Not too long ago, the “gig economy” looked as if it just might be the future of work in America – followed by the rest of the world.
But California’s new measure requiring the state’s gig workforce to be treated as conventional employees is only the latest sign of the limits of this approach most probably followed by other states and countries in the near future. The gig economy is looking less like the future of the labor market, and more like a niche arrangement, applicable in a handful of industries and used primarily as a side hustle for people whose main household earnings come from a more stable type of job.
On the worker’s side, an improving economy has made more traditional jobs more plentiful, and so those who prefer to have work with benefits and predictable pay can find it more easily.
And on the employers’ side, while the app-based gig work has been transformative in transportation and a few other industries, it seems not particularly applicable in many jobs, such as those requiring collaboration or specialized training. I personally still think that the platform economy is a really vibrant niche, and it really has changed certain occupations, with taxi and limousine drivers being the poster child. But until today there are good reasons why it hasn’t changed most of the rest of employment.
In 2018, according to a Federal Reserve survey, only 3% of adults reported driving for a service like Uber or Lyft, smaller than the share whose gig work consisted of selling goods at flea markets and about the same as the share who walked dogs or provided housesitting services for extra cash. But even those numbers probably overstate how central this work is to the economic lives of Americans.
The share of the workforce earning income reported on IRS form 1099 – the typical way that independent contractors are paid – rose by just one percentage point from 2007 to 2016, according to a paper this year by Brett Collins of the IRS and four collaborators. Virtually all of that was because of the rise of online platforms. What in my opinion is happening in America is that more and more people are using some of these new ways of getting work to supplement their current jobs. It’s not yet a story about a fundamental transformation of the way that people’s jobs are organized, but it is definitely a beginning.
If the new California bill, which the governor is expected to sign into law, survives legal challenges and is emulated elsewhere, that in my opinion will further undermine the case for gig based freelance work – as a major share of the American labor pool. The bill requires many contract workers to be treated as regular employees, which would mean that they would be covered by minimum wage, overtime, unemployment insurance and other protections afforded traditional employees.
Platform – based freelance work essentially turns a person’s labor into a freely traded commodity. To Uber for example, the men and woman who drive passengers in cars summoned with the company’s app do not count as its workforce at all. The company views its role as making a market between people who want a ride and people who want to get somewhere. In other words, it sees itself more like a stock exchange or an auction website. That, in turn, helps explain the stark divide between the views of Uber executives and those of the labour unions and California lawmakers who want Uber’s drivers to become employees, not free-floating independent contractors. Research by economists employed by Uber has an almost radical implication: that the company could not raise hourly compensation if it wanted to. According to the study, when Uber raised the rates drivers are paid, it created an initial surge in earnings. But over time, higher prices cause less demand from riders and more supply of drivers, so drivers end up spending more of their time twiddling their thumbs waiting for a gig, leaving hourly earnings little changed.
Hints of app-based work are creeping into more traditional work settings. Last year, Walmart for example allowed its store workers to use their phones to swap shifts or volunteer for extra shifts. On the surface, that is the kind of thing that could make a part-time job at Walmart more competitive with app-based work in which workers set their own hours. Business has been on a multi-decade campaign to shift more economic risk from its balance sheet onto its workforce – through de – unionization, routine use of layoffs, outsourcing and the use of independent contractors.
The gig economy was supposed to be the apotheosis of that shift. It is my opinion a different form of capitalism that is brutally efficient. It can work well for people seeking a little extra cash.
But it also has major drawbacks for those who want a solid, predictable income and some protection from the ups and downs of the economy – or for employers who need a reliable, collaborative workforce.
As the gig economy matures, it is becoming more and more clear that every freud has its limits. The real gig workforce economical scenario will be process in the next recession.