Patrick Ow shares the challenges affecting employees as the workforce changes over time.
14. Employees Are Converted Into Contractors
Over the past two decades, the U.S. labor market has undergone a quiet transformation. Organizations are increasingly converting full-time employees into independent contractors.
Full-time employees are increasingly finding themselves as (or being forced into) independent contractors especially when their employment is transferred to an outsourcing organization. While they may be doing the same work, the method for computing their wages and income taxes will change with the loss of job security and benefits.
Some organizations like Uber have elected to reclassify (or misclassify, depending on how you see it) their employees as independent contractors. The impacts of misclassification are the underpayment of wages, the absence of benefits, and increased exposure to a variety of risks. According to a 2009 report issued by the U.S. Government Accountability Office, a significant portion of independent contracting does not pass the smell test. They actually represent the misclassification of workers.
Misclassification has spread quickly across sectors like hospitality, residential construction, and trucking and logistics.
When it comes to determining employment rights and responsibilities, the most important factor is the definition of employer and employee. An employee works in a business and is part of the business. A contractor is running their own business.
There are no similar workplace protections for independent contractors. They are considered to be their own small business, setting their own hours and responsibilities, providing their own benefits, and determining their own economic outcomes.
Hourly rates paid as wages to a full-time employee and an independent contractor will differ.
These ‘alternative work arrangements’ or the ‘contingent workforce’ are growing according to Politico. They represent roughly 16% of all U.S. workers, while the number of traditional employees declined by 400,000.
Jobs are the basis for a whole suite of social guarantees meant to ensure a stable life for workers. Workplace protections like minimum wage and overtime, as well as key benefits like health insurance and pensions, are built on the basic assumption of full-time employment with an employer.
Unfortunately, for many workers, their new status as an ‘independent contractor’ does not give them any guarantee of earning the minimum wage or health insurance.
15. Employees Are Disadvantaged by the Minimum Wage
In countries where there are minimum wage levels, it may be great news for some employees as their wages may rise. Minimum wage is a national economic policy responsible for many business decisions.
However, the unintended consequence is that any wage increases can push the employee’s annual income into a higher tax bracket where a higher marginal tax rate is applied to that individual.
It could also lead to job losses according to the Institute for Fiscal Studies. Their analysis showed that those being brought within the minimum wage net are in different sorts of jobs to those who have been on the minimum wage previously. They are more likely to be doing jobs that appear to be more readily doable by machines or computers.
The reality is that if the price of labor is too high, driven by an increase in the minimum wage, then employers will shrink their workforces. Economics will prevail: the higher the wage, the lower the demand for labor; the lower the wage, the higher the demand for labor.
The American Legislative Exchange Council said that raising the minimum wage in the U.S. will hurt lower-income, less-experienced, and less-educated Americans.
16. Employees Constantly Experience Income Volatility
Income volatility is the unpredictability of wages and salaries received by workers. Their personal cash flow may fluctuate from month-to-month or year-to-year.
The U.S. Federal Reserve’s 2013 Survey of Household Economics and Decision-making found that 21% occasionally experienced months with unusually high or low incomes. Ten percent said that their income varied quite a bit from month-to-month.
The U.S. Financial Diaries’ study of low- and moderate-income households revealed that households experienced on average five out of twelve months with a change in income of over 25%.
Between 2013 and 2014, JP Morgan Chase Institute observed that 70% of individuals experienced an annual change in income of at least 5% and 26% experienced at least a 30% change. Only 30% saw a consistent income.
The Aspen Institute found that nearly half of all households experienced an income gain or drop of more than 25% over any two-year period. Roughly one-quarter of individuals can expect to see even larger changes – 50% or more – from year-to-year. Forty percent who reported variable monthly income blamed irregular work schedules for the swings.
Findings from the Urban Institute showed that over a 12-month period about 25% of families suffered income disruptions. Low-income families with savings are more financially resilient than middle-income families without savings. Those with savings of $2,000 to $4,999 are less likely to experience hardships after income disruptions.
17. Employees Suffer From Outdated Education Systems
At present employees are stuck in a post-industrial era with the social engineering of an industrial workforce. Our education systems are generally assembly-line systems that are meant to churn out assembly-line workers for the 20th-century industrialized economy.
Gallup found that just 22% of Americans with a bachelor’s degree or higher believed that their own education prepared them “well” or “very well” to work with artificial intelligence in the workplace.
As a result, schools have become highly de-personalized institutions. They routinely demand compliance and frequently squelch creativity. Children – bursting with energy, creativity, and excitement – are confined to the spot like battery chickens.
