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Martha Bonilla is not your typical middle-class worker. And it’s not
just that she was born in a backwater of El Salvador and crossed Mexico
hidden among a pile of bananas in the back of a truck to make her way
illegally into the United States at age 20.
Like millions of Americans lacking a college degree, the 44-year-old
mother of three works on the bottom rungs of the service sector, in a
kitchen run by the food-service contractor Restaurant Associates in
Cambridge, Mass. Food preparation and service is the lowest-paid
occupational group in the economy; even in Boston, it typically pays
less than $27,000 for a full-time, year-round job.
Yet there Ms. Bonilla sits at her kitchen table in the solidly
middle-class neighborhood of West Roxbury. She and her husband, Felipe
Villatoro, both legal residents, bought the house 12 years ago for
$350,000. It’s their second; she rents the first to members of her
extended family. The vacations in Florida, the 401(k), the $1,700 a
month they pay for their daughter’s college tuition and fees — all speak
of America’s dream.
“Coming to the United States was the best decision I ever made,” Ms. Bonilla said.
What’s the trick? Ms. Bonilla’s job with Restaurant Associates is to
make breakfast and lunch for executives pursuing extension courses at
Harvard Business School. At the university, service workers on the
payroll of an outside contractor earn the same pay and benefits they
would get as direct university employees — including health insurance
and pension benefits, paid vacation and child care assistance.
This parity policy was formally adopted across the university 16 years
ago by Lawrence H. Summers, then Harvard’s president. At a stroke, it
ended the practice of outsourcing dining, security and other such
services simply to save on labor costs. “The effect of this policy is to
remove some of the economic incentives to contract out those
positions,” said Michael Kramer, organizing director at the Cambridge
area local of Unite Here, the union covering food service workers.
Critically, unions covering Harvard’s in-house janitors, cooks and
guards — which had been losing ground to outside contractors — were
empowered to bargain hard for pay and benefits without fear of
encouraging more outsourcing. What’s more, contractors themselves became
more union-friendly once the university took over the determination of
wages and benefits. In 2001, before the policy was put in place, only 58
percent of the workers at outside contractors operating at Harvard were
represented by a union. By 2013, the share was 96 percent.
For Ms. Bonilla, the result is an hourly wage of more than $25. Adding
the money from a part-time job cooking at a student dorm, most weeks she
earns more than $1,500. That exceeds the typical weekly pay
of a worker with a master’s degree. Adding in the wage of Mr.
Villatoro, also a cook at the business school, the family earns almost
$120,000 a year.
As the wages of American workers without a college education languish
below where they were 40 years ago, Harvard’s experiment has led some
economists and union organizers to think about similar arrangements to
broadly benefit low-pay service workers, who form the biggest and fastest-growing part of the job market.
To be sure, Harvard’s employment policies affect a limited population.
Only 275 dining workers, 404 security guards and the 370 custodial
workers are employed by subcontractors, and another 1,105 work for the
university. It’s an open question whether larger organizations, or those
without multibillion-dollar endowments, can follow its lead.
“This is an important private-sector
policy innovation — a very good template for a socially minded
organization,” said Mr. Summers, whose tenure was sandwiched between his
service as Treasury secretary in the Clinton administration and his
time heading the National Economic Council under President Barack Obama.
But he acknowledged that the experiment carries trade-offs.
Even
if the goal is laudable — lifting workers from the bottom of the labor
market into the middle class, stimulating the economy and pushing
against the country’s widening wage inequality — Mr. Summers noted that
policies like these “make it more expensive to do the things you do.”
Setting too high a pay floor could force businesses to hire fewer
people, making many worse off.
Still, some 45 million Americans work in
low-end service jobs — personal care aides, cooks, janitors, sales reps
— typically earning less than $30,000 a year. By 2026, the government
projects, the number will be 50 million. Outsourcing is one of the main
dynamics keeping their wages down, and the Harvard experiment is a
useful case study of how institutions can use their clout to force a
remedy.
