Update 364 — What’s the Gig Idea, Anyway?
Labor Mobility: an Independence Day Inquiry
Labor mobility, the willingness and ability of workers to move — geographically, or just from firm to firm — seems aided by technology and made more promising by workers’ increasing readiness to change jobs and on short notice, with “job” coming to mean project or task more than office and title.
Does the growing gig market for labor serve workers now and in the long-run, as currently constructed? Is it a promising new market for labor supply to meet demand, or an omen of a continuing erosion of workers’ protections, benefits, and rights? What impact has the gig class had, what are the trends, and what are longer-term consequences and their policy implications? We inquire, below.
The “gig economy,” where workers perform task-oriented, on-demand work often facilitated by tech companies, is becoming a more common form of employment for Americans. Workers, typically hired as independent contractors, get few to none of the traditional employee protections or benefits. An estimated 57 million Americans participate in the gig economy — 27 percent of the working age population.
Is the gig economy a promising new market for labor supply to meet demand or a pernicious sign regarding bargaining rights, pay, and working conditions? And what lasting impact will it have and what policy issues surround the growing gig labor market?
Gig Economy: Generational Impact
The term ‘gig economy,’ was coined at the height of the Great Recession, when large numbers of newly unemployed Americans found work by cobbling together several part time jobs. Traditionally, these jobs were cash-based, using technology to efficiently connect consumers with providers and facilitate transactions. Some see the gig economy reinforcing decades of wage stagnation and eroding worker bargaining power.
From 1995 to 2015, the proportion of self-employed young persons rose from 2.9 to 4.6 percent. Some might interpret this number as a sign of rising entrepreneurship among younger Americans. Self employment income as a share of total income has remained relatively flat over this time period and the overall average earnings for all self-employed people has been falling — likely as a result of more low-wage gig economy work.
Working-age generations all participate to some degree, with 24 percent of Millennials, 15 percent of Gen Xers, and 9 percent of Boomers claiming they worked as an independent contractor in 2015. Low barriers to entry ostensibly offer workers a way to steady cash flow during periods of unemployment, or to supplement primary income. But more and more, Americans are using gig economy work for full-time, primary employment. Around 46 million Americans claim “alternative work arrangements” as their primary job.
The Boomer, Generation X, and older millennial populations, whose savings and careers were drastically impacted by the Great Recession, are notorious “side hustlers” in the gig economy. Retirees are also increasingly turning to gig economy work to supplement Social Security. Younger millennials and Generation Z will disproportionately feel the effects of an underregulated and growing gig economy.
Whither the Social Contract?
New policy challenges related to tax fairness, retirement insecurity, and labor exploitation accompany the gig economy’s rise. Gig workers face a burdensome and complicated tax system because of their status as independent contractors rather than traditional employees. As a result, they face high compliance costs and must devote more time and energy to tax preparation. Gig workers must estimate and pay taxes on quarterly earnings in addition to preparing their annual filings, and they are responsible for paying both the employer and employee share of payroll taxes.
Under current tax rules, gig economy platforms are not required to provide tax reporting forms until a worker earns more than $20,000 and has more than 200 transactions. Most workers do not earn anything close to that, resulting in the majority of them failing to properly report their income and pay Social Security/Medicare taxes.
As the gig economy runs roughshod over the traditional employer-employee relationship, it leaves in its wake important protections for workers.
- Overtime and minimum wage laws apply to workers covered by the Fair Labor Standards Act (FLSA). Independent contractors are not covered by FLSA, and as such, there is no guaranteed minimum wage and workers are not entitled to additional compensation for hours worked in excess of 40 per workweek.
- Unemployment benefits are generally administered by states and financed by employer taxes. Eligibility rules vary, but they generally exclude alternative work arrangements.
- Family and Medical Leave entitles workers to unpaid, job-protected leave for qualifying family and medical reasons. Current federal law is an especially low-benchmark in need of modernization, yet independent contractors are not entitled to even this bare minimum.
- Workplace-sponsored retirement benefits rarely accrue to non-traditional workers. Just 16 percent of gig economy workers have access to an employee-sponsored retirement plan, compared to 52 percent of all workers.
Sen. Mark Warner’s S. 541, the Portable Benefits for Independent Workers Pilot Program Act, a modest, bipartisan proposal, would untether certain benefits from full-time employment by creating portable benefit structures — a significant step forward. Democrats also support tax incentives for companies to offer worker training and retention programs. But such tax expenditures will not likely garner bipartisan support needed to pass.
Last Congress, Sen. Sanders, joined by Sens. Booker, Gillibrand, Harris, Klobuchar, and Warren, introduced the Workplace Democracy Act, a bill to widen the definition of an employee to include most gig workers and increase protections for workers in the gig economy by extending collective bargaining rights to gig workers. The GOP refused to allow debate on the bill, but with Democrats running the House, there may be activity there.
Some states aren’t waiting:
- California: In May, the state assembly passed a law to require gig economy workers to be classified as employees, entitling them to labor protections and workplace benefits.
- New York: State legislators have introduced a related measure that would place gig economy workers in a ‘dependent worker’ category and afford them some, but not all, traditional employee rights.
The Washington State and Oregon legislatures are already considering similar legislation.
Future of Work? It’s Anybody’s Gig
Gone are the days of a ‘job-for-life.’ Some Millennials and Gen Z’ers may prefer alternative work and its flexibility in the short term, but they are accepting new risks that will define work life for decades. Unpredictable income, insufficient retirement savings, and an inability to collectively bargain will characterize the future of work absent policy changes to protect workers.
Some progressives, including 2020 presidential candidates, are offering far-reaching proposals. Sen. Warren has laid out a comprehensive vision for the future of work, with plans to strengthen Social Security, lessen payroll tax burdens on the self-employed, and provide universal catastrophic health insurance and paid family and sick leave for all workers. Sen. Sanders introduced legislation that would impose a punitive tax on companies whose employees rely on government assistance.
Without major changes, the country’s work environment will be more precarious for employees, but solutions are out there. Will labor get a political revival in the age of Uber?