The Future of Work: Exploring Policy Solutions For Worker Rights And Benefits In The 21st Century Economy
Tech4America / Summer 2017 / t4a@t4a.org
In the Fall of 2016, Tech4America (T4A) began a series of convenings around the future of work to explore the technology industry’s role in promoting worker rights and benefits, especially in regard to the growing trend in self-employed, temporary, and part-time workers (“gig work”). This report follows a Spring 2017 discussion with several members of Congress and two Bay Area mayors. It documents the issues explored, challenges to be addressed, and possible next steps.
Background:
The future of work has the potential to allow most workers unprecedented amounts of flexibility and access to creative jobs. However, uncertainty in job availability, pay, and benefits could make changes in the labor market more harmful than helpful. Policymakers included in several 2016 and early 2017 discussions expressed considerable difficulty in describing a cogent vision for the future of work to their constituents and a way to get them to change occupations.
Tech companies, especially those acting as a platform for gig workers, appear to have prioritized solving these labor issues, given that continued problems could cause them backlash from both policymakers and the workers themselves.
Both federal and local elected officials believed that experimentation was the most sound policy strategy, given that there are few, if any, working models that have solved issues endemic to the future of work.
What follows is a brief background on the future of work, a summary of the topics discussed, and how they might be facilitated by T4A.
The motivation to solve problems of gig work
Penn State economist Stephen Goatz finds that gig work can live up to many of its promises, including better opportunity and wages. In one study, he found that significantly increased “self-employment has tangible positive economic impacts not only on wage and salary employment but also on per capita income growth and poverty reduction.”
Of course, a growing and more flexible gig economy has downsides, too. Self-employment, temporary, and part-time work pose risks to individuals because most advanced economies tie worker protections and benefits to a single job or industry. When one leaves an employer, benefits and job security often stay behind.
Anticipating threats to their constituents, many unions, city governments, and industry associations have raised objections, often going to court or passing laws whose purported purpose is to protect workers from the threat of a less-secure labor market.
Beyond litigation, the bias towards full-time employment has cost gig economy companies millions of dollars in recruitment fees to help workers transition to this unorthodox arrangement.
This is all to say that there are significant social and economic reasons for finding ways to support the growing legion of gig workers.
The tech sector and other employers in particular need to get ahead of the challenges — and capture the opportunities — that the gig economy brings. This means working with innovative policymakers and public officials to address workers rights and benefits faster than they disrupt the labor market.
Economic growth should be aligned with economic security.
Part I: Basic Facts, Challenges, and Benefits of Gig Work
Gig economy work has exploded over the past few decades. “All of the net employment growth in the U.S. economy from 2005 to 2015 appears to have occurred in alternative work arrangements,” concluded Harvard’s Lawrence Katz and Princeton’s Alan Krueger, in arguably the most comprehensive study of gig economy workers yet.
“The percentage of workers engaged in alternative work arrangements — defined as temporary help agency workers, on-call workers, contract workers, and independent contractors or freelancers — rose from 10.1 percent in February 2005 to 15.8 percent in late 2015.”
The graph below from Krueger and Katz shows that the strongest growth has come from Transportation (such as Uber and Lyft) and creative industries (such as freelance designers).
There are benefits to workers in this trend.
At T4A’s September 2016 meeting, Uber data analyst Betsy Masiello noted that the growth of flexible work arrangements has benefited a number of demographics often left out of traditional employments. Uber, she said, has seen notable growth from immigrants and new parents. Driving for Uber allows immigrants who lack language skills to nonetheless earn a good wage and allows new parents flexible hours to raise their children in between daycare and extracurricular activities. Most work 10 hours or less.
In other words, the gig economy can be more efficient at matching workers who don’t fit neatly into the single-employer, 9-to-5 system.
A few new studies support the theory that gig economy work may benefit nontraditional labor and thus increase wages. Economist Stephen Goatz found that locally owned firms dramatically raises regional wealth. “A community that doubles the number of small, locally-owned firms from the average of 5.51 [to 11.02 firms per 1,000 population] would see additional annual per household income of $6,281,” he writes. Local firms and high-levels of self-employment may better utilize local talent.
Research across Europe and developed countries finds that long-term part-time workers are more productive than full-time workers, as measured by wages paid per hour. While full-time workers are expected to stay in one place regardless of whether they are needed, part-time work can be more efficient at allocating time and talent. In some cases, this efficiency ends up as more employment and higher wages.
Technology companies have become exceptionally good at allowing people to work on-demand and for employers all over the world. “Work is no longer a place, it is an activity,” remarked Ryan Coonerty, co-founder of coworking NextSpace and a Santa Cruz County supervisor, at the September T4A meeting.
While technology is certainly a component of an expanding flexible work economy, there also appear to be structural changes in the economy towards flexible work that pre-date modern gig companies.
