IT’S BIGGER THAN THE GIG WORKER — TRADITIONAL EMPLOYMENT AIN’T WHAT IT USED TO BE

Broad and rapid structural change has been taking place in the labor market long before Uber showed up. There are many drivers of change in the labor market including technology, globalization and personal preference. Over the last forty years, the need to manage labor costs in increasingly competitive markets has helped drive the search for greater flexibility through the use of contingent workers, outsourcing companies, and the offshoring of production. Longer-term trends include the shift away from manufacturing to a services-based economy, forced part-time work, long-term unemployment, and changes to the nature of the conventional employment relationship.

Most recently, new technology platforms have emerged that enable even greater structural flexibility — the seamless and real-time organization of free agents around time-limited tasks and projects. While these diverse platforms are relatively new, they are not the original source of change, rather the rocket fuel that is speeding structural shifts underway in the labor market for sometime.

Employers gain new flexibility to better respond to quickening change in global markets. For individuals, circumstances vary. Some seek better work-life balance, some desire greater self-determination, and others are piecing together multiple “gigs” to make ends meet.

Given the scope of change, the diversity of the platform economy, and the growing uncertainty and volatility that characterize this new context, new thinking is needed about the legal, political and social infrastructure that will foster a creative and productive economic system but also dampen the existential blows experienced by families and individuals. As ground zero for the on-demand economy — in terms of the high concentration of platform startups, workers and early adopting consumers — the Bay Area should take the lead in creating the social infrastructure appropriate for the economy of the future.

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There is growing evidence of broader structural change in the labor market. We continue to shift to a services economy. 70 years ago, services accounted for 60% of the economic activity in the US, today it is nearly 90%. As manufacturing has declined, so have union jobs and the life-long healthcare and pension benefits that came along with them decades ago.

Our workforce is more mobile and getting younger. Job tenure is falling as people change jobs with greater frequency than their parents. As of 2015, the Millennial generation made up 35% of the workforce, representing a larger share than either GenX or Baby Boomers for the first time.

Involuntary part-time work has increased. According the Federal Reserve Bank of San Francisco, involuntary part-time work surged during the recession and has remained unusually high during the recovery.

Free agents are on the rise. Between 2002 and 2013, freelancers and partnerships increased by nearly 30% — but total employment by less than 5%. In the Bay Area, these businesses with no employees equate to 18% of total regional employment. This diverse group includes people between formal employment, highly skilled professionals, general contractors, and others.

The use of the Internal Revenue Service 1099 tax form for income earned outside of an employer relationship is on the rise nationally. Since 1989, 1099 filings have increased 30% while filings of W-2 forms (the form filed for income earned from an employer) have increased just 17%. Data from ZenPayroll indicates there’s been a strong rise in the use of 1099 contractors from 2013 to 2014 in key metro areas.

Being an employee isn’t what it used to be. The nature of the social contract between employers and workers is changing. In terms of retirement plans, the percentage of the workforce with defined benefit plans dropped from 66% in 1977 to 22% in 2002. Defined contribution plans increased from 33% to 78% over the same period. Employer-based health insurance has been on the decline since 2000 when 65% of individuals were covered by employer-provided health insurance.

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The platform economy is highly diverse. There’s much debate about the “on-demand,” “gig” or “sharing economy” and whether workers should be classified as formal employees. But there’s too little understanding about the diversity of these new business and work models. Some models suggest a new era of self-determination while other models may be one-sided strategies for employers to reduce costs and liabilities.

The highly diverse landscape of platforms is creating new markets for services and goods: A commuter offers free seats in his car to strangers on his way to work. A student picks up a time-limited programming task — and real-world experience — posted by a startup on a shoestring budget. While the kids are at school, a mom drives strangers for extra income. A student rents out the use of her bike while she’s not using it. A neighbor rents a parking spot in her driveway to the house next door where the number of roommates has swelled during the housing crisis. A retiree on a fixed income rents out a spare bedroom to help make ends meet.

These platforms can generate needed supplemental income through earned income, such as from driving for Lyft or selling hand-made items on Etsy or through the leveraging of existing assets, as one does in renting a spare room over Airbnb. In the increasingly costly Bay Area, this is particularly meaningful as median household income fell 9% from 2008 to 2011 and has languished since.

The growing field of platform workers is spawning a diverse ecosystem of start-up companies in addition to the direct economic impacts of this activity on workers, companies, and consumers. Whether for drivers, deliverers or graphic designers, the growth of independent actors is creating new markets for service providers targeting the unique needs of independent agents. Some offer online marketplaces for independent agents such as Wonolo, Thumbtack, and Etsy. Other startups such as Peers, Homebrew, and SherpaShare provide services like benefits, accounting, earnings analytics, and venture funding tailored to the needs of independent agents. Even tech giant Intel offers tailored services to gig workers and expects the on-demand economy to grow by 18.5 percent annually between now and 2020. According to a recent report by McKinsey & Company, the platform economy is expected to increase global GDP by two percent b 2025.

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Given this broad-based and fundamental change, a new model for social infrastructure is required that can leverage new opportunities for widely shared benefit. The pace of change and its impacts raise key policy questions. How does our existing social infrastructure need to adapt, like education and systems traditionally tied to employers such as retirement, unemployment insurance and disability benefits?

A diverse group of labor activists, platform companies, and nonpartisan think tanks recently called for a reimaging of our social safety net. The group proposed a set of principles for defining a system of portable benefits that would serve the changing needs of all workers, not just those engaged in platform work models, the so-called gig economy. Thought leaders Laura Tyson, former chair of the US President’s Council of Economic Advisers, and Lenny Mendonca, former director of McKinsey & Company as well as US Senator Mark Warner, and others are calling on policy makers to come up with new ideas with bipartisan support on this issue. Some see the potential for a Shared Security Account analogous to the Social Security while others see the Affordable Care Act as a possible model for portable benefits.

In many ways, the Bay Area is ground zero for the structural shift taking place. It is home to the creators and early adopters of platforms that are bringing more transparency and real-time speed to the market for services and labor — essentially enabling “perfect” markets. There is exciting potential in the seamless and real-time organization of free agents around time-limited tasks and projects. Flexibility can lend greater resilience to a system but only if all the elements — people, business, public institutions — are integrated into the fabric of the system — the community.

The Bay Area can be a “laboratory of democracy,” as Tocqueville described it, to develop creative options for a regional social infrastructure that is more reflective of the increasingly distributed economy. Such a model would lend greater resilience in weathering economic volatility, downturns and upswings. Investing in the resiliency of individuals helps cultivate economic competitiveness and prosperity.

Tracey Grose is Vice President and Patrick Kallerman, a Research Manager, at the Bay Area Council Economic Institute.