This Decision Could Kill the Economy

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The wage dispute started out as a seemingly routine matter.

All day long, the workers at a recycling plant in Milpitas, California cleaned and sorted trash. In 2013, they decided to form a union for better pay.

But there was just one problem…

You see, they’re not technically paid by the owner of the recycling plant. Instead, they’re paid by a staffing agency (which is under contract to the owner of the recycling plant).

Got all that? So who’s really the workers’ boss?

Few investors realize it yet, but the answer — from a key government agency — threatens to upend the long-term business models of the stock market’s most successful retail companies…

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“Contract labor” is a huge and growing force in today’s economy. A record 3.2 million people, according to the American Staffing Association, work as “temps” in one capacity or another.

For instance, a little over 40% of the nation’s warehouse and light industrial workers — loading crates or skating their way through cavernous buildings “picking” goods to fulfill someone’s Internet order — are considered temporary contractors.

They may work in a warehouse owned and managed by Amazon, for instance, but the corporate name on their paycheck is that of a contract labor company.

Flex Labor

The arrangement gives retailers plenty of flexibility to deal with the ebb and flow of seasonal demand. But it also gives them an “out” when it comes to wage disputes. If the contract staffing company at a particular warehouse suddenly finds itself dealing with a newly organized workers union, the retailer can end the staffing company’s contract and bring in a new firm.

End of problem.

And it was all completely legal. Under the old definition in U.S. labor law, the workers’ boss was the staffing company — not the owner of the warehouse. So the warehouse owner had no obligation to deal with a new union.

That made it quite hard for unions to organize workers and demand higher pay in fast-expanding sectors of the economy.

But their job just got a lot easier.

Recently, the National Labor Relations Board (NLRB) came out with a new, expanded definition of “Who’s the boss?” According to the NLRB, both the staffing firm AND the owner of the warehouse have what’s called “joint employer” responsibility for dealing with a labor union.

Huge Implications for the U.S. Economy 

The experts who follow these kinds of things say the NLRB’s decision will reshape corporate America’s reliance on contract labor. Some firms may decide to come to the bargaining table, bite the bullet and pay higher wages. Others could take the opposite approach and divest their warehouses or manufacturing facilities.

The NLRB decision could even affect franchising chains such as McDonald’s. Until now, a parent company — faced with wage demands from workers at a franchisee’s restaurants — could take a hands-off approach and refuse to negotiate. But now, under the expanded definition of “joint employer,” the parent company may well have a mandated obligation to come to the bargaining table.

You can see where this is heading, right?

It’s yet another example of a powerful shift — the trend toward rising wages — just getting underway in the U.S. economy. Temporary workers are generally paid less, so their growing use in recent years greatly added to the profit margins of America’s retailers, service companies and manufacturers.

And with those higher profit margins came higher and higher stock prices.

How long do you think that’s going to be the case as workers reclaim more power over wages at the negotiating table?

Higher wages on corporate margins are going to send ripples through Wall Street and the U.S. economy.

Kind regards,
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JL Yastine
Editorial Director, The Sovereign Society