The Changing Workplace And The New Self-Employed Economy
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Policy Study

The Changing Workplace And The New Self-Employed Economy

The gig, or sharing, economy was spurred by market demand and technological evolution, so free market solutions are uniquely positioned to address its challenges.

Full Study: Gig? Sharing? The Changing Workplace And The New Self-Employed Economy

Infographic: The Gig Economy

EXECUTIVE SUMMARY

Is America evolving away from the traditional workplace? As technology dramatically changes the job market, many workers embrace more-flexible job opportunities, and look for alternative sources for health care, retirement, and other traditional workplace benefits. Others look to government to bring back factory-style work, in which a highly regulated employer/employee relationship typically features:

  1. Long-term (usually decades of) secure employment at the same firm, with fixed, full-time hours;
  2. Strong unions and collective bargaining to ensure paid sick time, training, overtime and vacation, uniform salary and/or a guaranteed minimum wage, and employer-provided retirement pensions;
  3. Collective bargaining by unions;
  4. Employer contributions to Social Security, Medicare, health insurance, workers’ compensation, etc.;
  5. And perhaps even paid maternity/paternity leave, employer matching savings accounts, and governing structures for firing workers (regulations dictating if, when and how private companies are permitted to fire employees).

This traditional paradigm has modified some since the 1950s and declined since its peak in the 1970s, but the view that the traditional workplace is the one best way of working still persists.

BUSINESSES ARE CHANGING

While the traditional work model provides stable work with life-long benefits for employees who work at or close to 40 hours a week, its benefits greatly drive up the cost of doing business for employers. When the cost of doing business is high, businesses are less productive, less efficient and less competitive. All of these factors serve to constrict local, state and national economies, and to make goods and services more expensive for all consumers—which is everyone. In today’s globalized economy, American businesses have to compete with foreign companies that don’t have to shoulder such expenses, and whose products are therefore cheaper, leading companies to look outside the traditional worker box. These days, the high cost of traditional workers has often made them the “employees of last resort.” As a result, many companies are shifting from fewer full-time positions to more part-time positions, or shedding direct employees altogether through contracting with smaller companies or individuals who can do the same work for less overhead cost. While this dynamic has created more flexible work environments for workers, it has also left many without the kind of benefits workers and families need.

WORKERS ARE CHANGING

The traditional workplace requires companies to care for their employees, and often by extension their families, from cradle to grave. Yet, this approach has strings that are less tolerated in the modern workforce.

Many of today’s workers, who average 11.7 jobs between the ages of 18 and 48, likely find staying in one life-long job in order to get benefits more of a cage than a refuge. For many, the full-time traditional workplace can’t accommodate the life they want to lead. For example, traditional employees can’t typically move beyond commuting distance, change jobs or employers, take more or less time off than is allowed, pursue a career change, customize their shifts or weekly hours, set their own prices for their skill sets, or even take charge of their own pension investments. And many would-be workers, such as part-timers, students, moonlighters, caregivers and others, are locked out by traditional employment’s strict and inflexible full-time demands. As a result, for many of today’s workers, the tradeoffs for traditional benefits aren’t worth it, and they’re choosing flexibility over security through alternative work arrangements.

THE ECONOMY IS CHANGING

With businesses’ increasing demand for part-time or contract employees, and with a burgeoning labor pool of would-be workers seeking that very type of work, the only remaining problem was connecting them with each other.

Enter the internet. Digital Age technology has catalyzed alternative work arrangements through companies that connect businesses and customers with workers and goods. These for-profit digital bulletin boards, called “digital platforms,” connect these parties in real time, allowing for workers to be employed independently, using their own tools of the trade to provide individual service to consumers. Digital platform companies, such as Uber and TaskRabbit, allow customers to cut out the middleman and hire workers directly or almost directly, and allow for reviews to be shared and payments to be made securely and digitally. The Digital Age has ushered in this transition to a more flexible economy so comprehensively that, as U.S. Department of Labor Assistant Administrator of Wage and Hour Division David Weil notes, “The direct, two-party relationship assumed in federal and state legislation and embodied in traditional approaches to enforcement no longer describes the employment situation on the ground.”

So then, what is the “situation on the ground”? Harvard Professor Diane Mulcahy defines it as a change in attitude from “jobs” to “work.” The needs of the Industrial Age packaged work into standardized, full-time, inflexible, decades-long jobs that best served the economy of the time.

But currently, as automation replaces many manufacturing jobs, the U.S. economy is increasingly a service economy, emphasizing the concept of work as, fundamentally, a series of contracts. The Digital Age’s ability to bring customers, providers, businesses and payment structures together in real-time communication for these services—and for goods as well—is changing the way business is conducted. The U.S. economy is evolving to center on work through independent work arrangements, not prescribed employer-employee relationships. As a result, alternative work arrangements are booming.

THE “GIG” OR “SHARING” ECONOMY

This alternative work comprises what’s called the “gig economy,” the “sharing economy” and the “fissured workplace.” The scope of these terms often overlaps, creating confusion, but what’s important is what the workplaces have in common—they are not subject to the regulations of traditional workplaces. As a result, the gig economy ranges from less-secure but more-flexible, task-oriented short-term work with high worker autonomy to long-term contracting with more security and less autonomy.