A report from George Mason’s Mercatus Center finds that the use of independent contractor forms (“1099”) from the IRS significantly diverged from employment forms (“W-2”) all the way back in the 90s, far before the rise of tech-heavy gig companies.
“Never before have big employers tried so hard to hand over chunks of their business to contractors. From Google to Wal-Mart, the strategy prunes costs for firms and job security for millions of workers,” wrote Lauren Weber in a recent feature in the Wall Street Journal, appropriately titled, “The End of Employees.” Google reportedly has as many temps and contractors as regular employees.
The article cites a variety of reasons for company outsourcing. Southwest Airlines, for instance, says a large contractor base allows them to avoid layoffs of staff employees during hard times.
However, a major incentive for the rise in independent contractors may be at least partly due to the fact that employee compensation (benefits and bonuses) has dramatically increased along with productivity growth.
Much of the productivity gains over the last 30 years have gone to increasing employee compensation packages, rather than wages, according to the conservative think tank, The Heritage Foundation.
Flexible work is attractive to employers who skirt worker benefits, or companies that would not have a profitable model if they had to provide such benefits.
Michael Mathews, who works on Facebook’s California policy initiatives, noted at our September meeting that the company recently started offering their temporary workers some benefits, which he believes could potentially be a model for other large companies.
Regardless of whether employers are intentionally using independent contract work to avoid benefits, the effect is the same for the millions of ‘1099’ workers who will go without a labor safety net.
The increase in gig work appears to be a permanent structural shift in the economy. With that shift, the challenge of worker benefits is central to modern work.
Part II: Problems and Potential Solutions
To explore how the future of work can both be good for workers and innovation, the technology industry should work with other stakeholders, especially worker groups (including labor unions) and policymakers. How can worker benefits be preserved or even increased while advancing the goals of innovation and economic growth?
Each section below is dedicated to exploring possible solutions to a range of benefits including:
- Higher pay
- Sick leave, health care, and unemployment
- Worker voice
- Education
Portable Benefits: sick leave, health, & unemployment insurance
Employee benefits such as sick leave, health insurance, and unemployment pay are one important way that labor unions and policymakers look out for the interests of workers.
But, since many modern workers are employed by multiple companies simultaneously or they only work part-time, it is exceedingly difficult to grant gig workers the same kinds of benefits.
A growing chorus of policymakers is exploring so-called “portable benefits”, which will allow any worker to receive employee-like benefits no matter who they work for or how long they work; all benefits could be mobile and pro-rated per hour.
At the September meeting, Natalie Foster of the Aspen Institute and Economic Security Project, suggested that portable benefits may require a shift in expectations. Foster argued that just as the the 8 hour work day became an expectation in the 19th century, so too may society begin to expect that benefits should no longer be tied to an employer, union membership, or industry.
She noted that influential politicians, such as Hillary Clinton had begun to explore it for national policy, so it’s likely that some form of portable benefits system is coming to America. But, how will it work?
Potential Solution 1: Government-Assisted Portable Benefits
The Service Employees International Union’s David Rolf (SEIU 775 in Seattle) has proposed a savings account system, a “shared security” system that is funded like Medicare through a combination of contributions from employers and taxes. Under the proposed system, a government agency could dole out payments for a limited number of days to workers if they get sick, have a child, or get laid off.
In Nordic countries, this type of strategy is administered by labor unions under the “Ghent System,” which disperses benefits to (voluntary) union members, while labor leaders negotiate with governments on the amount of benefits available.
In recent years, Ghent System countries have successfully fought the decline in unionization that other countries have experienced by offering better unemployment insurance as a benefit of membership (PDF).
However, this solution has its challenges. Both labor union-based and state-based unemployment insurance programs directly compete with innovative industries. Under labor union management, workers are tied to industry specific groups that have an incentive to keep them from transitioning to new markets. Under government management, research suggests that overly generous unemployment insurance leads to economic idleness.
Rolf’s suggestion may get around the problems of the Ghent system and state-backed benefits, by linking the savings account to an individual, rather than an industry.
Indeed, In some ways, the growth of the gig economy grew out of the American recession, when workers were seeking novel sources of additional income. This is not to say that unemployment insurance shouldn’t exist, but for the sake of innovation, it is important to align people’s natural incentives to work with their benefit packages.
Solution 2: Savings Accounts and Social Impact Bonds
One alternative unemployment insurance program, piloted in Chile, helps incentivize workers to find a job. Under the experiment, Chileans were required to save a portion of their income in a savings account that was matched by their employer, available only in the event of unemployment. Research from 2010 suggests that such a savings account incentivizes workers to find a job faster than a government-subsidized program alone.
Personalized savings accounts open the possibility for technological solutions, as a new cottage industry of startups have popped up to help users better save for their own financial goals. Small nudges, reminders, and effortless bank transfers can potentially make a meaningful difference in whether workers save enough for unfortunate circumstances.
