The Gig Economy's Great Delusion
January 8, 2018
Jan 8, 2018
10 Min read time
Platforms have sold themselves as substitutes for welfare, but they have actually served as substitutes for traditional work—with the state forced to pick up the slack.
When it comes to responding to the fallout of the gig economy, the European Union is leaving the United States in the dust.
Just a couple of weeks ago, for example, in an effort to bring more transparency and predictability to workers in the gig economy, the European Commission adopted labor reforms that will set minimum standards and will apply to all workers. The Commission contends that radical labor market changes have made it necessary to balance the flexibility offered by new, non-standard work opportunities with the economic security accompanied by more traditional forms of employment.
It is the gig economy’s self-conception as a welfare program that has protected platforms from regulatory scrutiny.
But the Commission stressed that its policies will go beyond simply ensuring basic rights for workers. By creating a universal set of standards for all workers, it argued, the proposal will help both employers and countries by reducing “the risk of competition based on undercutting social standards.” Such competition and deteriorating social standards, after all, have harmful consequences for employers “who are subject to unsustainable competitive pressure and for Member States, who forego tax revenue and social security contributions.”
The Commission’s clarity of thinking and its holistic view of the labor market stands in stark contrast to the United States, where the current gig economy labor arrangements have proceeded largely without government regulation or intervention. Why the difference? Plenty have acknowledged the troubling trends and “disruptive” qualities of the gig economy, and yet U.S. policymakers have, by and large, failed to offer any response. Our inaction can be explained, in part, by the effective spread of a false narrative—one that suggests that the gig economy itself is providing a social service.
Back in 2015, for instance, Seattle’s City Council considered a measure that would allow Uber and Lyft drivers to unionize despite their status as independent contractors, thus ensuring them the right to bargain for minimum wage and benefits.
As the ordinance’s sponsor, Councilmember Mike O’Brien, said, “We’re trying to balance the playing field. We have this multibillion-dollar company trying to monopolize the taxi industry around the world, and then we have drivers making less than minimum wage.”
But Uber, the multibillion-dollar ride-hailing company in question, wasn’t going to let this happen without a fight. In the days leading up to the vote, Uber sent David Plouffe to the city to register his opposition to the effort. The former advisor to Barack Obama was one year into his new role as a paid strategist for the company, and his goal in Seattle was to show how an ordinance extending collective-bargaining protections to independent contractors was, as he saw it, counter-productive to helping Uber drivers. In his pitch, he harkened back to the recession, asking people to remember just how precarious the economy still was.
The state is forced to subsidize gig economy employers by providing the kinds of benefits a traditional company ordinarily would.
“We’ve lived through a period where, even as the economy recovers, most people say they don’t have enough money,” he told The Seattle Times. “How people are using the Uber platform now is . . . to provide a bridge when they may lose their job or get their hours cut.”
Uber, Plouffe suggested, serves to buffer its drivers against the uncertainties of the macroeconomic climate, providing a source of stability to assuage economic anxiety. Though the city ordinance passed, Uber has spent the past two years reiterating this argument and fighting the Seattle ordinance in court. That battle is being watched on the national level, perhaps most closely by other platforms in the “gig economy” who have likewise marketed themselves as creating a new kind of social safety net. Indeed, it is the gig economy’s self-conception as a welfare program that has perhaps done the most to protect platforms from greater regulatory scrutiny.
Besides claiming to alleviate the effects of economic displacement, these platforms have also positioned themselves as a response to the failures of the modern economy to deliver material progress to its citizens. When asked why he chose the sharing economy over traditional policy solutions, for example, Chris Lehane, a former Clinton Administration strategist who now serves as Airbnb’s head of policy, answered by bemoaning the country’s insufficient social safety net: “The social safety net wasn’t providing the support that it had been. I do think we’re in a time period when liberal democracy is sick.”
The gig economy, executives such as Lehane and Plouffe argue, protects Americans from the failures of the labor market at a time when Washington can’t. It offers itself as a pragmatic path for economic mobility. According to Airbnb itself, the home-sharing service is a “new resource for the middle class,” while Lehane argues that the platform is “democratizing capitalism.” Stacy Brown-Philpot, the CEO of TaskRabbit, says her favorite “tasker” is a “homeless woman who got back on her feet by tasking.” Uber, Plouffe argued, “can quite literally help transport people out of poverty,” all while saving “the government money in terms of benefits.”
But is it fair for the gig economy to see itself as a substitute for the social safety net?
The promise to enhance the economic wellbeing of its freelancers undergirds the gig economy, but how these platforms operate in practice challenges the legitimacy of its welfare vision. Indeed, while the gig economy has positioned itself as a substitute for welfare—a kind of public good in and of itself—it has actually served as a substitute for traditional work, with the state subsidizing gig economy employers by providing the kinds of benefits a traditional company ordinarily would.
The first gig economy delusion we need to clarify is that these platforms offer temporary work to help bridge gaps in employment. In reality, many gig economy platforms tend to encourage full-time work, not the empowering, flexible part time arrangement they so often claim. While sharing economy platforms promise freelancers they can earn income on their own terms, evidence shows that to enjoy this promised economic security, freelancers often have to labor under conditions that mirror those of full-time employment. For instance, an analysis of Uber earnings data suggests that average hourly earnings only become reliable for those who work over thirty hours a week while the earnings are typically erratic for those who drive part time. Not to mention Uber, Lyft, and Postmates incorporate psychological tricks into their apps, like those used by video game designers, to keep their drivers on the road longer.