Even without the worker protections that some seek to impose “for the good of workers,” the gig economy is flourishing. When all gig participants, including those supplementing more traditional work and long-term contractors are accounted for, studies assert that the gig economy employs nearly one-third of the U.S. workforce. They also find that the gig economy has been responsible for all or almost all U.S. net employment growth from 2005 to 2015, roughly since the Great Recession. While some gig work competes with traditional employment, often it tends to fill gaps in the economy, making for new, otherwise untapped transactions. Gig work flourishes because it provides consumers with more choices and, for many workers, gives a new means of working within a particular lifestyle or of weathering hard times. The most comprehensive research of late, from McKinsey Global Institute, finds this breakdown of gig workers:

  • 32 percent “free agents” who choose independent work and derive primary income by it
  • 40 percent “casual earners,” the largest cohort, who supplement their income by choice using independent work
  • 14 percent “reluctants” who derive primary income from independent work, but would prefer traditional work
  • 14 percent “financially strapped” who do supplemental independent work out of economic necessity

This means that the majority of gig workers are supplementing primary incomes (54 percent) and/or are working independently by choice (72 percent). These independent workers also report higher satisfaction levels than traditional workers across the board. McKinsey’s survey of 8,000+ workers finds that, among traditional earners, one in six would prefer to be primary independent income earners, a.k.a. gig workers. This is consistent globally, finding 43 percent of survey respondents preferring self-employment and expressing that autonomy and flexibility are second only to income, which suggests a change in worker priorities. As gig and sharing services that disrupt traditional industries and employment relationships have emerged, some have reacted by trying to re-impose the traditional work structures on these nontraditional jobs. Many cities are trying to shoehorn ridesharing services into old taxi regulations or AirBnB into hotel regulations.

Those who advocate forcing the gig economy to adopt the inflexibility of traditional employment fundamentally misunderstand what many modern customers, workers and businesses want. Unsurprisingly, when the digital platforms that connect gig participants are forced to shoulder traditional employer costs, those platforms typically react by curtailing or closing shop, which hurts everyone. In this way, forcing all jobs, workers and companies into traditional structures, ostensibly for their own benefit, exerts an existential threat on this growing sector of the economy. So a key question becomes, how can the U.S. economy adapt to offer access to traditional-style worker benefits, or something like them, in the gig economy without in turn undermining it?

TACKLING THE CHALLENGES OF SELF-EMPLOYMENT

Retirement savings and income are crucial to long-term quality of life. Access to health care allows workers and their families to live longer, happier and more comfortable lives. Like business owners, independent workers who gig for their primary income are self-employed: They have to provide for their own retirement and health care.

The self-employed have several venues to save for retirement, the most popular being IRAs and 401K plans. But private health care in America has structured itself around the traditional workplace model, without providing many opportunities for gig economy workers. With one-third of the U.S. in the gig economy—although some receive health care through their own additional, or their spouse’s, traditional employment—and with so many more people planning on entering the gig economy, it’s important that private health insurance is accessible to them. As more and more of the economy moves into less-structured and more-flexible work, private health insurance will look for ways to adapt to accommodate a worker’s varying employment, risk tolerance, income and lifestyle choices. In the current environment of continuous debate over health care reform, the burgeoning gig economy should be taken into consideration, ensuring that changes to the system:

  1. Do not create obstacles to health insurance models that are likely to serve this cohort in the coming years.
  2. Do not pick winners by creating subsidies, directly or with the tax code, for any one type of worker or work structure.
  3. Allow new experiments in risk pooling for insurance to create many opportunities for workers to join with others through clubs, neighborhoods, interest groups, associations or other means of entering into group insurance plans other than employer-based.
  4. Allow insurers to provide tiers of insurance benefits at various price points so workers can match insurance coverage with their own needs and desires.

But private health care in America has structured itself around the traditional workplace model, without providing many opportunities for gig economy workers.

CONCLUSION

The gig economy is a substantial and growing sector of the U.S. economy, comprising nearly one-third of U.S. workers, and rising quickly. Rather than threatening the entrenched traditional work model, much of the gig economy fills niches in the goods, services and labor market. This allows more workers to serve more customers more cheaply and on their own terms, increasing the workforce and the standard of living for all. Just as the Industrial Revolution changed the world’s economy, so the Digital Age stands to redefine what a “good job” is in the near future on a global basis. The U.S. will be on the cutting edge of this sea change, as long as we embrace these changes and let consumers and workers vote with their feet for what serves their needs best. For the gig economy to continue to flourish, policymakers should ensure that legislation preserves the independent nature of gig work. Trying to force gig economy companies, which are not employers, to mimic the traditional workplace model harms workers and consumers. The gig economy emerged from market-driven autonomy and flexibility for both companies and workers, and it thrives despite a few challenges. Accordingly, the market will likely address these challenges—as long as we let it. In an era of health care reform, the gig economy currently is—and should remain—the laboratory of free market solutions.

Full Study: Gig? Sharing? The Changing Workplace And The New Self-Employed Economy

Infographic: The Gig Economy

Adrian Moore

Adrian Moore, Ph.D., is vice president of policy at Reason Foundation, a non-profit think tank advancing free minds and free markets.