Business & Economics
The Gig Economy and the Changing Nature of Work
As new platform companies like Uber and Lyft have people talking about the nature of work in the gig economy, the concept of employment has become more difficult to define. Recent research has shown that the number of workers who aren’t technically employees has increased significantly in recent decades. While this might not seem like a bad thing on its face, employment status has traditionally been tied to important protections and benefits, which may be eroding as these shifts affect a growing group of workers. While new tech companies get most of the attention as we debate the changing nature of work, it’s also important to realize that they are only playing a small part in larger trends. Read on to see how employment is changing, who is affected, and what that means for workers.
How Many People Are We Talking About?
While platform companies like Uber have gotten most of the attention lately, particularly in the context of labor disputes, it’s important to look at the scope of employment trends and the role that technology companies, and many others, currently play. Unfortunately, there isn’t a lot of available data on the growth of individuals with what are called “alternative work arrangements”–temporary workers, on-call workers, freelancers, contract workers, and independent contractors. What’s notable about these work arrangements is that they differ from traditional employment status, as they are typically less stable and include fewer protections and benefits.
The Bureau of Labor Statistics hasn’t conducted its Contingent Worker Survey (CWS) since 2005, which is where we would traditionally look to for a better understanding of how many Americans have non-traditional employment situations. However, economists Alan Krueger and Lawrence Katz sought to make up for the gap in data by partnering with the Rand Corporation to conducting a survey of their own, which could be compared with past versions of the CWS to see how things have changed.
Krueger and Katz designed their survey to mirror the CWS so that they could accurately track how the share of workers with these alternative work arrangements has changed over time. In their research, they find a significant growth in the number of these workers from 2005 to 2015 in terms of their share of the total labor force–from about 10 percent in 2005 to nearly 16 percent in 2015.
Importantly, the researchers note that the increase in workers with alternative arrangements, 9.4 million between 2005 and 2015, is actually larger than the total increase in total employment (9.1 million). This means that the number of people who have traditional jobs actually decreased slightly over the last decade, while the number of people who work as independent contractors increased–by a lot. As Katz and Krueger put it, “A striking implication of these estimates is that all of the net employment growth in the U.S. economy from 2005 to 2015 appears to have occurred in alternative work arrangements.” In 2015, the total number of these workers had grown to 23.6 million.
All Because of Uber?
While online platforms that match workers with temporary gigs–like Uber, Lyft, Task Rabbit, etc.–have brought the issue of nontraditional employment into the forefront, these companies actually play a relatively small role in the overall trend. In fact, Katz and Krueger estimate that these companies accounted for just 0.5 percent of the total workforce, or about 600,000 people, in 2015. While it’s likely that as these companies have grown that share has increased, they remain a small part of the shift toward alternative work arrangements.
Although technology platform companies account for a small share of alternative employment they have been at the center of the debate. Some see these companies as a great opportunity for people to use the resources that they have to easily and quickly make some money on the side or even full time. Others see the rise of companies like Uber as a problem–attributing their success to their ability to skirt or work around employment laws, not a triumph of new technology. There’s a notable segment of the population who may have an opinion about the quality of these services but haven’t given much thought to what they mean for their workers. Finally, it’s important to note that a significant percentage of people haven’t experienced or aren’t familiar with these services. According to a Pew Research Center survey from 2015, only 15 percent of Americans had used ride-hailing apps like Lyft and Uber, and one-third of Americans hadn’t even heard of them. While those numbers include important caveats–they focus on ride-hailing apps, not the gig economy as a whole, and more people have likely become familiar with these services since then–it’s important not to overstate the size of this phenomenon.
While the share of workers rose for all four of the alternative work arrangement classifications, there was a notable increase in workers hired by contract firms and temporary help firms, which according to Katz and Krueger account for more than half of the total increase between 2005 and 2015. Independent contractors still account for the largest percentage of people in these work arrangements at an estimated 8.4 percent of the labor force.
What Does it Mean to be an Employee?