Freelancing in the gig economy is thus not just a safety net for those in between jobs or those looking to “get back on their feet.” In reality, it is often a full-time job. Yet because these companies assert they’ve created a safety net rather than a labor market, they’ve successfully justified abnegating their responsibility as employers. Given their status as independent contractors, gig economy workers are denied the benefits, such as health care and paid time off, usually enjoyed by workers in traditional arrangements.
Welfare dependency is not the result of individual laziness. Instead, it is today’s employers who are too negligent to ensure the economic wellbeing of their workers.
The second delusion we must address is that these platforms offer a path forward for a more equitable and inclusive economy. Airbnb calls itself “an economic lifeline” and often boasts about the economic opportunities it has opened up to ethnic minorities. Similarly, Lukas Biewald, the CEO of CrowdFlower, argues that the crowdsourcing industry is “bringing opportunities to people who never would have had them before.” Anyone “who wants to can do microtasks,” Biewald says, “no matter their gender, nationality, or socio-economic status, and can do so in a way that is entirely of their choosing and unique to them.”
Such inspiring and hopeful talk is common among the platforms, but it represents a willful ignorance on the part of their executives who have not only denied their freelance workforce benefits but excluded them from the byproducts of corporate success. As economist Robert Solow notes, the “casualization” of work means that many of today’s worker “have little identification with the firm,” and thus “correspondingly little bargaining power.” As a result, these workers “have little or no effective claim to the rent component of any firm’s value added.” This reality stands in stark contrast to the empowering message of economic inclusion delivered by gig economy platform executives.
Moreover, though they are often advertised as opportunities for economically excluded communities to build wealth, there is emerging evidence that these platforms enable a regressive wealth distribution. Wealthy Airbnb hosts, for example, typically spend extra money on cleaning and booking logistics services that are specifically designed to boost hosts’ ratings and attract more guests. The platform often ends up advantaging hosts who reside in wealthy, urban hubs even while the platform boasts it is building wealth in underserved communities. As New Yorker staff writer Nathan Heller keenly observes, the platform is “helping divert traditional service-worker earnings into more privileged pockets.”
The rapid spread of contingent employment makes these trends particularly alarming. While Plouffe remarked, “I don’t think you’re necessarily going to see the world or America turn into a nation of freelancers,” recent metro-by-metro data reveal platform freelancing might soon displace payroll employment.
The gig economy’s promise to serve as a better poverty-alleviating scheme than any coming out of Washington has only underscored the urgent need for public action.
This doesn’t bode well for the government services left to pick up the slack. The precarious nature of gigging means that platform workers, more than their regularly employed counterparts, often have to turn to the state for assistance. As Politico recently illustrated in the piece “The Real Future of Work,” the gig economy is just a small slice of a workforce increasingly subjected to contingent work arrangements. This surge in alternative work arrangements, which began in earnest in the 1990s, has been termed labor market “fissuring” and includes workers who are on-call, subcontracted, or independent contractors. These contingent workers, the Bureau of Labor Statistics has found, earn lower incomes, receive fewer benefits, and rely much more on public assistance compared to workers in standard work arrangements. If Clinton-era welfare reform was premised on the idea of moving able-bodied citizens off the welfare rolls and into work, the gig economy demonstrates the breakdown of this vision in the twenty-first century platform economy. Today’s gig economy workers are often reliant on state assistance even though they are already working hard. A Lyft blog post even praised a driver who was shuttling passengers when she was nine months pregnant and went into labor.
Regardless of how often and how hard freelancers must work to reap to benefits of the gig economy, an evaluation of the platform economy as a safety net often fails on its own terms. Indeed, today’s reality does not confirm that welfare dependency is the result of individual laziness. Instead, it is today’s employers who are too negligent to ensure the economic wellbeing of their workers.
Obviously the status quo is not sustainable. Other countries have already established or are working towards remedies to address the needs of gig economy workers. A group of UK Members of Parliament have offered draft legislation that would extend rights to minimum wage and paid time off to workers in the gig economy. Canada already classifies gig economy workers as “dependent contractors,” which allows freelancers to continue to work flexibly while still enjoying the benefits traditionally offered to regular employees. The European Commission’s recently issued Directive, if implemented, would extend protection to 2-3 million workers currently excluded from the protections outlined in existing legislation.
The United States is notably behind in implementing its own solution. In fact, the recently passed Republican tax law, which will allow independent contractors to claim a 20 percent deduction on their earnings, may exacerbate the problem by further incentivizing firms to classify workers as independent contractors. But a few promising proposals remain on the table. One option, such as the one recently put forward by Virginia Senator Mark Warner, seeks to disentangle benefits from work. “Portable benefits” schemes would make platform companies contribute to worker accounts with funds set aside for Social Security, Medicare, injured workers’ compensation, health care, and paid time off. Other proposals are more straightforward, such as Paul Secunda’s argument that independent contractors should simply be reclassified as regular employees.
Whatever the solution, policy should step in, forcing gig economy companies to take more responsibility for their workers. If it doesn’t, the government will continue to foot the bill for corporate laziness. And therein lies the irony of the gig economy’s self-delusion: its promise to serve as a better poverty-alleviating scheme than any coming out of Washington has only underscored the urgent need for public action.
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January 08, 2018
10 Min read time