According to The Guardian, teachers are leaving the profession in droves, their training wasted and their careers destroyed by overwork and a spirit-crushing regime of standardization, testing, and top-down control.
It is reported by the New York Post that our children have been suffering or will suffer by this life-defying, dehumanizing system. For every eight hours that students spent in schools, only about 2.5 are actually spent learning.
The rest is wasted on lectures and other non-academic activities.
Unfortunately, the Information Age has facilitated a reinvention of nearly every industry except for education. Education must now do more than just create a factory or assembly-line workers. It must reinvent itself. It must equip our future generations (who will become workers in the future) with the right skills and experience for today’s Information Age, not yesterday’s Industrial Age.
The U.S. Secretary of Education said that:
The factory model of education is the wrong model for the 21st century. Today, our schools must prepare all students for college and careers and do far more to personalize instruction and employ the smart use of technology. Teachers cannot be interchangeable widgets. Yet the legacy of the factory model of schooling is that tens of billions of dollars are tied up in unproductive use of time and technology, in underused school buildings, in antiquated compensation systems, and in inefficient school finance systems.
18. Employees Will Fail within 18 Months of a New Job
With an outdated education system, Leadership IQ said that when graduates do find work, as high as 46% of newly-hired employees will fail within eighteen months of starting a new job. Only 19% will achieve unequivocal success.
Contrary to popular belief, technical skills are not the primary reason why new hires fail. Instead, poor interpersonal skills dominate the list (89%). Universities and the outdated education system are not equipping graduates with these critical skills.
19. Employees Don’t Have Relevant Work Skills
As a consequence, smaller employers are shifting away from hiring graduates. News reported that employers believe that graduates are coming out of universities and colleges with no real skills or simply being taught the wrong things.
According to the 2017 Employer Satisfaction Survey of Australian graduates and employers, 25% said that their qualification is “not that important” or “not at all important.” More than half of employers say management, commerce, creative arts, and information technology degrees are not important.
In a survey by the Association of American Colleges and Universities, students and employers clearly didn’t see eye-to-eye on how well-prepared students were in applying knowledge and skills to the real world. That’s 59% of students versus 23% of employers – a gap of 36%!
Financial Times has reported that even business schools are becoming irrelevant.
U.S. graduate business schools – once magnets for American and international students seeking a certain route to high incomes – are in crisis. In a survey by MBA Career Services, thirty schools ranked twenty-one to fifty reported a 42% decrease in recruitment by companies in 2016. In 2015, this same group reported an 83% recruiting increase.
In a nationwide survey of over 1,000 human resources managers and recruiters in the U.S., 86% reported that they find it challenging to hire the right technical talent. More than half (53%) of all companies hired people who weren’t exactly qualified for the job, according to Fast Company.
20. Employees Are Not Getting Trained for the Job
Training is concerned with the acquisition of new skills for workers to carry out their current responsibilities. The goal is to improve performance in the short term.
Development is about adding value to workers’ existential skill-set and to prepare them for additional job roles and even promotion in the long-term.
It is unfortunate that as employers across the world look for ‘ready-made talent’ instead of training workers to suit their jobs, Pew Research Center found that 35% of U.S. workers say they do not have the required education and training they need to get ahead.
Randstad found that many U.S. employees and employers are not taking action for upskilling opportunities. In fact, over a third reported that they have done nothing to upskill in the past 12 months. Upskilling is defined as attending workshops, completing online courses, receiving consultation from a specialist, participating in personal coaching sessions or pursuing further education. Nearly 40% said that their employers have not offered nor paid for anything related to upskilling. Approximately, 40% said they would not arrange for and pay out of their own pocket to upskill themselves.
Randstad’s Workmonitor survey for Q3, 2017 found that 90% of employees worldwide believe that regularly updating their skills and competencies is essential to enhancing their employability. Nearly 91% consider it to be their own responsibility to do so.
As a comparison, in Singapore, HRinAsia found that 77% of employees took responsibility for developing their skills using a combination of self-learning and on-the-job experience.
According to the Association for Talent Development, organizations that offer comprehensive training programs have 218% higher income per employee than organizations without formalized training. They also enjoy a 24% higher profit margin than those who spend less on training. It would seem that continuing to invest in training and development, even when there are economic downturns, is the smart move.
A lack of training and development at work, as well as stagnant wages, are forcing half of all Australian IT workers to seek employment elsewhere, according to MyBusiness.
This is an extract from my ebook, Shocking Secrets Every Worker Needs to Know: How to Future-Proof Your Job, Increase Your Income, Protect Your Wealth in Today’s Digital Age (Kindle Edition), available from Amazon.
This is Part Three of an eight-part series.