The Meritocracy Trap

by Daniel Markovits

  under ever more tightly controlled contracts: Short-term contracts subject the jobs to market forces, which set and revise the terms of employment from outside the firm. Cappelli, The New Deal at Work, 28, 33, 41.

  even specified outputs: Cappelli, The New Deal at Work, 28.

  returned to work for the firm as consultants: Cappelli, The New Deal at Work, 74 (citing Dean Minderman, “Big Blues,” Credit Union Management (February 1995): 15–17). IBM’s practice, moreover, is typical rather than exceptional. According to the U.S. Department of Labor, 17 percent of temporary workers had a “previous, different relationship” with their current employers, and an American Management Association survey found that 30 percent of employers surveyed had brought back downsized employees as contractors or otherwise temporary workers. See Cappelli, The New Deal at Work, 137.

  Temporary or contract workers do necessarily cost employers less than the permanent workers that they replace. Temporary workers are paid 14 percent less in wages than permanent employees, on average, and are half as likely to receive health care benefits. But these savings must be set against the fees charged by the agencies that provide temporary workers, which amount to roughly 40 percent of temporary workers’ wages. Indeed, only 20 percent of employers report that total hourly costs are lower for temporary, part-time, or contract workers than for permanent employees. The principal benefit firms receive from replacing permanent with temporary workers concerns not direct costs but rather flexibility. Temporary workers can be hired and fired as permanent workers cannot be. Cappelli, The New Deal at Work, 140. See also Susan N. Houseman, “Temporary, Part-Time, and Contract Employment in the United States,” Department of Labor, November 1996, http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.210.2922&rep=rep1&type=pdf.

  The vast structural shift away from permanent employees and toward subcontractors is driven less by savings on direct compensation and more by managerial efficiencies, associated with the flatter hierarchies and rising elite powers of command that the main text elaborates.

  for each ride that they complete: O’Connor, “When Your Boss Is an Algorithm.”

  subcontractors who employ twenty-five thousand: Cappelli, The New Deal at Work, 103.

  literally no employees at all: Cappelli, The New Deal at Work, 51, 101.

  workers of its subcontractors: Cappelli, The New Deal at Work, 104.

  put them into boxes: Amazon does this using highly skilled production process engineers, including some hired as consultants from industrial firms such as Toyota. See Simon Head, Mindless: Why Smarter Machines Are Making Dumber Humans (New York: Basic Books, 2014), 29–46, hereafter cited as Head, Mindless; Niv Dror, “A Fireside Chat with Jeff Bezos: Innovation & All Things Amazon,” Data Fox, accessed October 22, 2018, https://blog.datafox.com/jeff-bezos-fireside-chat/; Marc Onetto, “When Toyota Met E-commerce: Lean at Amazon,” McKinsey Quarterly (February 2014), www.mckinsey.com/business-functions/operations/our-insights/when-toyota-met-e-commerce-lean-at-amazon [inactive].

  buys each part individually: See Head, Mindless, 29–46; Simon Head, “Worse Than Walmart: Amazon’s Sick Brutality and Secret History of Ruthlessly Intimidating Workers,” Salon, February 23, 2014, accessed November 18, 2018, www.salon.com/2014/02/23/worse_than_wal_mart_amazons_sick_brutality_and_secret_history_of_ruthlessly_intimidating_workers/.

  Kiva Systems: Nick Wingfield, “As Amazon Pushes Forward with Robots, Workers Find New Roles,” New York Times, September 10, 2017, accessed November 18, 2018, www.nytimes.com/2017/09/10/technology/amazon-robots-workers.html.

  only four human workers: Danielle Paquette, “He’s One of the Only Humans at Work—and He Loves It,” Washington Post, September 10, 2018, accessed October 24, 2018, www.washingtonpost.com/world/asia_pacific/hes-one-of-the-only-humans-at-work—and-he-loves-it/2018/09/09/71392542-9541-11e8-8ffb-5de6d5e49ada_story.html?utm_term=.9be29f5cc435.

  differences of kind rather than degree: Firms have reduced the number of positions between CEOs and division heads, increased the number of managers directly reporting to the CEO, and increased the size of executive teams. See Raghuram G. Rajan and Julie Wulf, “The Flattening Firm: Evidence from Panel Data on the Changing Nature of Corporate Hierarchies,” Review of Economics and Statistics 88, no. 4 (November 2006): 759; Julie Wulf, “The Flattened Firm: Not as Advertised,” California Management Review 55, no. 1 (Fall 2012): 5.

