The Pact Has Been Broken: Why Enterprises Must Accept the New Paradigm of Work

Today’s issue was guest-authored by MBO Partners CEO Miles Everson

As we approach the U.S. Thanksgiving holiday, I want to take this chance to wish you and your loved ones a wonderful holiday filled with warmth, joy, and gratitude.

May this holiday be as fulfilling as the season itself.

Over the past several decades, the traditional pact that bound enterprises and workers has undergone dramatic changes.

At the dawn of Corporate America, enterprises and their employees forged an implicit agreement: workers exchanged their loyalty (often an entire career at one firm) for job security, career progression, and benefits that often included defined benefit plans (eg. a guaranteed pension and/or medical benefits).

Over the last several decades, this implicit contract has been eaten away piece by piece. Benefits, particularly defined benefit plans, have been cut back (if not totally eliminated) and mutual loyalty between organizations and workers has eroded to the point of nonexistence.

As a result, enterprises have had to operate with a revolving door of workers while simultaneously coping with a talent crunch spurred by the demographic changes of a declining birth rate and wave of retirements.

I believe the key to weathering this challenge lies in a fundamental rethinking of human capital.

It is time to move away from relying solely on a workforce composed of full-time employees and time to acknowledge that the value an organization brings to its human capital (employees, contractors, or vendors) has shifted from when many leaders began their careers. In order to fully understand why the pact between organizations and workers has eroded completely, we need to understand the reasons that led to it in the first place. 

A Broken Promise

“Work for me for 40 years and I’ll take care of you for life.”

As the U.S. emerged from the ashes of World War II, a new vision of the American Dream was fashioned for the middle class families: In exchange for their loyalty and dedication, these workers would be taken care of by their companies upon retirement. In 1949, 78% of U.S. households were single income, and a great majority of the workers in these families had access to defined and employer-sponsored benefits plans. However, over the course of the next several decades, the number of single-income households waned.

By 1965, single household families had shrunk to 38%, further nosediving to below 20% by the 90s. During this period of protracted decline, defined contributions plans like the 401(k) had almost entirely supplanted defined benefit plans, essentially placing retirement in the hands of workers, not the businesses that hired them in the first place.

Fast forward to 2020, only 15% of U.S. workers had access to a private-company sponsored defined benefit plan. As a result of these trends, dual income households have become more prevalent in American society as the decades went by.

That’s not the only factor at play. Along with defined benefits, employers enticed workers to stay for long periods of time through the promise of moving up internally. It wasn’t unheard of for rank-and-file employees to move up to managerial roles or other positions of importance. However, just like with defined benefits, promotions have become less common as years have gone by.

This not only led to less mobility but lesser pay, as some compensation systems tie pay to a worker’s job title.

Rising Expenses

Workers and their families are having a hard time making ends meet, despite belonging to dual income households.

Over the past several decades, household expenses and debt service have taken a considerable chunk of household income, leading to a decline in personal savings.

Since earnings aren’t enough to cover the costs of taking care of a family, many have turned to taking multiple jobs and personal loans such as credit cards and increasingly popular “buy now, pay later” schemes.

Additionally, a growing share of income in most U.S. counties has come from social safety net programs like SNAP, Social Security, and Medicaid. In fact, money from programs like Social Security accounted for 18% of total personal income in 2022.

Let me put it clearly: one’s job no longer ensures that they will be able to put food on the table.

This isn’t about lifestyle or luxury purchases. It’s not about vacation or new cars. It is the simple fact that companies no longer “take care of” their employees. The contract has been broken.

Breaking Free

Unsurprisingly, workers no longer feel beholden to work for a single company for a long period of time.

And increasingly in a post–pandemic world, they have the option to choose when, how, and where they work, not only in the pursuit of a better work-life balance but also for professional advancement through independent work.

We need a new social contract that reflects the realities of the modern workforce

Today’s independent workforce is composed of a younger cohort of workers who are proficient in the use of technological and artificial intelligence tools—proficiencies that are in high demand and will continue to be for years to come.

Working independently is now a mainstream career path and will stay on as a permanent fixture in the world of work for many years to come.

In a jobs market that’s facing a real talent crunch due to demographic changes, enterprises have to compete against each other in a war for talent. More importantly, the traditional pact that bound companies and employees in the past no longer exists.

Our current systems—from healthcare to retirement benefits—are built around the assumption of long-term, full-time employment with a single company. That model is as outdated as a VCR in the age of streaming.

We need a new social contract that reflects the realities of the modern workforce (This is a transformation I discuss at length in my forthcoming book, “Free Birds Revolution: The Future of Work and the Independent Mind).

This isn't about dismantling employee protections or benefits; it’s about creating a system that works for all types of workers whether they are traditional employees or independent professionals.

Let’s face it: These changes are here to stay, and there’s no going back.

The world of work has changed, and enterprises who refuse to change along with it will get left behind.

It’s time for policymakers and businesses to embrace this new reality and create a new pact that embraces the new way of working.

Trending Topics

• BetterUp’s latest survey of 1,400 full-time U.S. workers who were mandated to return to the office, revealed that the respondents had higher burnout, stress, and turnover intentions. More importantly, the survey showed that the average employee returning to the office spends USD 561 per month on transportation, additional child and pet care, and domestic assistance—comparable to the average two-person household’s grocery bill in the U.S. for an entire month.
• According to a new report from technology education provider General Assembly, 48% of workers and only 12% of mid-level executives think today’s entry-level workers are prepared for the workforce. The biggest factor driving this lack of confidence boils down to managers who think today’s workforce entrants don’t have soft skills such as communication, collaboration, and adaptability needed to thrive at work.
• New data on office attendance in major urban centers have shown that in-person work is gaining traction. According to data from Placer.ai, which tracks building traffic through cellphone data, New York City leads the U.S. in in-person visits with October occupancy rates reaching 86.2% of pre-pandemic levels, with Miami following closely at 82.6%.
• In a survey conducted by Indeed Flex of 1,000 temporary workers in the U.S., it was found that 69% of temp workers are 35 or older. Thirty-one percent (31%) are also retired and are doing temp jobs to earn extra money for socialization or to stay stimulated.
• About 49% of employed travelers are what’s called “laptop luggers”—those who plan to work at some point during their holiday vacation, according to Deloitte’s holiday travel survey. This number of “laptop luggers” went up considerably since there were only 34% of them in 2023.