Over the past decade, particularly in the US, there has been considerable debate over whether the labor market trends we were seeing represented fundamental shifts in the economy or business-cycle responses to the Great Recession that followed the 2008 financial crisis and the long, slow recovery. In new studies, two of these trends—the skills gap and the gig economy—are reconsidered in light of new data, with researchers finding that phenomena they once thought were secular may actually have just been products of the recession after all.
Economists Alan Krueger and Lawrence Katz made headlines in 2016 when they released the results of a survey they had conducted the year before, which found a major jump in the number of Americans making a living in “alternative work” arrangements (i.e., not in regular, full-time employment), though gig economy platforms like Uber made up a small fraction of this contingent labor market. At the time, Krueger and Katz found that around 16 percent of the American workforce were engaged in this type of work, compared to 10 percent in 2005. Follow-up work indicated that alternative work accounted for almost all of the jobs created since 2005.
Now, the leading economists of the gig economy say their initial study overestimated its impact, the Wall Street Journal reported this week. In a new paper, Krueger and Katz look at new evidence and conclude that their 2015 survey overstated the size of the contingent workforce because of a weak labor market and the impact of the recession. Many of the alternative jobs they counted were stopgap jobs people took to make ends meet while they were unable to find full-time work. Once the economy and their job prospects improved, these gig workers returned to more traditional employment. The vast difference in the health of the US economy between 2005 and 2015 skewed the data.
Accordingly, the economists now revise their estimate of the growth of alternative work during that period to a 1 or 2 percentage-point increase, not 5. This brings their findings more in line with other recent studies that have painted more modest pictures of the gig economy—including the Bureau of Labor Statistics’ 2017 Contingent Worker Supplement survey, which claimed the alternative workforce had actually shrunk since the last time the survey was conducted in 2005. At the same time, Krueger and Katz argue in their new paper that the surveys used to measure alternative work arrangements, including those conducted by the Labor Department, are seriously flawed (the huge gap in the BLS data due to the dozen years when the survey wasn’t conducted is part of the problem).
The US Bureau of Labor Statistics published new data on Thursday, for the first time since 2005, on the size of the country’s “contingent workforce”—defined as “persons who do not expect their jobs to last or who report that their jobs are temporary,” as well as those employed in “alternative work arrangements.” The data in the new report is from May 2017, at which time the bureau says 5.9 million US workers (or 3.8 percent of the overall workforce) were employed in contingent jobs:
Using three different measures, contingent workers accounted for 1.3 percent to 3.8 percent of total employment in May 2017. … In February 2005, the last time the survey was conducted, all three measures were higher, ranging from 1.8 percent to 4.1 percent of employment. In addition to contingent workers, the survey also identified workers who have various alternative work arrangements. In May 2017, there were 10.6 million independent contractors (6.9 percent of total employment), 2.6 million on-call workers (1.7 percent of total employment), 1.4 million temporary help agency workers (0.9 percent of total employment), and 933,000 workers provided by contract firms (0.6 percent of total employment).
Wednesday’s data release does not address the size of the “gig economy,” per se. The BLS added new questions to the new version of its Contingent Worker Supplement to identify individuals who found and were paid for gig work through a mobile app or website, but says it is still evaluating that data and will address it in a later release. Surveys over the past few years have produced widely divergent counts of America’s gig economy, estimating the “gig workforce” at anywhere from 600,000 to 54 million people. Much of this discrepancy has to do with how gig economy is defined: Freelancers, who Upwork and the Freelancers Union predict could be a majority of the US workforce in as little as 10 years, are sometimes included in this definition, other times not.
In any case, the BLS’s finding that the contingent workforce represented a smaller share of the workforce in 2017 than in 2005 is raising eyebrows, given that much independent research has found the gig economy to be growing.
The Trump administration and the Republican leadership in the US Congress intend to take up the issue of the gig economy this spring and propose labor law reforms to address the unique circumstances of this segment of the workforce, Sean Higgins reports at the Washington Examiner:
The big issue: When do workers for those companies stop being contractors and become employees? Business groups are eager to limit those circumstances, which the Obama administration and court rulings have chipped away at. The Trump [administration] will offer its take when the Bureau of Labor Statistics publishes its Contingent Worker Survey in the spring that will offer new data on workers doing short-term, nonsalaried “gig” jobs. …
A source in the Labor Department who requested anonymity said the study probably will be published in April. It will become a springboard for legislation to clarify a host of issues, including potentially the most controversial one: the contractor-or-employee issue. … The Trump administration has been tight-lipped on its plans, saying only that it wants to modernize the rules.
The Contingent Worker Supplement to the Current Population Survey was reintroduced during the Obama administration by former Labor Secretary Tom Perez in January 2016. Independent estimates of the size of the alternative workforce in the US vary dramatically, whereas the dearth of official data has limited policy makers’ ability to address the challenges created by the advent of the gig economy.
Speaking at an event in October, Labor Secretary Alexander Acosta expressed support for overhauling US employment laws to account for the advent of the gig economy and the changing relationship between workers and employers. The government needs to “keep pace with the pace of change in the private sector” and “re-examine the rules that regulate the employer-employee relationships that have an impact on the ability of individuals to work in a modern system,” Acosta said.