  (like McDonald’s current CEO): “Steve Easterbrook: President and Chief Executive Officer,” McDonald’s, accessed October 22, 2018, http://news.mcdonalds.com/executive-team/steve-easterbrook.

  have equivalent postgraduate training: See Joe O’Mahoney, Management Consultancy (Oxford: Oxford University Press, (2010), 277. Hereafter cited as O’Mahoney, Management Consultancy.

  once performed internally: Management consulting began, alongside industrialization, to provide advice to owners of newly large and elaborate factories. See O’Mahoney, Management Consultancy, 16. But it would be 1947 before the then-leading consultancy, Booz Allen, achieved revenues of $2 million. José de la Torre, Yves L. Doz, and Timothy Michael Devinney, Managing the Global Corporation: Case Studies in Strategy and Management (New York: McGraw-Hill, 2001). Throughout this period, virtually no elite college or business school graduates joined consulting firms. And as recently as 1980, management consulting remained an unusual—indeed rare—destination for MBAs at top schools such as Wharton. See Cappelli, The New Deal at Work, 143.

  In the subsequent decades, however, consulting grew rapidly alongside middle management’s decline. Between 1972 and 1997, employment in “business services,” which includes strategy consulting, grew more than twice as fast as the rest of the economy. The sector has averaged 6.9 percent annual growth. Cappelli, The New Deal at Work, 143, citing Angela Clinton, “Flexible Labor: Restructuring and the American Work Force,” Monthly Labor Review (August 1997): 3–17. And growth has been still more rapid in recent years, and especially at the top: for example, the big three strategy consulting firms (McKinsey & Company, Bain & Company, and the Boston Consulting Group) nowadays regularly boast double-digit revenue growth and today generate over $10 billion in revenues and employ over thirty thousand people. In 2018, Bain & Company had $3.4 billion in revenue and eight thousand employees, Boston Consulting Group had $6.3 billion in revenue and sixteen thousand employees, and McKinsey & Co. had $10 billion in revenue and twenty-seven thousand employees. See “America’s Largest Private Companies 2016,” Forbes, accessed October 22, 2018, www.forbes.com/largest-private-companies/list. See also “Management Consulting: To the Brainy, the Spoils,” The Economist, May 11, 2013, accessed November 18, 2018, www.economist.com/business/2013/05/11/to-the-brainy-the-spoils. Hereafter cited as “To the Brainy, the Spoils.”

  Like the top banks, these firms self-consciously cast their consultants as not just elite but super-elite. Bob Bechek of Bain & Company insists that less elite business advisers, even though they might excel at “heavy lift, repeatable work,” cannot do the work of management consultants, who “concoct novel solutions to unique problems, which is hard.” See “To the Brainy, the Spoils.” (The quoted words are The Economist’s paraphrase of Bechek’s thoughts.) By the early 1990s, roughly a quarter of elite MBAs joined consulting firms, and by 2000 nearly half did. Cappelli, The New Deal at Work, 143, reporting that 26 percent of Wharton graduates went into consulting in 1990 and that 46 percent did in 1996.

  “with the push of a button”: “To the Brainy, the Spoils.”

  In typical recent years: These numbers come from data compiled by the research firm Equilar in conjunction with the New York Times, based on a systematic survey of all publicly traded, U.S.-based or -listed companies with annual revenues greater than $1 billion. See “Equilar 200: Ranking the Largest CEO Pay Packages,” Equilar, May 25, 2017, accessed October 22, 2018, www.equilar.com/reports/49-equilar-200-ranking-the-largest-ceo-pay-packages-2017.html; “200 Highest-Paid CEOs 2016,” E
quilar, May 27, 2016, accessed October 22, 2018, www.equilar.com/reports/38-new-york-times-200-highest-paid-ceos-2016.html.

  The three-hundred-times-median-work incomes: Lawrence Mishel and Alyssa Davis, “CEO Pay Has Grown 90 Times Faster than Typical Worker Pay Since 1978,” Economic Policy Institute, July 1, 2015, accessed October 22, 2018, www.epi.org/publication/ceo-pay-has-grown-90-times-faster-than-typical-worker-pay-since-1978/; Lawrence Mishel and Alyssa Davis, “Top CEOs Make 300 Times More Than Typical Workers: Pay Growth Surpasses Stock Gains and Wage Growth of Top 0.1 Percent,” Economic Policy Institute, June 21, 2015, accessed October 22, 2018, www.epi.org/publication/top-ceos-make-300-times-more-than-workers-pay-growth-surpasses-market-gains-and-the-rest-of-the-0-1-percent/.

