (eight million) and manufacturing (13 million). Another 112 million workers were employed in private services, including 17 million in health care and 17 million in leisure and hospitality.

Over 3.6 million more workers who earn $35,600 to $55,000 a year would be eligible for overtime wages under DOL regulations proposed in August 2023. Median US earnings are $57,000 a year.

Wages. Average hourly earnings for private sector non-supervisory workers were $29 an hour in summer 2023. They ranged from a low of $19 in leisure and hospitality to a high of $45 in utilities.

The federal minimum wage has been $7.25 an hour since 2009. After 14 years, the longest period since 1938 without an increase, most US employers are paying more than $7.25. Fewer than 100,000 US workers received $7.25 in 2023, down from almost two million in 2010. Minimum wages are higher than $7.25 in 30 states and many cities and counties. Washington has the highest state minimum wage of $15.74 in 2023.

The covid pandemic led to an explosion of requests for tips, from restaurants and hairdressers to many other service establishments, including workers making home repairs. One analysis found that tips increased the wages of service workers by 25 percent in 2023, up from 20 percent before covid.

Technology. Are we on the verge of another wave of labor-displacing new technologies fueled by robots and artificial intelligence? Most observers believe that robots and AI will eliminate some jobs but create others, while others warn of a looming jobocalypse, with more jobs eliminated than new jobs created. The result could be rising unemployment, depressed wages, and more inequality.

Some warn that, just as robots displace manual labor, AI can displace mental labor or skilled professionals.

Oregon-based Agility Robotics makes Digit, a humanoid-like robot that can do physical labor in warehouses. New Hampshire-based C&S Wholesale Grocers, the largest grocery distributor, uses robots to fulfill orders from supermarkets in almost lights-out warehouses, those with no human workers. Robotic dogs with thermal and acoustic sensors are taking over security monitoring at construction sites and other facilities, and robots that load and unload trucks are becoming routine.

Walmart’s one million square foot warehouse-of-the-future in Brooksville, Florida uses robot forklifts to load and unload trucks. Workers say that their jobs are easier physically but harder mentally as their responsibilities change from moving goods to monitoring the robots who move goods. Walmart had a peak 1.7 million US employees in 2021 and less than 1.6 million in 2023.

For as long as machines have been replacing human labor, there have been protests against labor-displacing machines. Luddites in early 19th century Britain tried to protect their hand-operated looms in homes by smashing looms powered by water or steam in factories that produced lower quality but cheaper cloth. Luddites wanted to protect a system of adult craftsmen who began as apprentices from factories that employed vulnerable women and children to produce faster.

Luddites lost the battle to stop technology, but sowed the seeds of labor unions and government regulation of wages and working conditions.

Poverty. The share of US residents in households with below-poverty level incomes rose from less than eight percent in 2021 to over 12 percent in 2022, meaning that 38 million people lived in poor households. Poverty as measured by the supplemental poverty rate that includes the value of benefits such as child tax credits, earned income tax credits, and stimulus checks was lower in 2020-21 because of covid-related payments and an expanded child tax credit.

The official poverty rate of $13,590 for individuals and $23,030 for a family of three was unchanged at about 11.5 percent.

About eight percent of US residents lacked health insurance sometime in 2022. Over 36 percent of those with health insurance in 2022 were in public programs, divided almost equally between Medicaid and Medicare, although Medicaid enrollment is expected to decline as states resume eligibility checks that were suspended during covid. Almost 12 million US residents bought health insurance on the Affordable Care Act marketplace.

Most Americans get health insurance via their jobs at an average cost of $22,000 a year, almost $2,000 a month. Employers in Indiana advocated for a law that requires hospitals to disclose their prices to the state, which the employers say are higher than in neighboring states.

Median household income fell from over $76,000 in 2021 to less than $75,000 in 2022.

Federal and state governments made it easier to obtain Unemployment Insurance benefits during the covid pandemic. One result was fraud: up to $135 billion of the $900 billion paid in UI benefits between April 2020 and May 2023 went to ineligible persons. There was also fraud in Small Business Administration’s pandemic loan program, where $200 billion of the roughly $1.2 trillion in pandemic loans was disbursed to “potentially fraudulent actors.”

Gig Work. Many gig workers are using apps to find jobs. Traveling nurses often decide where and how many hours to work via app, as do many drivers and delivery workers. Most gig workers are paid as independent contractors and receive 1099 statements, but some are employees who receive W-2 earnings statements.

Gig platforms vary widely, from those that detail exactly what workers must do and how they will be paid to those that allow suppliers of services to specify their rates and timelines to complete projects. The common thread in gig work is reviews: how do customers rate the gig worker who performed the service?

Analysts sometimes distinguish between “freelance by choice and freelance by force,” asking whether a gig worker is a highly educated service provider offering services for specified or negotiated fees or a less educated driver who accepts the terms offered by a gig app. Firms that rely on just-in-time staff to meet peak labor needs often turn to staffing agencies that may provide temporary workers for two to four-hour shifts, reducing labor costs. Apps often encourage workers to accept more hours in order to receive preference for future assignments.