In the past year, we’ve taken a few looks at “corporate inequality”: i.e., the theory that income inequality in the US is being driven in large part by the growing divide between the compensation of high-value employees at highly profitable firms and the rest of the workforce. Large, wealthy organizations, particularly in the tech sector, are able to attract top talent by paying much higher salaries than lower-margin industries, exacerbating inequality by cultivating an elite class of professionals with high pay and lavish perks whose experience is completely divorced from that of the typical employee anywhere outside Silicon Valley or Wall Street.
Not everyone who works for these highly profitable companies benefits equally from their success, however. As the Guardian’s Julia Carrie Wong writes in a snapshot of Facebook’s contingent workforce, these contractors and subcontractors don’t enjoy the all-inclusive benefits o the tech giant’s regular employees, and many are struggling to get by in the increasingly expensive San Francisco Bay Area:
The $500bn company has been conscientious about ensuring that its subcontracted workers are relatively well paid. In May 2015, amid a nationwide movement to raise the minimum wage, the company established a $15 an hour minimum for its contractors, as well as benefits like paid sick leave, vacation and a $4,000 new-child benefit.
But those wages only go so far in a region with out-of-control housing costs. San Francisco and San Jose ranked first and third in the nation a recent analysis of rents, with one-bedroom apartments in San Jose going for $2,378. The extreme cost of housing is why California has the highest poverty rate in the country, according to a US Census figure that takes into account a region’s cost of living.
Even though so-called “gig workers” are not generally entitled to the same benefits and perks as regular employees, as contingent labor makes up a greater portion of the workforce, many employers are concerned about how they will provide benefits like health insurance or retirement savings plans to this new and different type of worker, for whom many existing benefit systems and regulations do not account. Companies like Uber and Care.com, whose business models depend on drivers or caregivers being classified as independent contractors rather than employees, have been experimenting since last year with ways to deliver retirement and health insurance benefits to those who are employed through their platforms, but not by them.
This issue is also entering discussions about public policy: Last September, the online handicraft retailer Etsy published a proposal imagining a new form of “social safety net” for gig workers, and recommending a series of policy changes to that end, and since last year, New York State has been developing legislation that would establish a model for gig economy workers to receive portable benefits while remaining independent contractors under state law. In the meantime, Mark Feffer at SHRM offers employers some suggestions on how to give contingent workers benefits without running the risk of causing them to be reclassified as full-time employees:
Experts say there are two central elements to fashioning a benefits package that will attract the best gig workers with minimal risk to the company:
- First, understand that independents consider more than money when deciding whether or not to take an assignment.
- Second, make sure whatever you offer is portable, something the worker can access even after his or her assignment has ended.
On Thursday, the New York City Council unanimously passed a landmark bill aimed at protecting the city’s millions of freelance workers from wage theft. The New York Times has the details:
Known as the Freelance Isn’t Free Act, the measure requires anyone hiring a freelance worker to agree in writing to a timetable and procedure for payment, and increases the potential awards to freelancers bringing legal complaints against those who have failed to pay them promptly.
The bill represents one of the earliest policy efforts to grapple directly with the growth in the so-called gig economy — a term that typically refers to the likes of temporary workers, contract workers, independent contractors and freelance workers. According to one estimate by the economists Lawrence Katz and Alan Krueger, this group grew to almost 16 percent of the work force in late 2015 from roughly 10 percent in early 2005.
New York Mayor Bill de Blasio is expected to sign the measure into law. According to the Freelancers Union, which was heaving involved in crafting the legislation, half of US freelancers reported having trouble getting paid for their work in 2014, and more than 70% have dealt with the issue at least once in their careers.
The bill stipulates that freelancers be given a written contract when they have a relationship with a business that pays them at least $800 within four months, and awards them double-damages if they are not paid on time and win their court case. It will also force the losing company to pay the freelancer’s legal fees, which Freelancers Union executive director Sara Horowitz believes will lead to paradigm shift in how seriously the legal community, as well as companies, perceive the problem in the future.
In addition, companies that are repeat offenders could also face lawsuits from the city itself, with civil penalties up to $25,000.
Uber is piloting a retirement savings program for its drivers in certain areas, USA Today reports:
Uber said Wednesday it was partnering with Betterment, an online investment and wealth management company, to provide a year of automated investment management advice for drivers in Seattle, Boston, Chicago and the state of New Jersey. The company hopes to roll the plan out nationally. The post notes that drivers can use their Uber app to “open a Betterment IRA (individual retirement account) or Roth IRA for free. People who drive with Uber can get started with no minimum account balance.” After the free year expires, users with a balance of less than $100,000 pay an annual fee of 0.25% of the average annual account balance for the year, or $25 on $10,000.
The new benefit comes at a time when Uber is facing multiple class-action lawsuits by drivers seeking to be reclassified as employees rather than independent contractors. The ridesharing platform contends that it does not exert enough control over drivers’ work to be considered their employer, though researchers have suggested that it practices “algorithmic management.” To placate drivers and avoid a reclassification that could upend its business model, Uber has offered to adopt some more driver-friendly business practices and has agreed to let drivers in New York City form a guild to represent their interests to management.
The Boston Globe’s Curt Woodward sees a similar rationale behind the partnership with Betterment: