Cleaning outsourcing: Counts, trade-offs and rationalesIWPLMS – 9-10 SEPTEMBER 2019

DÜSSELDORFF R A N Ç O I S - X A V I E R D E V E T T E R ( L I L L E , C L E R S E ) E T J U L I E V A L E N T I N ( P A R I S 1 , C E S )

Key issuesIn most countries, cleaning jobs account for a sizeable share of employment and experience a strong growth. As such, it plays a significant role through two important different processes affecting employment system :

- Job Polarization [Autor and all]: the increase of the number of cleaning jobs is one important driver of the developpment of the low end of the income scale

- Employment fragmentation [David Weil]: the outsourcing process is at the route of the “fissured workplace” which undermine workers’ power inherited from Fordism

Indeed, cleaning jobs are mainly bad jobs but the problem is even more acute when outsourced.

The paper seeks to better characterised the outsourcing process in 3 different directions:

-First it proposes an attempt to assess the number of outsourced cleaners (1),

- Second, it scrutinizes the cost components in order to explicit the trade-off which is supposed to explain the outsourcing process (2)

-Third it investigates human resource’ managers motivations through the analyse of an employers’ survey (3).

1. How to count outsourced cleaners?

1.1 Problems to overcomeIt is quite easy to count the number of cleaners using the socio-professional category (SPC).

But there is no immediate measure of the number of outsourced employees

The usual strategy to split cleaners between outsourced workers and internal cleaners consists in the use of the industry index: employees who belong to the cleaning branch are the outsourced cleaners [Berlinski, 2008 ; Dube et et Kaplan, 2011, Doelgast 2018].

There remain methodological problems:◦ There are several PCS of cleaners (for hotel catering, public administration, health services…. ) ◦ Cleaners of the cleaning branch will be considered as outsourced whereas they are employees of their

company◦ Cleaning activities can be part of non cleaning job through polyvalence: internal cleaners may not be counted

when cleaning is not the main part of their job◦ Temporary workers will be considered as internal employees while they should be neither outsourced neither

internal◦ The methodology relies on nomenclatures that have changed several times

1.2 Trends in the number of cleaners

-

50 000

100 000

150 000

200 000

250 000

300 000

350 000

400 000

19

82

1983

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

1996

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

2017

Effect_externes Effectc-internes Effect_Total

Table 1. Number of cleaners :

internal and outsourced. 1982 – 2017

An expected result: Rapid growth of the number of outsourced

A surprinsing result: Relative

stability (in number) or moderate

decline (in% of employees) of

internal cleaners

2. Cost decompositionat the heart of the trade-off

2.1 The usual explanations (Abraham Taylor 1996….)A way to save labour costs (Wage and benefit)

The opportunity to buffer activity volatility

The availability of specialized skills (or human resources facility) possessed by the outside contractor

2.2 Labour costs comparisonFrom DADS survey, the cost of an hour of cleaners’ services can be computed.

Cleaning industry employees are paid slightly more than the minimum wage but less than the internal cleaners (-13%).

The gap becomes substantial compared to the median of [low skilled] employees (-30%)

Intern

cleaners

Min.

Wage

Low

skilled

median

Outsourced

cleaners

Hourly net wage

9,27 7,88 10,30 8,46

Hourly gross wage

11,22 9,53 12,46 10,24

Hourly employer

cost 13,79 10,63 16,13 11,96

2.3 « Full cost » comparison

Intern

cleaners

Min.

Wage

Workers

median

Outsourced

cleaners

Price

Paid holidays

15,17 11,69 17,74 13,15

bonuses and

other fringe

benefits

15,17 12,28 18,63 13,81

Absenteism costs

15,33 12,40 18,82 13,95

Training costs

15,48 12,53 19,00 14,09

Supervision costs

17,03 13,78 20,90 15,50

Total wage costs

17,03 13,78 20,90 15,50

Equipment

1,70 1,38 2,09 1,55

Products

1,70 1,38 2,09 1,55

Total Cost

20,43 16,53 25,08 18,60 34,5

However, the trade-off does not only deal with labor costs but must take into account the full cost of the service performed internally or outsourced.

In the first case organizational costs (paid holidays, bonuses, absenteeism, training, ...) and other production costs (products, materials, ...) must be added

In the second case, the full cost corresponds to the price paid by to the service provider. It can be estimated from the turnover and the volume of activity of service providers.

3. Why establishments outsource cleaningactivities?

3.1 Data and hypothesis« REPONSE » survey : 4300 establishments. Representative survey of plants with 10 or more employees

« Apart from your main activity, what activities or services are outsourced to a subcontractor?»

“Cleaning, housekeeping and security" activities: 57% of plants concerned in 2011 and 64% in 2017.

4 hypothesis : ◦ H1 - Outsourcing organizations are those that have the most direct expected benefit from an externalization

◦ H2 - Outsourcing organizations are those that pursue profitability or cost reduction objectives more importantly

◦ H3 – Organizations that have the least management autonomy are those that outsource more frequently

◦ H4 - Managers who have the most instrumental management rationale are those that outsource more frequently

3.2 Main results

Estimate Pr > Khi-2

H1 - Direct

expected benefits

Previsibility Yes vs No 0.2575 0.0049

Non-wage benefits Yes vs No 0.8596 <.0001

H2 - Profitability

Main objective Quality vs

profitability

-0.2136 0.0344

Wages determined by

profitability

Yes vs No 0.1825 0.0419

H3 – Management

autonomy

Autonomy on

manpower adjustment

No vs Yes -0.3868 <.0001

Wages determined by

headquarters

Yes vs No 0.0437 0.6227

H4 – Managers‘

rationale

Wage policy

Non

individualized

REF

Weakly

indivdualized

0.1895 0.1298

Strongly

individualized

0.5501 <.0001

Very strongly

individualized

0.5201 <.0001

Utilitarianist rationale

on human ressources

management

Yes vs No 0.1489 0.0670

The more costs savings opportunities, the more likely is outsourcing (H1).

The logic based on cost savings is asserted by managers: cleaning is more likely to be outsourced when activity is less previsible and when non-wage benefits are offered (H2).

Managers lack of autonomy increase the probability of cleaning outsourcing (H3).

The more utilitarianist Human Ressourcesdecisions are, the more likely outsourcing is (H4)

Conclusion This work underlines a major paradox: the main explanation of outsourcing is based on expected savings in labor costs and managers rely on this rationale (H1 and H2), but empirical costs computations show how unlikely this can happened.

But the econometric work gives research leads to overcome this paradox:

- the first concerns the organizational structure: outsourcing could be the answer to inappropriate incentive mechanisms. The calculation parameters imposed on local decision-makers by headquarters pushes them to make inefficient decisions for the company as a whole.

- the second leads us to consider the decision to outsource no longer from the point of view of an arbitration in terms of managerial efficiency but to consider it as an individual arbitration aiming (for the manager) to maximize his professional individual satisfaction. It is thus an issue of service consumption allowing to avoid the inconveniences of the management of these employees (logic of getting rid of the "dirty work").