Recent research by economists at four top universities and the Social Security Administration concluded
that the parceling out of less-skilled work to low-wage contractors —
Goldman Sachs outsourcing its janitorial services, say, or Apple
contracting out the assembly of its iPhones to Foxconn — could account
for around one-third of the increase of wage inequality in the United
States since 1980.
That
concern is on the mind of David Weil, who headed the wage and hour
division of the Department of Labor during the Obama administration and
is now dean of the Heller School for Social Policy and Management at
Brandeis University. “The question is can we re-establish some normative
minimum that is presumably above what sheer market forces would drive
wages down to,” Mr. Weil said. “The idea is to set a wage norm through a
contracting standard.”
How Student Protesters Forced Harvard to Change
Harvard didn’t institute its parity
policy simply out of the purity of its institutional heart. Rather, in
April 2001, several dozen students from the Harvard Living Wage Campaign
took over Massachusetts Hall,
which housed the offices of the university’s top administrators,
demanding a better deal for campus workers. How could one of the richest
educational institutions in the country, they asked, with an endowment
worth billions, pay so many people so badly? At the time, nearly 1,000
workers at Harvard made less than $10.68 an hour (a little more than $15
today), the “living wage” wage minimum set by the city of Cambridge for
some of its contractors.
“After
three days we escalated,” said Benjamin McKean, an undergraduate founder
of Harvard’s Living Wage movement. “We had 100 people sleeping in tents
in Harvard Yard.” Senator Edward M. Kennedy joined in the sit-in.
Senator John Kerry also came by. The protest was covered in The Boston
Globe and The New York Times. By the third week, the Harvard president
at the time, Neil Rudenstine, yielded and asked a committee to report on
how to improve workers’ lot.
The panel — boasting such big-time academics as David Ellwood, T.M.
Scanlon and Martha Minow — was headed by Lawrence Katz, who had once
served as chief economist at the Labor Department. The group concluded
that even after the longest economic expansion on record, from 1991 to
2001, outsourcing was driving campus wages down. Between 1994 and 2001,
the pay of in-house service workers fell 7.5 percent on average, after
inflation.
Custodians
proved a useful case study. In 1980, Harvard directly employed nearly
1,000 of them. By 1996, the figure was just 260, and their compensation
had suffered. What happened in the interim? The university pushed the
Service Employees International Union to accept a contract with lower
pay to better compete with outsiders.
“There
are good reasons for outsourcing,” Mr. Katz said. “But we identified
outsourcing to get around labor obligations as the source of the
problem.” The committee he led did not recommend banning the use of
contractors, as the living-wage advocates demanded. Nor did it accept
their recommendation of setting a wage floor. Instead, by calling for
wage and benefits parity for all campus workers, regardless of employer,
it sought to remove outsourcing as a cost-cutting tool.
In January 2002, Mr. Summers, who had been inaugurated as Harvard president
three months before, signed off on most of the committee’s
recommendations. The university instituted the parity policy and
reopened contracts with service workers’ unions to raise wages across
the board immediately.
These days, a
service position at Harvard is not a bad job. A janitor’s starting wage
of $22.69 beats that of 75 percent of janitors in the area. A grill cook
— the food-service worker with the lowest pay — gets $21.27, more than
almost 90 percent of food preparation workers in the Cambridge-Boston
area.
Doris Landaverde, 39, got her
high school diploma only last June. She cleans offices at Harvard’s
Extension School, making more than $23 an hour, plus she has access to
benefits including holidays, sick leave, paid vacations, health
insurance, a pension, tuition assistance and help with child care. As a
result, she’s a little skeptical about the value of going to college.
“There are jobs that require a college degree and pay less than what I
make,” she said.
The idea is catching on beyond the ivy gates. The S.E.I.U. is trying to replicate Harvard’s approach in airports
around the country — pressing public authorities to set wage floors to
halt the erosion in pay for roles from baggage handling and security to
airplane cleaning and catering.
For
instance, the hourly wages of baggage porters declined by half as the
share of outsourced work jumped to 84 percent from 25 percent between
2002 and 2012, according to a report
by researchers at the University of California, Berkeley, and Simon
Fraser University in Canada. Like Harvard, the S.E.I.U. believes,
airport authorities could impose norms to counter the trend. “We view
the airport operator as the landlord,” said Larry Engelstein, the
director of collective bargaining for S.E.I.U. Local 32BJ, which covers
the Northeast. “The landlord can impose conditions that contractors and
carriers must satisfy to work on airport premises.”
