The Unravelling of The American Employment Compact 

In 1888, George Eastman marketed the Kodak camera with the memorable advertising promise: “You press the button, we do the rest.” Photography, a complicated task requiring considerable technical knowledge, suddenly became accessible to ordinary consumers.  

Eastman created a company that became an early practitioner of welfare capitalism. Eastman issued weekly paychecks and distributed bonuses and profit-sharing payments. In 1919, Eastman gave employees one-third of his personal holdings in Kodak stock, then worth $10 million. The firm later established retirement annuities, life insurance, and disability benefits. Eastman believed that the goodwill and loyalty of employees were important sources of Kodak’s prosperity.  

After World War II, major American firms adopted the Kodak model of investing in their employees. In The End of Loyalty, former Wall Street Journal reporter Rick Wartzman describes the 1940s and 1950s as a working-class golden age in which firms such as General Motors, General Electric, Procter & Gamble, and Coca-Cola felt obligated to “lend a helping hand to workers” and to “shield them against the vicissitudes of life.”    

Paul Osterman’s important new book, Disposable Workers: The Transformation of Employment, describes how thoroughly that model has eroded.  

The Rise of the Disposable Worker 

Osterman, Professor Emeritus at MIT’s Sloan School of Management, conducted a nationally representative survey of more than 6,000 civilian, nonagricultural working adults. He also conducted 100 in-depth interviews with workers, employees, and staffing agencies. Osterman estimates that roughly 35 percent of American workers now fit into one of the categories he describes as “disposable.” This study provides statistical evidence of a trend that many American workers have intuited: American firms are increasingly seeking ways of obtaining labor without paying benefits or making long-term commitments to workers.  

The precariousness of work affects skilled and unskilled workers. Contingent work is a growing share of employment in information technology, law, and journalism. Higher education relies heavily on low-paid adjunct faculty who function as gig workers rather than institutionally supported employees. Two-thirds of university courses are now taught by instructors that are neither tenured nor tenure-track. Precarization (meaning contingent or “insecure” work) is spreading to the last bastions of stable government employment as federal government agencies replace career civil servants with contractors. An International City/Country Management Association national survey found that 80 percent of local governments used private sector contractors to deliver services. 

This precarization particularly affects young workers. Two-thirds of those aged 25-35 hold insecure jobs, compared to one-third of those aged 45-54. This change places young workers at a particular disadvantage, making it increasingly difficult to purchase homes and accumulate wealth over time. Only highly specialized jobs resist this trend. Scientific research and cutting-edge engineering offer high levels of stable employment, but these sectors represent a tiny fraction of the workforce. 

Osterman identifies three broad groups of disposable workers: freelancers, contractors, and “marginal employees.” The last category is the book’s most useful conceptual contribution. Marginal employees technically work for the organization that employs them, but they lack many of the features traditionally associated with a career: meaningful training, advancement opportunities, and employment security. Adjunct professors and staff attorneys, for example, are both doing essential work at their institutions, but they remain permanently outside the institution’s core, and they are deprived of the benefits of standard employment. Some highly skilled freelancers and contractors do indeed prefer this arrangement, and Osterman is careful to acknowledge them. But his research suggests that the vast majority of contractors and marginal employees would prefer the security and opportunities associated with standard employment. Younger workers, especially, express a desire for traditional W2 employment arrangements. 

From Kodak to Walmart 

An internal Walmart benefits memorandum that was leaked to the New York Times in 2005 captures the distance between the old and new conceptions of employment with unusual clarity. The memo, written by Susan Chambers, then the company’s executive vice president for benefits, cites rising employee tenure as a cost problem. Chambers calculated that a Walmart associate with seven years at the company cost almost 55 percent more in wages and benefits than an associate with one year of service, even though the company found no corresponding increase in productivity. Longer-serving workers were more expensive partly because their wages rose and they qualified for more benefits. 

Chambers’s logic is almost a photographic negative of George Eastman’s. Eastman connected profit-sharing to employee goodwill and loyalty. But in Chambers’s analysis, loyalty is a liability. The memo advocated increasing the number of part-time employees as a cost-saving measure. It also analyzed employees according to their healthcare costs and productivity and proposed redesigning jobs to incorporate physical activity. This would discourage older and less healthy applicants. The memo stated that senior executives received these recommendations “enthusiastically.”   