  the entire S&P 1500’s profits: A 2005 analysis of compensation for the top five highest-paid officers in the ExecuComp database (which includes “all the S&P 500, Mid-Cap 400, and Small-Cap 600 companies . . . also known as the S&P 1,500”) found that, between 2001 and 2003, the “ratio of aggregate [top-five] executive compensation to aggregate [S&P 1500] earnings” was 9.8 percent. See Lucian Bebchuk and Yaniv Grinstein, “The Growth of Executive Pay,” Oxford Review of Economic Policy 21, no. 2 (2005): 283, 284, 297.

  fat and mean: The phrase comes from David Gordon, Fat and Mean: The Corporate Squeeze of Working Americans and the Myth of Managerial Downsizing (New York: Free Press, 1996). A more recent and very careful study of managerial workers confirms Gordon’s thesis, revealing that even as managers have become more elevated, with supervisory incomes growing faster than nonsupervisory incomes, supervisory jobs also account for an increasing share of the overall private-sector labor market. See Goldstein, “Revenge of the Managers.”

  a set of tasks and skills: Cappelli, The New Deal at Work, 159–60. Cappelli adds that on the midcentury model, the high/low-status fault line in the workplace lay between exempt and nonexempt workers under the Fair Labor Standards Act. Today, the fault line lies between top managers and everyone else. Capelli, The New Deal at Work, 236–37.

  determine status and pay: See generally Cappelli, The New Deal at Work, 163. See also Stephen R. Barley, “The Turn to a Horizontal Division of Labor: On the Occupationalization of Educational Research and Improvement, ES,” paper prepared for the U.S. Department of Education, January 1994.

  a bright and glossy sheen: Even the glossy jobs have become fewer as their shine has grown. There were, for example, nearly four hundred fewer corporate officer positions across Fortune 500 firms in 2005 than there had been a decade earlier, even though the economy was nearly 40 percent bigger. Hewlett and Luce, “Extreme Jobs,” 52. The World Bank, “World Development Indicators,” http://databank.worldbank.org/data/source/world-development-indicators.

  In 1967, single-store firms: In 1948, single-location firms (some incorporated, some not) still made 70.4 percent of all retail sales, while large chains accounted for only 12.3 percent. Large chains, for purposes of these shares, are firms with more than one hundred retail locations. Ronald S. Jarmin et al., “The Role of Retail Chains: National, Regional, and Industry Results,” in Producer Dynamics: New Evidence from the Micro Data, ed. Timothy Dunne, J. Bradford Jensen, and Mark J. Roberts (Chicago: University of Chicago Press, 2009), 237–38.

  “In the small independent establishment”: Herbert Koshetz, “The Merchant’s View: An Examination of Retailing Discovers Few in Field Receive Proper Training,” New York Times, March 18, 1962, accessed November 18, 2018, https://timesmachine.nytimes.com/timesmachine/1962/03/18/89502586.html?action=click&contentCollection=Archives&module=LedeAsset®ion=ArchiveBody&pgtype=article&pageNumber=155. Hereafter cited as Koshetz, “Merchant’s View.”

  “In the larger establishments”: Koshetz, “Merchant’s View.”

  Today, retail is dominated: See National Retail Federation, “Top 100 Retailers,” Stores, June 26, 2017, https://stores.org/2017/06/26/top-100-retailers/.

  These and other massive chains—over forty in total—all have over one hundred stores and, moreover, now dominate the market: by 2010, the ten largest grocery chains accounted for 70 percent of sales, for example. This is startlingly new. As recently as 2000, for example, the ten largest grocery chains made up 30 percent of the market. See Niraj Dawar and Jason Stornelli, “Rebuilding the Relationship Between Manufacturers and Retailers,” MIT Sloan Management Review (Winter 2013). Chains also now account for over two-thirds of retail employment overall. Chains already accounted for a larger share of overall retail employment than single-store firms in 1980. See Ronald S. Jarmin et al., “The Role of Retail Chains: National, Regional, and Industry Results,” in Producer Dynamics: New Evidence from the Micro Data, ed. Timothy Dunne, J. Bradford Jensen, and Mark J. Roberts (Chicago: University of Chicago Press, 2009), 240.

  As Amazon and other online retailers blossom, stores (now virtual) only get bigger. Between 2007 and 2012, for example, total online sales grew almost three times as fast as the number of online stores. Ominously, employment in online retail decreased slightly. The number of brick-and-mortar stores and total employment in such stores both declined by slightly over 5 percent over this period. See Robin Harding, “Technology Shakes Up US Economy,” Financial Times, March 26, 2014, www.ft.com/cms/s/0/f8a95502-b502-11e3-af92-00144feabdc0.html#axzz4JxZMpgp9. Hereafter cited as Harding, “Technology Shakes Up US Economy.” U.S. Census Bureau, “Economic Census: Tables: 2012,” www.census.gov/programs-surveys/economic-census/data/tables.2012.html.html.