In
San Francisco, to take another example, airport authorities have set
minimum wage and training standards for screeners, baggage handlers,
cleaners, fuelers, skycaps, customer service agents and other workers
with access to secure areas. Now, the union is waiting for the Port
Authority of New York and New Jersey to vote on a wage floor of $19 an
hour by 2023, a move expected by late September.
But
the Port Authority worries that airlines — which outsource everything
from the cleaning of planes to their on-flight meals — will sue. The
agency’s chairman, Kevin O’Toole, said at hearings in July that
officials “want to make sure when we vote for this minimum wage that it
is bulletproof” against any judicial review.
The economics
are tricky to get right. Clover Food Labs runs the cafe concession in
Harvard’s Science Center and another restaurant outside the university
gates. Workers at the Science Center make Harvard wages, but pay at the
outlet off campus ranges from $12.25 to $15.50 an hour, according to
Clover’s most recent employee handbook.
Ayr
Muir, Clover’s founder and owner, told me that to get the deal to work
“required a lot of flexibility on Harvard’s part.” He couldn’t jack up
the price of his sandwiches at the Science Center to pay for the higher
wages when his shop on Harvard Square was just 1,000 feet away. To make
ends meet, he needed Harvard to give him a discount on rent. A “normal”
restaurant paying an entry wage of $24, he said, “would go out of
business.”
The university
doesn’t calculate how much it might save if the parity policy were not
in place. But the committee appointed to study the issue in 2001 came up
with a rough estimate of $2.4 million to $3.7 million a year. This is
pocket change for an institution like Harvard, whose operating expenses
last year approached $5 billion.
But
as Mr. Summers pointed out, across the economy, better jobs may mean
fewer jobs. If, say, Massachusetts were to introduce a similar policy
for public services, it would need to find the money. Taxpayers could
provide it — or the state could scale back services and cut jobs. And
employers forced to pay more may attract better-trained workers,
displacing less-educated ones.
There
is a substantial body of research suggesting that modest increases to
the minimum wage will have only a tiny effect on employment. But there
is almost no research on what would happen if a cook’s wage were set at
$24, about twice the market rate. Most economists would probably agree that the number of cooks would fall.
Research
by David Neumark, a labor economist at the University of California,
Irvine, points out that in the parts of the economy most susceptible to
automation, imposing a “living wage” might just accelerate the pace at
which robots take over everybody’s job.
Still, other economists suggest, Harvard’s innovation deserves a shot. As the noted labor economist Richard Freeman argued
in the opinion pages of The New York Times after the release of the
Katz Committee’s report in 2001, “Failure to spread prosperity widely
has been the major failure in America’s economic success.”
Over
the last 40 years, the earnings of workers in the middle of the
distribution — half earn more, half less — have increased by an average
of 0.16 percent per year, after inflation. That is very close to
nothing. Workers without a college degree make about $20 less a week, in
today’s money, than they did at the millennium. With a labor movement
dwindling into insignificance — only 6.5 percent of private-sector
workers are unionized — economists like Mr. Weil and Mr. Katz suggest
that new institutions are needed to hold up the bottom half.
Alan
B. Krueger, a labor economist at Princeton who headed the Council of
Economic Advisers under Mr. Obama, argues that the costs of introducing a
parity policy like Harvard’s in other workplaces would be “probably
second order” — too small to matter. Higher pay, he noted, brings about
efficiency gains: Workers who are paid well are more loyal. They will
exert more effort for the company. It’s worth it even if they are more
expensive.
Indeed, Mr. Krueger
argues, “this kind of policy is pushing firms to a better equilibrium.”
From the standpoint of Massachusetts, he adds, think of all the new tax
revenue that higher wages would bring about. By that reasoning,
considering the consequences of low wages across society — poverty and
its contingent ills, family instability, addiction — policies to set a
floor on the price of labor could well justify their cost.
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