United States / Sharing Economy

A New Deal: The Gig Economy and the Future of Labor

Americans agree on the basic premise that if you work hard, you should be able to earn a decent living. Unfortunately, this ideal hasn’t been realized, but we can see its shell in the most basic mechanisms that protect workers. Full-time employees can generally expect affordable healthcare plans, 401(k) contributions, and even educational assistance. But a new services model—pioneered by “gig economy” companies like Uber, Taskrabbit, and Postmate—threatens to further destabilize the fragile, privatized patchwork supporting American workers.

Gig economy firms create marketplaces for specific services on smartphone apps, with which they match individual buyers and sellers. GPS location services and electronic payment ease the organization and execution of these transactions. These firms collectively offer a vast array of services, such as rides, laundry, maintenance, and food delivery. Above all, they provide a model that is applicable to the provision of almost any service. The model is even more innovative for its supply side than its accessibility for consumers. Individuals can now seamlessly become independent contractors who can determine the price, scheduling, or other details of a job. Economic liberty, the ability of individuals to actively determine their participation in markets, is a cornerstone of a mature, dynamic economy. The flexibility offered to contractors by app-mediated service jobs pushes this concept to a new frontier. This sector works to smooth out the peaks and valleys of cyclical employment, providing alternative income for the underemployed or otherwise unemployed.

It’s difficult to estimate how big this sector has become; contractors often misreport or don’t report their incomes, and the Bureau of Labor doesn’t track statistics on this industry. Even a concrete statistic of the number of individuals employed in this industry would belie its contact with American lives, as a high proportion of contractors work these jobs temporarily. Most importantly, the app-mediated services industry is poised to get bigger. Founded upon interconnectivity in an ever-more interconnected world, the model we see today is likely the most primitive version of the networked services economy. Investors tend to agree: A recent round of funding bumped up the valuation of Uber, the poster child for this model, to $64.6 billion.

Despite its appeal to the American consumer and capitalist, the industry in its current form is bad news for American labor. For independent contractors, benefits are nonexistent. Requisite supplies aren’t provided either. Uber likes to boast that its full-time drivers can make up to $62,000 in fares annually. But after the drivers pay Uber’s commission, gas, maintenance, car insurance, health insurance (purchased on the notoriously expensive individual market), and taxes, the take home pay is something in the ballpark of $25,000. That’s $25,000 with no sick days, no vacation days, no matching 401(k) contributions, no group-term life insurance, etc. I can guarantee that on its own this income provides a less than pleasant existence, especially for hard-working Americans trying to provide their kids with an education so that they may do better than their parents. But given that 48 percent of Uber drivers have earned a four-year college degree or more, even if parents are able to scrape together enough for a college education, that might only be enough to get their children to the same place.

In January taxi drivers in Portland, Oregon protested the expansion of Uber, a gig-based phone app which matches customers with independent cab drivers. Photo by Aaron Parecki.

Photo by Aaron Parecki.

Unfortunately, the stripping of benefits from the American worker is nothing new. Big retailers like Walmart and fast food companies have infamously suppressed their workers’ hours under the 30-hour benchmark of “full-time” to deny benefits, such as the offer of a health insurance plan as required by law. With irregular shifts and workers on call, these individuals can’t get a second job and desperately want to work more hours. The Bureau of Labor Statistics calls this class of workers “part-time for economic reasons.” Over six million people fall under this category, which is still well above its pre-recession level.

Many Americans are rightfully disgusted by these corporate strategies. It denies more than the tenet that hard work should earn a decent living; it denies hard workers the ability to keep working even at a measly minimum wage. Despite our disenchantment with corporate gouging, most of us will keep patronizing these institutions and placing our concerns about the cashier’s life in the back of our head while we check out. What can a conscientious individual do to change the practices of a monolithic corporation? But what happens when we are served by a worker getting gouged, but there’s no corporation doing the gouging? This is the reality of the app-mediated services industry, and if the business model expands as predicted it will become characteristic of our entire services industry. It’s possible that American consumers could continue in self-absorbed apathy while tapping away at phone screens and barely looking up to acknowledge the mechanic they hired on YourMechanic or the Taskrabbit whom they paid to wait in line at a busy restaurant. But when they tap thirty bucks over to the mechanic who just came to their garage for an oil change—oil that the mechanic bought himself—it’s hard to imagine that many Americans wouldn’t cringe at what that represents. Americans already attuned to this conundrum are overwhelmingly pointing their fingers at the tech firms.

The solution seems simple: Reclassify these workers as employees rather than contractors and force the app developers to provide benefits. This reflex is misguided. If the Ubers and Postmates of the world are forced to treat contractors as employees, then a brilliant economic innovation would be squandered. The app-mediated, independent contractor services model mitigates transaction costs, obliterates barriers to entry and exit of the market, prices effectively, and introduces a novel and much needed flexibility in opposition to the rigid workday. Most of these apps also have robust ratings systems for their contractors; those that provide the best quality of service are the most in demand and can charge higher prices. This business model is the next phase of the information age chipping away at the lack of perfect information that befuddles economists’ models of a smoothly humming economy. To throw it all away for an ill-conceived method of worker protection would be plain unthoughtful.

So is there a way to protect the basic needs of workers while embracing this innovation? Absolutely. Now more than ever it is imperative that America develops the “portable safety net.” Surely the details would be hotly contested, but the bottom line is simple. Basic protections offered to full-time employees like affordable family health care plans and retirement fund contributions should be offered to working Americans regardless of where they work. If large corporations believe that the benefits they offer are superior to the basic “portable safety net” package, then they can be refunded the cost of the “portable safety net” package for every employee that opts in to the private benefit package. Small businesses would no longer fret about surpassing arbitrary employment quotas that require them to provide benefits packages, big businesses would lose an incentive to artificially suppress their workers’ hours, and the app-mediated independent contractor model could flourish. Mobility is key to a dynamic capitalist economy. With the fine print of benefits packages comprising a major component of what real wage is, it is difficult for workers to discern whether they actually are moving to a higher paying job. But when prices (wages) are clear, markets have a much easier time equilibrating. A “portable safety net” makes the economy easier to navigate for workers, firms, and consumers alike, helping markets embrace innovation to their full potential. Make no mistake, a “portable safety net” is no handout; it’s a mechanism that gives hard-working Americans the freedom to work. And that’s good for all of us.