The Next Gig

These companies are making profits and revenue and I’m not (going to) begrudge anyone for that because that’s what we are about in America. But we also want to make sure that success trickles down to the worker.

Labor Secretary Marty Walsh, April 21, 2021

Walsh’s comments accompanied a recommendation gig workers, especially those who represent the front line for companies like Uber or GrubHub, should be treated more like employees. A recommendation about which I find myself conflicted.

Based on traditional standards for differenting between employees and independent contractors, I understand why corporations which rely on gig workers oppose Walsh’s position. After all, those business do not set working hours. If Uber drivers want to take a week off, they do not need anyone’s permission. Their workplace is their own choice. GrubHub does not set specifications for delivery vehicles. If I want to use my bike, moped, Harley or 1964 Mustang, that is my choice. And if I don’t like the compensation, I simply stop providing the company’s service. No notice required. No exit interview. No NDA.

The gig economy is sometimes glorified as a low-investment entrance into entrepreneurship. Theoretically, if you want to make more money you choose to work longer hours. And you can innovate. Uber drivers can increase demand for their services by offering a bottle of water or granola bar to a customer. Or decorate their car so potential riders choose the guy/gal with the VW Beetle that looks like a tortoise.

But many gig workers are not subject to the risk/reward equation which is central to entrepreneurship. They do not have to worry about collecting revenue. They are not concerned with merchant accounts or being stiffed by a customer. Uber drivers’ shares of rider fees are deposited weekly in their bank accounts. If they decide to shut down their business they are unlikely saddled with sunk costs or outstanding business loans. And they spend little, if anything, on customer acquistion.

Of course, there are down sides. No health benefits. No company contribution toward retirement. No paid holidays or sick leave. But those are the same issues every start-up entrepreneur faces. That is the cost of being independent and having personal control over your life and work.

My sympathy for corporate America is tempered by the history of companies blurring the lines between employees and independent contractors to save costs. Substituting independent contractors for salaried workers eliminates employers’ share of Social Security and Medicare contributions, health benefits, unemployment insurance, retirement contributions and paid time off. Furthermore, it can reduce liability exposure.

Corporate reliance on independent contractors has increased in inverse proportion to a decline in union membership. In 2021, only 10.3 percent of U.S. workers belonged to unions compared to 20.1 percent in 1983. Some scholars argue that decline began with President Ronald Reagan’s appointment of John Van de Water as chair of the National Labor Relations Board. At an October 1984 labor law conference in Columbus, Ohio, Van de Water offered the following as the legacy for his time in office.

I would like to think that my term as Chairman will be perceived as the beginning of the period in which the Board changed from being viewed as pro-labor to a time of being strictly nonpartisan, as indeed it was meant to be.

I do not know whether the relationship between Van de Water’s being at the helm of the NLRB and union decline is causal or merely correlative. Either way, lack of protection for union workers contributed to the utilization of independent contractors in several major industries.

This is not a one size fits all situation. I foresee a time when gig-worker dependent industries respond to an employees’ market and begin treating some like salaried labor in return for mandated hours and schedules. Others may want to retain their independent status. We know it already varies depending on the job description. An executive at InstaCart is compensated differently than the person who delivers your groceries.

In the future, it may also differ by industry. Let me give you an example of one industry which represented the worse abuse of “independent contracts.” I know this because I was subject to that abuse. While in middle school, I delivered the Richmond News-Leader, the afternooon newspaper, to houses in my neighborhood. Consider the following.

  • My work hours were mandated by the company. Pick up the papers after school and deliver them by dinner time.
  • I was assigned a specific route which I could not expand without corporate approval.
  • If I wanted to take time off, I had to find someone to take my route.
  • In bad weather, the papers had to be placed in plastic bags which often were not provided by the company.
  • I was responsible for collecting the subscription fees, often having to return to a house multiple times to find someone home.
  • I was also expected to do the marketing, personally reaching out to non-subscribers.

For all intents and purpose, I was an employee of the News Leader, told when, where and how to do my job. Still I was considered what we now call a gig worker. Compensation in the mid-1960s averaged around $10/week for 10 to 12 hours worked (approximaely $95 in 2022 dollars).

What bothers me the most about the approach by both Walsh and Van de Water is the either/or nature of their respective positions. Instead, policymakers need a more flexible roadmap based on a reexamination of what constitutes employment and what qualifies for legitimate contracting. It should also include policies which encourage independence for those who seek it.

One example is the requirement that independent contractors pay both the employee and employer share of Social Security and Medicare. That assumes the business’ contribution and employee’s come from two different revenue sources. Sales revenue for the company, income in the form of wages for the employee. For many independent contractors, sales revenue is their income. Gig workers may need to pay a premium but it should not be twice that of a salaried employer.

Nicholas Negroponte, founder of the MIT Media Lab, once said, “Technology should not be used simply to automate business, it should be an opportunity to rethink business.” Maybe, the same philosophy should apply to the gig economy.

For what it’s worth.