In light of all of this, we should take a look at the differences between employee status and independent contractor status. Workers who have formal employee status with their employer are entitled to a range of benefits and are protected by several workplace-related laws. They can also collect unemployment benefits, disability insurance, and workers compensation. Contractors typically do not have these same protections and benefits and are responsible for the full share of their payroll taxes, while employers pay half of the tax burden for employees.
Being an independent contractor has its benefits, notably more control over your work, but that comes with fewer protections and benefits. There are several ways to determine if you are an independent contractor or an employee, but a lot of it boils down to how much control your employer has over what you do. Some people may prefer the freedom provided by contract work and freelancing, while others might prefer the stability and benefits involved with traditional employment.
While some may be willing to make the tradeoffs when opting for an alternative work arrangement, not everyone has that choice. In an effort to keep costs lower and more predictable, many companies have started to outsource tasks that would traditionally be done by employees to independent contractors. As a result, people looking for traditional employment may only be able to find contracting jobs, creating greater uncertainty for workers. While Katz and Krueger approximate that the shift to alternative work arrangements has been larger for high-income workers, examples of low-wage contracting abound and further research needs to be done to identify how the shifts contribute to wage inequality.
Work simply isn’t as steady and as reliable when you are freelancing or working as a contractor, and importantly, it is much more difficult for contractors to get benefits that are widely available to employees. These workers are also not protected by minimum wage and overtime laws and are typically unable to collectively bargain. And when businesses need to cut costs, they are more likely to reduce contracting expenses before they fire employees.
Many people actively decide to forgo those protections in order to have more control over their schedule and work, but given that this change has occurred during a period of high unemployment, workers may be taking these positions out of necessity rather than choice. While we don’t know exactly what prompted these larger trends, it’s fair to question whether workers in alternative arrangements would prefer to be traditional employees if they had the option.
Addressing Changes in the Nature of Work
As more and more people find themselves without the benefits and protections of traditional employment, many advocates and policymakers have proposed solutions to protect these workers. Some have called for the creation of an intermediate classification to help workers that are not considered employees. Alan Krueger, this time with Seth Harris, proposed a new classification that they call the “independent worker.” Sitting in between the existing classifications, independent workers would be able to take advantage of some, but not all, of the protections provided to employees. They would be allowed collective bargaining rights and could pool together to fund insurance programs. They would also be able to benefit from tax withholding in their paychecks and would have their employer pay its half of their payroll taxes. While this classification would give them civil rights protections, minimum wage and overtime laws would not apply to them. Proponents argue that amending employment laws could give employers more flexibility while still ensuring important benefits and protections to workers.
Absent a new classification, some local governments have already made efforts to expand certain protections to independent contractors. In 2015, the Seattle City Council passed legislation to expand collective bargaining rights to drivers who work for transportation network companies as well as online platforms like Uber and Lyft. This allows drivers in the city to form unions and negotiate for better wages and benefits with the companies that they work for. However, that legislation was temporarily blocked by the courts before it took effect.
Other proposals focus on creating portable benefits, which are not tied to employment status. An example of this came from the Affordable Care Act, which created exchanges for individuals to buy health insurance on their own. The law also provides premium subsidies to reduce costs for those with incomes below 400 percent of the federal poverty line. Additional efforts like President Obama’s proposed MyRA program would allow people in alternative work arrangements to have access to a simplified retirement account untethered from an employer. There is a range of proposals that would create systems for contract workers to buy benefits on their own or with the help of their employer.
As more and more people find themselves in alternative work arrangements, the traditional concept of employment is changing. Many workers now have to manage work that is less stable and provides fewer benefits and protections relative to traditional employment. While these shifts likely reflect, at least in part, the changing preferences of workers, as people desire more flexibility and control, it is also likely that many people would prefer traditional employment.
Most of the recent discussion of these trends have focused on the rise of technology platform companies, which allow individuals to find short-term gigs as a new form of work. But that debate tends to mask the larger trend, as technology companies still account for a small share of the total labor force. In order to address this shift help the affected workers, policymakers will need to rethink how employment is connected to important benefits and protections. Proposals ranging from an entirely new employment classification to portable benefits, seek to address the needs of workers while ensuring that new companies have the flexibility they need to grow.