Technology hurts wages in hospitality industry

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The hospitality industry is characterized by lots of low-wage workers. E. Tammy Kim, in a New York Times column entitled “The Gig Economy is Coming For Your Job,” writes about how technology is allowing the hospitality industry to use gig workers to increase the number of low-wage workers. She writes:

“… The doormen and bellmen who once summoned cabs for guests, and were tipped in return, now watch lines of Ubers and Lyfts coil in front of the lobby doors, while concierges have had their work outsourced to iPad consoles. Some hotels offer tablets in every room preloaded with food-delivery apps, and give guests vouchers for Uber and Lyft rides. In the microcosm of the hotel, the app economy has expanded choices for some (the guests) and shrunk options for others (the workers).

“These currents in hospitality represent a subtle, sneaky form of technological displacement, care of the gig economy. They’re not robots stepping in for humans on a factory floor, but rather smartphone-based independent contractors and supplemental ‘cobots’ (a portmanteau of ‘co-worker’ and ‘robot’) chipping away at the careers of full-time and in some cases unionized employees.

“In the beginning of the gig economy, people most feared one-to-one job loss: An Uber driver comes in, a taxi driver goes out. And taxi drivers have indeed lost their livelihoods — and taken their own lives. Yet many app workers are only part time, driving or TaskRabbit-ing to supplement their wages in a traditional job.

“App companies, for their part, deny that even full-timers are employees, perpetuating the fantasy that gig workers are solo entrepreneurs. It’s a business model that reduces everything to a series of app-enabled transactions, and calls it work, leaving what’s left of the welfare state to fill in the rest.

“Aaron Benanav, a labor historian at the University of Chicago, explains that this process of ‘de-skilling’ and misclassification is happening all over the world. The gig economy ‘is being used to replace skilled workers with less skilled, or continuing a process that’s happening all over the world of ‘disguised employment,’ where you bring in independent contractors to replace employees,’ he said. ‘There’s an app for that’ means that there’s less steady, reliable work for traditional employees."

Consumers seem to prefer the service provided by even lower-wage gig workers, and companies have an enormous incentive to lower wages and benefits and will use their political clout to enable them to do so. The consequence is an already low-wage-predominant hospitality industry moving in the direction of having an even higher proportion of low-wage workers.

And the hospitality industry is a huge employer. In a Forbes article summarizing the findings of the new U.S. Private Sector Job Quality Index, Steve Denning writes:

“When U.S. unemployment is at a 50-year low, why do so many people have trouble finding work with decent pay and adequate predictable hours? A new economic indicator — the U.S. Private Sector Job Quality Index (JQI) — gives the answer: we have lots of jobs, but they are increasingly low-quality jobs.

“… What do the new jobs actually look like? The JQI White Paper paints a grim picture. ‘The success of superstar companies like Google or Apple or Pfizer should not blind us to the fact that today Leisure & Hospitality is our largest sector with 14.7 million non-management employees. It’s a sector that pays such workers $16.58 an hour and the average worker works just 25.8 hours a week — resulting in average weekly income of $428. (Benefits like health insurance in the sector are small to nonexistent.)’”

The preeminent economic challenge of our times is having an economy that, as it grows, benefits all. For the past several decades, the trend is in the opposite direction — with the prime reason being the economy is producing too many low-wage jobs. 

Technology is one of the culprits in creating an economy that is mainly benefiting those at the top. (Although the top is far larger than the 1%.) MIT futurists Andrew McAfee and Erik Brynjolfsson call this the Great Decoupling. Where technology exacerbates the trend that as the economy grows, it leaves a substantial proportion of American households unable to earn enough to pay the bills or save for their retirements and for the kids’ education.

But technology isn't the only cause. Another reason for an economy that is leaving far too many struggling even when the economy is hitting on all cylinders is the policy choices we have made over the last 40 years. This includes choosing to tilt the playing field toward capital and away from labor.

What we need is national and state policy that allows us to get the benefits of technology and have a broad middle class, rather than having to choose one or the other.

Lou Glazer is president of Michigan Future Inc.

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