  according to another: See Reich, Supercapitalism, 89–90; Sarah Nassauer, “At Walmart, the CEO Makes 1,188 Times as Much as the Median Worker,” Wall Street Journal, April 20, 2018, accessed October 24 2018, www.wsj.com/articles/at-walmart-the-ceo-makes-1-188-times-as-much-as-the-median-worker-1524261608. Note that Walmart’s profits on sales are roughly 3.5 percent, or about $6,000 per employee (reported for 2005). Hereafter cited as Nassauer, “At Walmart, the CEO Makes 1,188 Times as Much.” This entails that although Walmart might pay its workers appreciably more and still generate profits for its shareholders, it would not afford to pay anything approaching GM’s old wages. Once again, rising economic inequality more significantly reflects deep structural shifts in both production technologies and returns to skill than new exploitation or advantage taking by capital over labor.

  hosted, ironically, by Walmart’s stores: The poverty threshold for a family of four including two children is $24,339. U.S. Census Bureau, “Poverty Thresholds,” 2017, www.census.gov/data/tables/time-series/demo/income-poverty/historical-poverty-thresholds.html. For food drives at Walmart, see Hayley Peterson, “Wal-Mart Asks Workers to Donate Food to Its Needy Employees,” Business Insider, November 20, 2014, accessed November 18, 2018, www.businessinsider.com/walmart-employee-food-drive-2014-11.

  “let’s succeed”: Krystina Gustafson, “Wal-Mart Defends Employee Food Drive,” CNBC, November 20, 2014, accessed October 26 2018, www.cnbc.com/2014/11/20/wal-mart-defends-employee-food-drive.html.

  the firm’s median worker: Nassauer, “At Walmart, the CEO Makes 1,188 Times as Much.”

  Percolata of Silicon Valley: Percolata measures the effects of traffic, wealth, online browsing, and many other factors on customer behavior and installs sensors in stores to monitor customer flow, worker activity, and the interactions between them to measure and rank street-level workers for “true productivity” or “shopper yield,” measures of how much revenue each generates. The firm then determines which workers are most productive in which circumstances and in what combinations and adjusts work schedules in fifteen-minute intervals to optimize selling efficiency, which it claims to boost by up to 30 percent. See O’Connor, “When Your Boss Is an Algorithm.”

  hike prices where they do not: Tim Adams, “Surge Pricing Comes to the Supermarket,” Guardian, June 4, 2017, www.theguardian.com/technology/2017/jun/04/surge-pricing-comes-to-the-supermarket-dynamic-personal-data.

  without in-store assistance: Manufacturers’ applic
ations for trademarks nearly tripled between 1968 and 1989. David W. Boyd, “From ‘Mom and Pop’ to Wal-Mart: The Impact of the Consumer Goods Pricing Act of 1975 on the Retail Sector in the United States,” Journal of Economic Issues 31, no. 1 (1997): 226. And advertising’s share of GDP, which had fallen throughout the Great Compression, began a steady climb in 1975. Douglas A. Galbi, “Some Economics of Personal Activity and Implications for the Digital Economy,” August 6, 2001, 7, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=275346.

  richest person in modern history: See Robert Frank, “Jeff Bezos Is Now the Richest Man in Modern History,” CNBC, July 18, 2018, accessed November 18, 2018, www.cnbc.com/2018/07/16/jeff-bezos-is-now-the-richest-man-in-modern-history.html.

  Rhodes Scholars studying at Oxford: Tom Robinson, Jeff Bezos: Amazon.com Architect (Minneapolis: ABDO Publishing, 2010), 26. Jillian D’Onfro, “What Happened to 7 of the Earliest Employees Who Launched Amazon,” Business Insider, April 18, 2014, accessed November 18, 2018, www.businessinsider.com/amazons-earliest-employees-2014-4.

  data entry workers: The Department of Labor reports that over the first decade of the new millennium, the United States lost more than 1.1 million specifically secretarial jobs. The same decade also saw steep declines in other clerical jobs: employment for telephone operators, typists and word processors, travel agents, and bookkeepers fell by 64, 63, 46, and 26 percent respectively. See Andrew Leonard, “The Internet’s Greatest Disruptive Innovation: Inequality,” Salon, July 19, 2013, accessed November 18, 2018, www.salon.com/2013/07/19/the_internets_greatest_disruptive_innovation_inequality/. These job losses add up, so that since 2007, the United States has lost more than two million clerical jobs in total. Quoted in Robin Harding, “US Has Lost 2m Clerical Jobs Since 2007,” Financial Times, April 1, 2013, accessed November 18, 2018, www.ft.com/content/37666e6c-9ae5-11e2-b982-00144feabdc0.