Too many cooks? Tracking internal labor market dynamics in food service with case studies and quantitative data

Core firms in the U.S. economy have traditionally had strong internal labor markets that provided opportunities for skill development and advancement. Through training or prospects for long-term employment that allowed for on-the-job training and returns to investment in education, workers starting out with low skill levels had opportunities to be hired for "good" jobs. Firms were able to provide these opportunities in part because vertical integration and the expansion of various support functions brought together a large and varied set of jobs under a single roof. It is widely perceived that these arrangements have largely been scrapped over the last twenty years (see, for example, New York Times 1996). However, there is a marked difference between the sweeping changes depicted by recent case studies and the small to negligible shifts reflected in large-scale quantitative data. Case study research, ably reviewed by Peter Cappelli and his colleagues (1997), identifies two types of change, both dramatic: change in the organizational structure of firms and change in the structure of employment for workers. These are distinct but related shifts. Firms outsource, become "boundaryless," become embedded in networks, and change in other ways that lead to an altered employment structure. At the same time, businesses are weakening their employment relationships with workers to the point of dissolving internal labor markets (ILMs). Cappelli and his colleagues (1997, 4) conclude that with the breakdown of "traditional methods of managing employees and developing skilled workers inside companies⋯ pressures from product and labor markets are brought inside the organization⋯ [establishing] market-mediated employment relationships." A key element of both changes is the replacement of vertical integration with outsourcing of all activities save a few "core competencies" (Powell 2001). Despite such case study evidence suggesting the devolution of ILMs, most aggregate indicators of the vigor of ILMs have changed relatively little (Bernhardt and Marcotte 2000). Declines in average employee tenure are small (Neumark 2000), although some groups, such as less-educated young men, have experienced more substantial drops (Bernhardt et al. 2001). The differential in tenure between large and small firms, which one would expect to narrow over time if ILMs have significantly declined, shows no change between the 1980s and 1990s (Allen, Clark, and Schieber 1998). Estimates of the firm-specific components of wages, one way of assessing the extent to which ILMs shelter wages, also show essentially no change over the last couple of decades (Groshen and Levine 1998). One interpretation of this apparent contradiction between case study and aggregate data is compositional: the case studies represent changes that characterize only a small and perhaps atypical subset of firms. In particular, it may be that processes that dismantle job ladders in one set of businesses create new job ladders elsewhere. And in a world in which firms intermittently tear down and rebuild ILMs, such disparate findings would average out to little change in the aggregate. In this chapter, we take a close look at the evolution of ILMs amid shifting business boundaries, using both new case studies and a new quantitative data set that combines firm-level and workerlevel data. We focus on the food service sector, whose burger flipper has become a symbol in public discourse for a rapidly expanding category of low-end jobs.¹ The case study research zeroes in on supply chain shifts, such as outsourcing. Although the labor impacts of outsourcing have been studied closely in a few industries-above all auto manufacturing (Womack 1991)-it is important to broaden this base of knowledge. In contrast with much recent case study analysis of restructuring, we attempt to follow the trajectory of restructuring over a relatively long time span, using retrospective questions to learn about changes from the early 1980s to the present. We also compare the different organizational structures within which particular functions took place before and after the restructuring. Thus, we compare outsourcing firms and their suppliers. In effect, the comparison poses a counterfactual: What if the activities had not been outsourced? The quantitative analysis complements the case study findings by searching for generalizations on a large sample of workers and firms-indeed, nearly the universe of workers and firms for the state of Maryland during the years 1985 to 1996 in the industry under study. We analyze an unusual microdata set that links detailed longitudinal information on business establishments and workers, drawing on data from the unemployment insurance system. With these data, we are able to explore firm characteristics, such as turnover and earnings distribution, in terms of cross-sectional variation, samplewide trends (including entry and exit of firms), and firm-level trajectories. We can also examine individual worker mobility within the firm and aggregate up to firm-level or industry-level results. Our case study and quantitative analyses highlight different aspects of change in food service: the case studies emphasize the results of employment shifts across food subsectors, whereas the microdata analysis spotlights trends over time within one key subsector. The case studies reveal that shifting functions to suppliers-in particular, food manufacturers-may actually embed them in a stronger internal labor market rather than a weaker one. The quantitative analysis focuses on food manufacturing, the endpoint of employment shifts. The evidence here is consistent with earlier findings in which we suggested that corporate restructuring is iterative, and that successive iterations may have diametrically opposed implications for internal labor markets (Moss, Salzman, and Tilly 2000). In line with this claim, our quantitative analysis shows both strong persistence in firm-level characteristics such as median earnings or turnover (consistent with the absence of bold shifts or the prevalence of successive adjustments that cancel each other out) and wide-ranging idiosyncrasy (indicating great variation in business-level strategies or the fact that businesses are at different stages of adjustment at any point in time). Quantitative findings also show decreased turnover for low-wage workers in food manufacturing between the 1980s and 1990s, along with slightly higher turnover for the highest paid. Two generalizations about the impact of restructuring on the workforce seem to hold: 1. Businesses still find it necessary to integrate substantial portions of their workforce into the firm through established internal labor markets, and outsourcing in food service appears to have reinforced this pattern. 2. New forms of internal labor markets, however, have on the whole reduced opportunities for the least-educated workers to enter the firm and to advance within the firm. In effect, the line between primary and secondary labor markets has shifted within and between firms to the disadvantage of less-skilled workers. The rest of the chapter proceeds straightforwardly with a discussion of data and methods, a presentation of findings (first fieldbased, then microdata-based), and brief conclusions.