Contract workers are key to creating flexibility. They allow cyclical industries like carmakers to quickly expand or shrink their workforces as the market demands. But for the people who do the work, "contingent" employment is a murky, underground world where some prosper while others are exploited and steeped on.

In 1988, a 25-year-old student at Oakland Community College saw a newspaper ad placed by Geometric Results Inc. to fill an entry level position at Ford Motor Co. in Dearborn, MI. So Jim (he insists on this alias because he's job-hunting once again) applied for the job. During a series of interviews, he became fully aware that GRI is a wholly owned subsidiary of Ford.

Although he didn't know it, Jim was about to become a cog in the huge "personnel supply industry," best known by temporary agencies like Kelly Services and Manpower. A report by two Federal Reserve Bank of Chicago economists estimates 1.9 million workers were in the industry in 1993, the latest figure available, and that it is undergoing fundamental change and rapid growth.

The researchers, Lewis M. Segal and Daniel G. Sullivan, found an annualized increase of workers in the personnel supply industry of 11% per quarter since 1972, or more than five times the job growth in the overall economy.

From 1983 to 1993, blue collar contract workers almost tripled from 9% to 23%. And male workers increased from 25% to 38%. The industry has been shifting toward industrial occupations, yet these workers count as part of the service sector. Thus, it's impossible for Wall Street to gauge accurately how well manufacturers are doing by looking at sales per employee.

Sources contacted by WAW were unable to come up with any hard data on the number of contract workers employed by The Big Three. While Ford and General Motors Corp. decline to say how many contract workers they employ, Chrysler Corp. put its count at 2,000. WAW requested interviews with Big Three officials on their use of contract workers. No such interviews were granted, however.

But spokesmen for both Ford and Chrysler say most contract workers are employed in the engineering and clerical sectors of their companies. And both caution that contract workers are not "displacing" regular workers. There's every indication, however, that agency personnel are supplanting the regular workforce.

Contract work is a mixed and growing bag. A mechanical engineer with five years experience can make $50,000 a year, plus benefits paid by the leasing agency. Veterans can take early retirement one day and walk back into the same job, in the same office with the same phone number the next day and make more money. But younger, less-skilled people looking at contract work as a bridge to being hired face low pay and the animosity of regular workers who view them as scabs.

Dako Services Inc., now based in Troy, MI., is a contract agency that leases engineers, technicians and computer database specialists to The Big Three and their first tier suppliers. In early 1994 (see WAW -- March '94, p.25) Dako's president, David Kosuth, said his business had doubled in recent years.

Dako's volume has increased another 50% since last October. "All of The Big Three and their Tier 1 suppliers are using more contract engineers," Mr. Kosuth says.

The contract Jim signed shed some light on the world he entered when he was hired. It made clear that he was an employee of GRI, not Ford. He was paid $7.45 an hour and was forbidden by contract to discuss his compensation with anyone other than GRI officials.

Further, in its handbook GRI reserved the right to "interpret" its policies on a case-by-case basis, change them or terminate them at any time, and could oust employees without cause. Still, it wasn't all that bad. Jim got medical benefits, some vacation and paid holidays.

At Ford, Jim got along well with his colleagues and says he was treated "okay." He was one of two non-staffers in the department when he started. "There weren't a lot of us (contract workers) around in 1988," he says, "but I often felt like a second-class citizen."

That's because he didn't get Ford's benefits package, he filled out a different time sheet, had a different set of GRI supervisors in addition to his Ford bosses, and he wasn't eligible for flex time.

He also was required to keep a daily log of everything he did, where he went and how long it took. "They wanted me to account for all my time on the job," he says. The experience was rewarding. But in December 1990, a Ford supervisor told him his contract would end a week later -- scant warning and no severance pay.

His GRI project manager found him a spot as an assistant engineer in one of Ford's overseas operations starting in January 1991. Jim got a raise to $8.50 an hour, along with a new contract. Several sections had been added: There was no length of employment, he could be terminated at anytime without advance notice and he had to sumbit to random drug testing; regular Ford workers do not.

Although Jim says his one-year stint in overseas was rewarding, he still felt like a second-class citizen. He couldn't go to new product or departmental meetings. "They would tell me 'Your presence is not required.'"

He says there weren't many contract workers in his new job either -- a half-dozen or so out of about 150. However, as more agency people were being contracted throughout Ford, he sensed concerns about their presence developing by full-time employees starting that year (1991).

About two years ago, Ford combined several units into the Business Assistance Center, which has some 200 employees and provides customer service for Ford's fleet business. "We're finding whole sections staffed by agencies," a Ford full-timer says. "You can't tell the contract person from the Ford person."

And there is tension. "Whenever someone leaves or a job opens up it's always filled with a contract worker. They do the same work for a third of what full-time employees get," says this source.

Contract workers have always been used in the auto industry. "But the abundance today distinguishes them," says Eugene Jennings, professor emeritus of Business Administration at Michigan State University. "You can employ them and not feel you have to keep them. That is absolutely important for cyclical industries where you have a splurge and then a drought and have to cut back."

