Is There a New Social Contract?

By Mike Cook for the BBJ

Just exactly what is the current social contract between individuals and institutions? Did you even know there was such a concept, because there is? Strike up a conversation in your local pub, VFW, Eagles or other social gathering venue and ask the question, “What is the current implicit relationship between individuals and institutions, more specifically between employers and employees?” You will no doubt get a variety of answers, but you will get answers because anyone in the current workforce has an opinion on the matter.

In practice any study of the social contract involves a look at life for the average individual from a variety of vantage points. Specifically, the individual as 1) a worker 2) a consumer 3) a citizen and 4) as financial planners, preparing for a future free from want. Truthfully, the study of the social contract is far more complex than I can adequately address in this column. For that purpose, I would steer you towards a recently completed study by McKinsey and Company, ‘The Social Contract in the 21st Century.’ My interest today is raising awareness on the topic and hopefully stimulating a reader to take a more in-depth look. For employers, I am hoping to bring awareness to the variety of social factors that go into making your workforce ready for performance and in many ways’ accounts for the continued reality of low employee engagement in the workplace, hovering somewhere around 27%.

In 1973 when I joined the post college workforce you could say it was at or nearly at the end of the previous period’s social contract, that period being post WWII. The implicit contract in those days, because the social contract is always implicit, went something like, “Find a good company, one that pays well and offers good benefits, do good work, keep your mouth shut and you will likely have employment until you reach retirement age.” In fact, I can recall words to that effect coming from my father’s mouth more than one time. The company I chose to join was Standard Oil of California, Chevron as it is commonly known. Little did I know at age 24 that my employment with Chevron had built in coverage for me 1) as a worker 2) as a consumer and 3) as a financial planner. The “citizen” aspect of the social contract was in tremendous flux with the winding down of the Vietnam War and the cessation of the military draft.

As I would come to find out Chevron was among the most desirable of employers at the time I entered the workforce, wages were superior, benefits included paid holidays and vacation along with significant allowances for sick leave apart from vacation time. There was no PTO in those days, you had both vacation benefits and illness wage protection. Probably most significantly, as time in employment increased every employee gained access to a stock purchase program and accrued time toward a fully paid pension. Your future free from want was built in.

Fast forward to the mid to late 1980’s and the emergence of the global economy. The mid-1980’s featured the first significant and visible changes to the social contract in my adult life. There were tectonic shifts in the economic landscape as global competition forced “right sizing” of many companies and layoffs, something not seen since the 1930’s, became common and simply doing good work was no longer a guarantee of continued employment. The concept of lifetime employment went “Poof!” As it turned out the implicit nature of the employment contract was simply a function of the circumstances not something deeper and rooted in the fabric of American culture. The new reality was harsh, no more perfect attendance awards or gold watches upon retirement. The new contract no longer implied employment, even when times were good, and the workforce of America became cynical and to a large extent has remained so since that time.

The arrival of the global economy, foretold by the oil embargo of early1974, was accompanied by the digital revolution and emergence of the internet as a practical tool for commerce. The ensuing whipsawing of the economy, the era and massive outsourcing of US manufacturing jobs to previously underdeveloped economies have served as a continuing assault on individual confidence and any trust in a lasting social contract that implied security.

So here we are in 2020, following a decade long period of economic growth and yet the American worker writ large has not benefitted uniformly from the apparent prosperity. I say apparent as the benefits of the extended period of economic growth have not been distributed evenly (see McKinsey) across the economic spectrum. Americans on the whole have become timid and, despite record levels of employment, have not developed confidence that the numbers might otherwise be expected to predict.

As an employer you need to be aware of the circumstances that face your employees; wage stagnation, record levels of personal debt, increases in the costs of life’s basics, housing, medical care and education and the polarization of work opportunities into high skill/wage occupations and low skill/wage occupations.

Like it or not this new reality comes to work in your business each and every day. You are not to blame but don’t turn away from its consequences on your employees.

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