Where are all the gig workers and what are they doing?
The economy is structured in such a way that self-employment becomes riskier than necessary, and that could undermine one of the greatest advances in our economy since the industrial revolution
Economies are constantly evolving. But the scale of change over the past 500 years has been remarkable. First, the agricultural revolution meant fewer people were needed to farm and they could move to the cities; then the industrial revolution created the factory system that fundamentally changed the nature of work. Before that, people in Europe and early America were mostly either farmers or small artisans. They worked at home or nearby, set their own working hours and had a lot of autonomy. But the factory system required many people to go to a single place for a certain number of hours and do what their bosses told them to do while they were there.
According to economic historian Joel Moykr, this was a very tough transition at first. The idea of having to be somewhere all day and being bossed around by someone you are not related to felt humiliating. The factories initially had to hire more women and children because they were more compliant. It took more than a century of social conditioning (which was a major reason for general schooling) to attract people (especially men) to what we now call standard employment. This relationship has served us well. Industrialization brought unprecedented prosperity and security.
Even before the pandemic, the factory model felt out of date. Routine jobs could be done by machines and the economy shifted to more service jobs that didn’t require the same type of oversight. More recently, technology made gig or contract work a viable option as it was possible to find customers for your services (of all skill levels) through platforms like Upwork, TaskRabbit, or Uber. Even small craftsmen could find customers on platforms like Etsy. But the gig work hasn’t really picked up speed. Most of it was done to complement a regular job.
Now, like most major economic shocks, the pandemic may have turned the status quo on its head. It has forced many people to return to the traditional way people work – at home, being able to set their own working hours and spending more time with their families. This could explain why the number of business applications skyrocketed during the height of the pandemic and is still high.
Most of these applications are intended for companies that do not intend to hire employees. The self-employment rates are also increasing. It’s not yet clear if small business owners are the reason people quit their jobs. But at least it seems a lot of people are researching it, and chances are some some will enjoy it. This is how people have worked for most of the story, it offers more flexibility with childcare or just planning your own day.
But the question now is, will it last? Such arrangements have their advantages, but also more risks. Income will not be as constant, although it can be higher. You are responsible for paying your own taxes, have no access to employer’s health insurance, and have less employer protection, including minimum wage and overtime pay. Much of this higher risk results from the fact that our economy is structured around salaried people. President Joe Biden’s Build Back Better plan doubles that with a union hiring requirement, and the government wants to make it harder for gig platforms to hire workers as contractors. Self-employment has many downsides in our modern economy, which means that some people are likely to go back to regular work or continue to work independently as a sideline.
It doesn’t have to be like that. Our institutions favor paid employment and must adapt to the new economy. Rather than trying to turn back time and keep workers trapped in an industrial version of the job, regulations can provide a way for contractors to get quality health and disability insurance regardless of an employer. The Affordable Care Act has tried to do this, but the marketplace plans are expensive and tend to provide tight networks when compared to employer plans. One idea is that gig worker platforms offer insurance to contractors. Many aren’t doing this right now because it may force them to recognize gig workers as employees. The government could create a safe harbor that would not legally construe the pooling of independent workers for the purpose of obtaining insurance as grounds for employee status. Gig platforms could also offer insurance for sick leave or family vacations. There are also options for wage insurance, where gig workers team up to protect themselves against temporary loss of income.
Instead, policymakers want to hold on to the economy in the past to protect workers, ignoring the fact that a more historically traditional way of working could be our future and we need creative solutions that take them into account.
Allison Schrager is a columnist at Bloomberg. She is a Senior Fellow at the Manhattan Institute and the author of An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk.
Disclaimer: This article first appeared on Bloomberg and is published through a special syndication agreement.