The rise of Uber and other start-ups that deliver services at the tap of an app has been dependent on flexibly-employed workers who have, for the most part, embraced the sharing economy and the freedom that comes with it. The gig economy should, or at least could, be a significant improvement on the world of full-time jobs that last years or decades. Employers can access a dynamic and flexible on-demand workforce; workers can shop their skills to the highest bidder in real time, take as much time as they want for themselves, and never feel locked in to a dysfunctional relationship with their boss.
But this new economy is clashing with aspects of the old economy. America’s middle class — the most powerful economic force the world has ever seen — was built on an employment paradigm which has been steadily eroding for decades, and which is eroding today faster than ever. The single-employer careers of the 1950s and 60s became multiple-employer careers in the 80s and 90s, but it’s only more recently that full-time jobs have increasingly been replaced with contractors and part-timers, none of whom need to be paid any kind of benefits.
There’s no good reason why most Americans get their health insurance from an employer. It’s an accident of history: back in the 1940s, employers got around wage controls by giving their employees health insurance instead, and then those employer-provided benefits expanded over subsequent decades as both sides realized that benefits, unlike wages, were tax-free.
More recently, however, employers have discovered that if they keep their employees under a certain number of hours per week, they can save on benefits costs while keeping wages constant — which often means a reduction in total payroll costs of 25% to 35%. (Note that even when Instacart offers to let its independent contractors become employees, it only offers them part-time status.) The result is a large increase in the number of people working multiple jobs, for well over 40 hours per week in total, but not receiving any of the benefits which have historically accompanied that kind of workload.
That’s a lose-lose-lose equilibrium. The workers lose, of course, because they don’t have benefits or job security. The employers also lose, because employing more people for fewer hours each is nearly always less efficient than employing fewer people working 40-hour weeks. If the benefits arbitrage didn’t exist, they would be much more likely to employ full-timers, and would be more productive as a result. And the American economy as a whole loses, because a healthy and prosperous middle class is the most basic necessity for driving growth.
The new wave of sharing-economy companies, from Uber to TaskRabbit, only serves to accelerate this trend. Millions of people make money by providing their services on these platforms, or even for companies which look even less like traditional employers, such as eBay, or Etsy, or Airbnb. These jobs and revenue streams are going to be an increasingly important part of the American economy. Indeed, much of the promise of today’s Silicon Valley is that these jobs will provide exactly the growth that America’s economy so desperately needs.
Yet the world we live in today is very much one where you’re significantly better off in a full-time job than you are trying to piece together a living from sundry freelance gigs.
So, how do we level the playing field, and give participants in the new economy the same kind of security that has long been enjoyed by most people working more than 35 hours a week? America has long been built on the foundation that success and security should come from hard work, so how can we expand that principle so that it includes hard work for on-demand services (like Uber) or for multiple employers?
One way is to fight to reclassify companies like Uber as employers, and their drivers as employees. We’ve seen some recent victories on that front, but, as Justin Fox says, it does feel a bit like trying to fit a square peg into a round hole. After all, the fight for fully-fledged employee status can actually create incentives for companies to make working conditions worse. As NYU professor Arun Sundararajan told Fox:
With Airbnb, there’s little or no risk of a host being considered an employee, so the platform has more freedom to bring the providers “closer” and engage in interaction with their hosts that might be associated with a firm-employee relationship in a traditional company. I believe many of the platforms would give their providers more (if for no other reason, as a retention and brand-building strategy) if the risk of “might be considered an employee” were lower.
So, how can the relationship between platforms and workers be optimized, without the Silicon Valley giants fearing a massive employment tax if they cross some invisible and ill-defined line?
One option, which already exists in countries like Germany, Canada, and Sweden, is a new category of “dependent contractors”, which would exist somewhere between employees, on the one hand, and independent contractors, on the other.
The lines between the categories remain hard to draw, however, and indeed the more categories there are, the more gamesmanship is likely to result, with companies trying to position themselves so as to ensure that they fall into the lowest possible tier. (Again, this would probably come at the cost of damaging their relationships with workers.) It’s worth noting that the dependent contractor classification exists only in countries with robust government-provided benefits, where employers don’t have to worry about such things. It’s generally used to give workers things like the right to vote in union elections, rather than giving them direct employee benefits.
But now technology entrepreneur Nick Hanauer has come up with another idea, fleshed out in the latest issue of Democracy with co-author David Rolf. “An economy based on micro-employment,” they write, “requires the accrual of micro-benefits.”
Under the Hanauer-Rolf proposal, which they call a Shared Security Account, any kind of employment, even if it was only for an hour, would come with prorated, portable, and universal benefits. Those benefits might seem feeble on a gig-by-gig basis, but add them all up, and they would start carrying real heft. “Because benefits from multiple employers are pooled into the same account,” the authors write, “portability and proration work together to provide workers with the full panoply of benefits, even within the flexible micro-employment environment of the sharing economy.” Those benefits would include unemployment, maternity/paternity leave, and even matched 401(k) contributions.
“An economy isn’t money, it’s people,” Hanauer says. “And how those people feel. Being middle class means to have some sense of security.”
The Shared Security Account would be a little like Social Security, but for all of the non-retirement benefits that those of us with full-time jobs generally receive. There might be a big central system run by the government, or a non-profit like the old Blue Cross and Blue Shield. Or maybe individuals could choose their own private provider for all the funds and benefits that would get accumulated in the account. Either way, every job, whether it was a piecework gig on TaskRabbit or just a single hour working for Uber, would pay some small sum into the account, which would also keep track of hours worked so that things like mandatory vacation days could be accumulated.
Some of the details in the Hanauer-Rolf plan are sketchy: how does overtime work, for instance, in a system where workers set their own hours? But the underlying concept is strong. While you’re working, you’re a worker, and you should be treated with the respect and the benefits that workers have long fought for.
Hanauer puts it simply: “We just want a new labor construct which doesn’t give all the benefits of technology innovation to a few people in Seattle and San Francisco.”
The Shared Security Account would not be possible without today’s technology and cloud computing, but now that we have those things it’s well within our grasp. There should be similar technological solutions to other sharing-economy problems, like commercial insurance for Uber drivers in private cars. In a world where insurance companies can charge per mile rather than per month, it shouldn’t be too difficult for them to hook into Uber’s systems so that Uber’s own commercial insurance automatically kicks in when a driver is on the job.
The big problem with the sharing economy, today, is that it has got ahead of the general infrastructure which supports things like benefits and insurance — an infrastructure which is built on the existence of bright lines between the personal and the professional. As those lines start to blur, we’re going to have to build a new infrastructure, which is capable of determining on a much more dynamic basis exactly when a given individual is engaged in work, and who they’re working for at the time. That won’t be easy — but neither is it impossible. And if we can make it work, America might well find itself at the forefront of an exciting new chapter in labor economics.