Workers whose schedules, productivity, and performance are measured on apps fear negative reviews. Managing labor by having a core in-house workforce and a supplemental gig workforce is sometimes called fissuring, as when the core employees at Apple or Intel are supplemented by temps who come and go. Farmers have long fissured their workforces with a core of long-season or year-round workers supplemented by farm labor contractors to bring crews of workers to perform specific pruning and harvesting tasks. Competition between FLCs keeps wages for FLC employees low.

Farm labor reformers in the past wanted to make farm work like nonfarm work by eliminating FLCs and having farmers hire workers directly. Instead, the role of FLCs in farm work has increased, and nonfarm work has become like farm work as more firms rely on gig workers and temp agencies.

Gig platforms that treat workers as independent contractors, but also exert control over amount and quality of work done, can be hyper-fissured. Some apps collect information on where and how work is performed and post reviews from customers. The Coalition for Workforce Innovation wants a third category of workers beyond employees and independent contractors to allow workers to confirm that they want to trade employee status for flexibility and apps that monitor their performance.

Gig work is likely to expand, making the quest for a package of benefits and protections for gig workers more urgent. Independent contractors must obtain their own health insurance and pension benefits. Gig platforms have more power to negotiate benefits for a group of workers, but many app platforms are reluctant to develop benefit packages for fear that they will be considered employers who must satisfy all provisions of labor law for those who use their apps.

As gig work expands, more workers may be subject to flexible scheduling, monitoring and point-and-penalty measures of the quality of work they do.

There are no definitive data of the share of US workers who have at least some income from gig work; estimates range from 10 percent to 30 percent of the US workforce of 167 million, including many who are occasional gig workers. California’s Prop 22, approved by voters in November 2020, maintains the independent contractor status of gig-based drivers but requires them to earn at least the state’s minimum wage and have some benefits.

Many US businesses are franchises, which means that a franchisor develops a business concept and product, organizes supplies and sells the right to operate a restaurant outlet to a franchisee who must follow rules that often include buying supplies from the franchisor and paying royalties on sales. The International Franchise Association says the 800,000 franchised US businesses employ over eight million workers.

The largest US franchisee, San Francisco-based Flynn Restaurant Group, has 2,400 locations and 73,000 employees, operating brands that include Taco Bell, Pizza Hut and Panera. The California Legislature in September 2023 approved SB 476 to require employers rather than employees to pay $15 for food safety training for fast-food workers that is mandatory in California and AB 1228, which would set a minimum wage for fast-food workers of $20 an hour beginning in April 2024 and ensure that franchisors are not responsible for the labor law violations of their franchisees.

Journalist David Gelles says that GE CEO Jack Welch in the 1980s and 1990s legitimized the idea that the major purpose of a business is to make profits for shareholders rather than to share profits with employees and customers, helping to make GE the world’s most valuable company. Gelles argues that GE under Welch made more profit from buying and selling other firms and acting as a bank than making goods and providing services, leaving GE vulnerable during the 2008-09 recession. Gelles concluded that Welch increased profits in the short term but weakened GE in the long run.

Behavioral science. Academic research relies on reviewers or referees to ensure that studies submitted for publication in journals are rigorous and relevant. However, some peer-reviewed studies have been withdrawn after others questioned the data and methods.

Harvard Business School professor Francesca Gino was placed on unpaid leave after she was accused of manipulating data in four behavioral science papers that were published between 2012 and 2020. The findings included the assertion that asking people to attest to their truthfulness at the top of a tax or insurance form, rather than at the bottom made their responses more accurate because it supposedly activated their ethical instincts before they provided information.

The blog Data Colada, launched in 2014, questioned Gino’s data, prompting an investigation that led to Harvard’s action against Gino, who sued Harvard and Data Colada.

Behavioral science research seeks to understand how people make decisions, and urges steps such as helping people to lose weight by putting healthy foods first in buffet lines and requiring people to opt out of organ donor plans. Gino teamed up with Dan Ariely, the author of Predictably Irrational: The Hidden Forces That Shape Our Decisions (2008), which aims to explain why people often act irrationally, such as postponing medical appointments.

Ariely and Gino wrote many papers on dishonesty, finding that cheating can be contagious and that creative people can be more dishonest than average. They aimed to develop simple rules to help people to control their behavior, such as counting to 10 before choosing what to eat. Gino published Rebel Talent: Why It Pays to Break the Rules at Work and in Life in 2018.

Behavioral science raised doubts, including after a 2011 paper asserted that test subjects had precognition, the ability to sense the future or predict where a figure would appear on a computer screen. Critics including the Data Colada bloggers said that, if precognition were real, those who had it would gamble and win. Similarly, they and others criticized priming, the notion that people who wear counterfeit designer sunglasses are more likely to cheat.

The resulting controversy has led to a new norm in behavioral science. Instead of believing surprising findings, some say that they do not believe any finding that is surprising.

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