That clearly makes contract workers attractive to management. And the fact that these folks get no expensive, company-paid fringes and no profit sharing checks obviously makes them golden in the eyes of corporate costcutters.

But the down side, which is becoming evident as more contract workers are employed, is poor morale. Another ominous cloud on the horizon is competitiveness.

The five top performing companies from 1972 to 1992, in terms of percentage of return on their stock, were in retailing, airlines, publishing and food processing. "They rely not on technology, patents, or strategic position, but how they manage their work force," wrote Jeffrey Pfeffer, author of Competitive Advantage Through People. "People and how we manage them are becoming more important because many other sources of competitive success are less powerful than they once were."

In short, the concentrated use of contract workers sets up dual workforces within a company. That can breed disgruntlement, resentment and fear amid two groups of employees with very different end goals.

What's more, says a GM executive, "We can give our people some reward, a merit increase or promotion. With a contract person, it's not our business."

Clearly, some like contract work. It pays more and is better than flipping hamburgers, provides them a change of pace through different assignments, and it offers a variety of work to add depth to a resume. There is also the option of pulling up stakes on short notice.

In either case, full-time staffers can feel threatened by contract workers, who often perform the same tasks for less money. And managers too often find themselves saddled with supervising dual workforces. "Don't tell me about contract workers," a high-ranking Big Three executive tells WAW, rolling his eyes.

Ford has told regulars in the Business Assistance Center to be "kinder and gentler" toward their leased colleagues, says the staffer.

That might have something to do with what happened to Jim after his contract in overseas ended in December 1991. The project manager "went to bat" for him and he landed a slot in one of Ford's planning departments as a design coordinator.

But before he started in January 1992 his contract brethren warned him that some Ford employees in this department were hostile toward contract workers. Indeed, he says he and other contract workers were forced to pay more if they wanted to belong to the Tuesday morning coffee club. He was there less than a month before he was reprimanded one day when he parked in the visitors' lot, rather than the employee lot.

Having been warned by his colleagues, Jim documented the incident, noting the day, time and what occurred. He alerted his GRI supervisor and was told to "take it with a grain of salt."

He tried to, but continued to document the incidents and inform his GRI supervisor after each occurred. From Jan. 28 until May 18, 1992, Jim documented 13 incidents of what he considers harassment by Ford employees.

Some are quite trivial. He admitted parking in the visitors lot, but he says he was despondent that day because his girlfriend had committed suicide the day before.

Jim maintains that he and other contract workers were subjected to verbal abuse, his work was tampered with and there were accusations that contract workers were taking overtime away from regular employees.

A GRI manager witnessed one incident, and complained to Jim's group leader, who then took the issue to a Ford supervisor. By May 1992 the situation had become so tense that Ford's personnel department began an internal investigation. To try to cool the situation while conducting interviews, the personnel people segregated the contentious individuals, sending some down the hallway and assigning others to the floor below, Jim recalls.

The United Auto Workers have of late consistently opposed the use of contract workers. The UAW GM division mounted several strikes last year when temp workers, who were supposedly in the plants to replace assemblers on summer vacation, ended up staying for years in some cases. And Last year UAW Local 412, which represents designers, technicians and mechanics at Chrysler, struck the company for nine days. The seeds of the walkout actually were planted five years ago, when union reps complained about the use of contract workers in the design unit.

Among 944 clay sculptors and draftsmen, about a third, or 306, were contract workers, say Local 412 officials. The sore point then was bargaining leverage. If a third of the workers don't belong to the union, the threat of/or work stoppages becomes far less menacing.

Chrysler hired 198 people in the unit and promised to get rid of the contractors. But last year outsourcing and the remaining 73 Design Engineering Consultants (DECs, or contract workers) brought the issue to a boil again.

The sore point this time was the loss of prototype work to outside job shops and equity. As an example, says Unit 1 chairman Michael Van Acker, a DECS making $45 an hour designs the right side door and a UAW member making $43 an hour including benefits designs the left side door.

"The right side door is no different than the left side door, so why is this guy making more money than my guy?" asks Mr. Van Acker. In the strike's wake, only 14 DECS are left and the settlement calls for their expulsion (or hire) over the next 18 months.

In high-level contract jobs, like engineers and designers, the hourly rate of pay is often better than the going rate. That's to keep those people from going someplace else to get more money. But as you start moving down the ranks to mid- and low-level slots, contract workers often make considerably less than their regular counterparts.

On the request of GRI's board of directors, composed of Ford executives, the company calculated "cost avoidance" to Ford by using GRI. In a letter to Ford, dated Dec. 5, 1991, GRI says it saved its parent $27,125 for the year it used Jim's services (see chart, p21). A Ford mid-point grade 4 employee would have cost $29.29 per hour. GRI billed Ford $17.75 per hour for Jim. He was paid $8.50 an hour.