The Walmart memo reveals the calculus governing the companies that Osterman showcases in his book. Once labor is treated principally as a variable cost, many of the attributes traditionally associated with a good employee—experience, tenure, accrued benefits—can begin to look like financial burdens. Although this memo was a public relations disaster for Walmart, companies across industries—including technology firms, delivery services, newspapers, law firms, and universities—have all since adopted the employment practices it outlined.   

And companies have powerful incentives to reduce their commitments to employees. Outsourcing converts fixed labor costs into contracts that can be quickly eliminated. Part-time work allows staffing to track fluctuations in demand. Freelancing gives firms access to expertise without obligating them to support a career. Keeping employees in jobs without promotion ladders reduces the cost of training and development. Financial markets reward efficiency, and managers naturally want to make easy adjustments when business conditions change. 

Osterman does not deny any of this. Indeed, one of the virtues of Disposable Workers is that its argument does not promote conspiracy theories in which executives sit in conference rooms and plot against employees. The system can produce disposable workers even when every individual decision makes conventional business sense. That is precisely what makes the problem so intractable. 

The rise of AI makes the book particularly timely, though Osterman does not blame AI for a transformation that began decades ago. Public fear has centered on whether AI will replace workers altogether. But Osterman points to a more immediate reality: AI is making employers more hesitant to commit to regular employees even when it does not eliminate their jobs. If managers do not know what skills they will require three years from now, contractors and freelancers become attractive hedges against uncertainty. A company can buy the labor it needs today without making promises about tomorrow. Osterman’s survey reveals that nearly half of executives cite AI to justify job cuts. In many of these cases, firms deploy no new technology at all, but the public tends to accept technological change as a pretext for restructuring.   

The Social Costs of Precarious Employment 

Our broader economic context makes Osterman’s findings especially alarming. Work insecurity is producing systemic problems that are creating a national crisis. It is becoming increasingly difficult for vast swaths of Americans to maintain a middle-class life. Household consumption has remained flat since 2022 despite steady economic expansion. Disposable workers consume significantly less than standard employees with similar income out of fear over the future. Borrowing money from banks is becoming more burdensome: the vast majority of mortgage loans now ask for evidence of permanent, stable employment of more than two years.  This restriction particularly affects young workers, of whom only 23 percent meet this criterion compared to 67 percent in 2015. Oren Cass’s Cost-of-Thriving Index calculates that a basket of major middle-class expenses that required roughly forty weeks of a typical male worker’s earnings in 1985 required sixty-two weeks by 2022.   

The postwar American employment compact was not universal. Millions of women, black workers, immigrants, agricultural laborers, domestic workers, and others were excluded from its most generous forms, and the supposedly golden age of employment contained plenty of exploitation. But rejecting nostalgia does not require us to pretend that we have lost nothing of value. Osterman does not argue for a return to the 1950s. Rather, he claims that the next model of American employment must find a way to restore reciprocity between employers and employees without sacrificing the flexibility that today’s employment market requires. 

Osterman’s policy proposals—stronger worker organization, legal reforms, public protections, consumer pressure, and measures tailored to different categories of contingent workers—recognize that incentives that produce disposable work will have to be counterbalanced by institutions that give workers greater power and make investments in employees worthwhile again. This is what makes Disposable Workers more than a book about changing employment arrangements. It is about the obligations that should accompany economic relationships in a just society. We have organized a society in which employers demand maximum flexibility and workers bear an ever-larger share of the risk. Such an arrangement has frightful social, psychological, and political costs. People who cannot count on stable employment find it harder to plan for the future, build wealth, support families, or develop lasting attachments to institutions. This is a recipe for social disintegration and political chaos.   

George Eastman’s firm was not a model workplace in every respect, and the paternalistic welfare capitalism of his era is neither recoverable nor necessarily desirable. But Eastman understood something that our contemporary system of labor flexibility obscures: a company’s relationship with its workers is not merely a transaction. Employers depend upon workers’ knowledge, effort, loyalty, and trust. Disposable Workers makes a persuasive case that an economy that continually demands these things of its workers while offering little security in return cannot indefinitely escape the consequences of social disintegration. As management consultant Peter Drucker said, “A healthy business … cannot exist in a sick society.” 

Image licensed via Adobe Stock.