Subcontracting and Increased Productivity Demands

Echoing the argument I make in chapter 1 (pp. 23-24), a number of scholars have noted that subcontracting leads to lower wages for workers as well as worse labor conditions. Massey et al. (2002), for example, used interviews with return migrants in Mexico to document the impact of the passage of the Immigration Reform and Control Act (IRCA) in 1986—which criminalized the employment of undocumented workers—on workers’ wages (1). They showed that IRCA—which imposed fines on employers found to have “knowingly” hired undocumented workers and required that employers fill out and retain I-9s for each employee hired— encouraged the outsourcing of hiring. In sectors of the economy that are characterized by seasonality and the rapid turnover of workers—such as agriculture—IRCA created a paperwork burden that significantly raised the costs of hiring. As employers turned to contractors to assume the additional costs and risk, the latter in turn retained a portion of workers’ wages as income. The effect of IRCA can be seen in a precipitous decline in wages among both undocumented and documented migrants after 1986, as labor intermediaries exacted a “tax” on their workforce, regardless of workers’ legal status (2). Indeed, one study in California found that the annual earnings for workers employed by farm labor contractors were only 60% of those directly hired by growers (3).

Not only does the shift from direct employment to subcontracting come at the expense of workers’ wages, but it also jeopardizes migrants’ work circumstances by diffusing accountability. Because of their smaller size as well as their rapid turnover in employees, labor contractors are often better able to avoid government oversight than larger growers and agribusiness companies. Whereas corporations have significant investments in their brands, labor intermediaries like contractors are more easily able to declare bankruptcy and reincorporate under another business name. Moreover, subcontracting facilitates the evasion of accountability because labor intermediaries’ transience often makes it difficult for workers to locate their physical headquarters.

For these reasons, subcontracting is often associated with the violation of state and federal labor laws (4). For example, Massey et al. document a sharp uptick following the passage of IRCA in the proportion of migrants paid in cash rather than by check—a common strategy that employers use not only to disguise their hire of undocumented workers but also to skirt wage and hour laws (5). By paying workers in cash, for example, contractors are able to hide their violation of minimum wage and overtime laws, or their not compensating workers—as now required by California law—at the piece-rate for rest periods (see “Mitigating the Detrimental Effect of Piece-Rate Pay” below). Unless growers are held responsible as “joint employers” of workers alongside labor contractors (see the book’s Conclusion), subcontracting will continue to worsen the work conditions of the migrant labor force.

1. Massey, Douglas S., Jorge Durand and Nolan J. Malone. 2002. Beyond Smoke and Mirrors: Mexican Immigration in an Era of Economic Integration. New York: Russell Sage Foundation.
2. Massey et al. 2002: 118-122.
3. Martin, Philip L. and Gregory P. Miller. 1993. “Farmers Increase Hiring Through Labor Contractors.” California Agriculture 47(4): 20-23. 
4. Martin, Philip L. 1994.  “Good Intentions Gone Awry: IRCA and U.S. Agriculture.” Annals of the Academy of Political and Social Science 534:44-57. 
5. Massey et al. 2002: 123.