Contract workers are a necessary part of the transition to a leaner company, some say. But most analysts don't have a good handle on what percentage of the automotive workforce is contract versus full time. "They look at sales per employees," says Stan Feldman, a finance professor at Bentley College and a former Wall Street analyst. But "The Big Three treat (contract workers) as a consulting operation."

In annual reports, labor is the direct cost of hourly and salaried employees. The Big Three pay agencies for contract workers. That money is accounted for under purchase of services. So analysts should subtract operating expenses from revenue. "If the margin is increasing, that's good," says Mr. Feldman. "If it isn't, that's not good."

John Casesa, an automotive analyst at Schroder Wertheim, doesn't think there are enough contract workers in the domestic auto industry to change Wall Street's opinion about The Big Three's stock. But Mr. Feldman warns that if contract workers are disgruntled, somewhere along the line that may actually show up in other expenses.

No one suggests that contract workers have hurt the quality or productivity of The Big Three, however. But Mr. Pfeffer writes that the biggest disadvantage of "contingent" employees "is the difficulty in obtaining loyalty, dedication, or a willingness to expend extra effort on behalf of the organization ... The cost of reduced productivity, diminished motivation, and less commitment to the organization can be large and sometimes subtle."

A former Kelly Services Inc. employee adds some credence to Mr. Pfeffer's position. He was assigned to Ford's customer service unit for almost three years. "There was no growth and you knew no matter how well you did, or if you did extra work it didn't mean anything. You weren't going to be hired (by Ford). It was kind of like a sweat shop."

What's more, contract workers may represent the last straw needed for the UAW to make organizing inroads where before it had little hope: The Big Three's white collar workers.

In some pockets of the domestic carmakers' technical operations, the UAW says as many as two-thirds of the workers are provided by contract agencies. Local 412's Unit 10 won an organizing vote and unionized technicians at the Chrysler Technical Center last year, and the UAW is trying to organize designers in GM's midsize car division this summer.

Shortly after assuming the chairmanship of the National Labor Relations Board in 1993, William B. Gould said at an international conference on industrial relations in Rome: "It is impossible for contingent workers to obtain the protection of the National Labor Relations Act unless the employer of prominent employees and the referral entity or leasing company both agree to act as joint employers."

Jim could have used such a union between Ford and GRI.

While Ford's personnel department was conducting its investigation that went on through the summer of '92, he and a second GRI employee requested additional action. They wanted a formal apology from the workers they say harassed them, sensitivity sessions to educate Ford workers on why GRI employees were there, elimination of abuse, and they wanted to be treated as employees not as outsiders.

His GRI supervisor agreed with two out of the four requests, Jim says, but Ford terminated the contract early -- in October. Jim turned down "a menial clerk" job in shipping and receiving at GRI. Having lined up another position, he left.

He was on the new job for only two weeks. The company performed design changes for Ford, but its workers were supervised by on-site Ford personnel. Jim thinks that's how Ford found out he was there.

Jim claims he was tipped off by a secretary that Ford told company managers he was a bad employee and then threatened to pull their contract unless he was dismissed.

The next day he was told there was not enough work and he was let go. Then the company hired a friend of his in the same job and at the same rate of pay.

He next got a part-time job, outside of the auto industry, and hired a lawyer who took his case. That investigation went nowhere. Jim says Ford and GRI wouldn't cooperate with his lawyer.

In January 1993, Jim started job hunting. From the first of the year through August, he went on 43 interviews, mostly with automotive companies, but never was offered a job.

He's convinced he knows why: "I was being blackballed," he says. "They (Ford) would give me bad references." Although he technically had worked for GRI, all of his job experience was at Ford.

Meanwhile, a family friend talked to a top Ford executive and in September 1993 Jim started as a supplemental employee in Kansas City, MO., with the CDW27 launch team that was readying the plant there for the Ford Contour and Mercury Mystique.

It was a year-long contract that ended 10 months ago. When it ended Jim was offered a spot in another Dearborn-based program as a supplemental employee. He started in January and was terminated in February.

Jim thinks he got caught in Ford 2000, the automaker's effort to flatten its global operations into one contiguous system. But through networking he secured a promise of a "home" within yet another Ford department.

His paperwork was done, his location and department number was transferred and he was given a starting date. But his old alleged nemesis -- the planning people -- under Ford 2000 were in his would-be department.

His supervisor called him in before his start date. "He said that he talked to some employees and was told that I had bad work (habits), took long lunches and was constantly late," Jim says. He denied all of these charges and told the supervisor about the harassment. "He shut me up and said, 'I don't want to argue about it. I just wanted to tell you why we're not hiring you.'"

That was that. "Now, I'm out on the street and doing more interviews," he says, adding that he just wants to work in the "family business." His father was an engineer at GM for 28 years.

Never mind flexible workforces, market demand, Wall Street, or unions. Jim's a nice guy who got crunched. He's the kind of fella who uses the break from his $5 per hour job as messenger to continue a series of interviews. He walks into a reporter's office and insists the scribe share his lunch-- a turkey sandwich, spicy French fries and the extra pickle he brought along. Jim deserves better.