Indeed, recognizing the potential for private sector solutions, the German town of Enschede has partnered with an organization that believes it can get people (re)employed faster than the state. If this organization outperforms the state, it enjoys some of the savings as profit (what is know as a “social impact bond”).
Combining social impact bonds with information technology products lends itself to a new cottage industry of benefit providers, similar to the regulated private exchange in which healthcare is sold, but with added incentives for better choices.
Benefit: Higher Pay
One of the benefits that labor unions and governments provide is higher pay for lower and middle-income workers. As U.S. labor unions have declined over the past half-century, income inequality has risen, according to the left-leaning think tank, The Economic Policy Institute. The EPI finds that the decline of unions even affects nonunion labor. “For nonunion private-sector men, weekly wages would be an estimated 5 percent ($52) higher in 2013 if private-sector union density (the share of workers in similar industries and regions who are union members) remained at its 1979 level,” they conclude.
Moreover, another left-of-center think tank, the Center for American Progress, notes that large businesses fear that weak consumer spending has negatively impacted their stock prices (big retailers, such as Walmart, depend on lower and middle-income consumers).
As globalization, automation, and flexible work have eroded the traditional base of labor unions, there has been a notable decline in wages for the average worker. The challenge becomes how either the state or an organization like a union can help workers earn more.
Solution 1: Minimum Wage in a Global Gig Economy
SEIU 775 President David Rolf believes that a federal minimum wage protects workers from a market structure that would otherwise be a race to the lowest pay possible. Without a floor, powerful companies would be able to coerce workers into competing against each other into a spiral that would result in unlivable wages.
However, Economist Alan Krueger, writing for The Brookings Institute, argues current minimum wage laws don’t work well for part-time and gig workers.
“[Contingent workers] may work with multiple intermediaries simultaneously, or conduct personal tasks while they are working with an intermediary. It is thus impossible in many circumstances to attribute independent workers’ work hours to any employer,” he writes.
Many drivers, for instance, work for both Uber and Lyft simultaneously, switching between the two ride-sharing services as they choose which customers to drive around.
It is also difficult to set minimum wage laws when there is a global marketplace for gig work. For instance, workers on the freelance site Upwork come from all over the world. A virtual assistant from Vietnam, where a high skilled job pays a little more than $1,000/month and provides a relatively good living, is roughly just $6/hour . Minimum wage laws for US workers would may make some international workers more competitive than their American counterparts.
Additionally, a marketplace like Uber naturally regulates the number of drivers at any given time. Fewer drivers work at 5am because there are not as many customers. In a minimum wage world, Uber would then be either forced to cap the number of drivers or schedule worker hours, reducing the flexibility that so many of its drivers prefer.
Finally, many gig workers charge by the project, and not the hour (a flat rate for completing a website, for instance).
Thus, even if current minimum wages were adopted nationwide, many potential beneficiaries of the gig economy would be left out.
Solution 2: Job switching via a gig economy job board
The easier it is for workers to find a higher paying gigs, the more competitive pressure tech companies would have to offer them higher pay. The SEIU’s David Rolf suggests that gig workers should have access to a cross-platform software that allows them to efficiently switch between jobs in order to find the highest paying job at any given moment. While such a platform may only affect gig jobs that pay by the hour, it is still a significant percent of new gig companies (including ridesharing, delivery, and administrative tasks).
Currently, such a system would require buy-in from tech companies. In order to immediately compare the pay of various gig opportunities, developers would need access to company databases, which are constantly changing prices.
To be sure, Independent developers have attempted to build their own comparison tools, but have failed. For instance, when a ridesharing comparison app, UrbanHail, tried to develop a smartphone application that allowed users to call an Uber or Lyft depending on which one was cheaper, Uber cut off UrbanHail’s access to their pricing information. Both Uber and Lyft have a vested interest in habituating users to their products, and want to avoid a pricing war with one another.
But gig economy companies may have a different incentive to allow workers access to price comparison tools. There are millions of potential gig workers that do not work as a driver, Instacart shopper, or remote assistant simply because they are unaware of the pay. A kind of gig economy job board would help both facilitate transition into contingent work and within it.
Such a platform would require cooperation between tech companies, workers rights organizations, and local government officials.
Solution 3: Basic Minimum Income
Participants at the T4A September roundtable suggested a solution to low wages that is an increasingly popular policy idea in Silicon Valley and even among one group of conservative libertarians: a direct cash payment to all citizens on a regular basis, broadly known as a basic minimum income. Alaska has something similar to this already, although it is not nearly enough to produce a livable income. Each citizen is annually paid a “dividend” of oil and gas revenues that the State receives.
While it is beyond the scope of this report to detail all of the new analysis around basic income, some policymakers are taking it seriously. At least one member of Congress, Ro Khanna (D-CA), has said that he will introduce a bill for a version of basic income in 2017, likely in the form of a negative income tax, which pays low-income workers cents on the dollar, for every dollar they earn in the private sector (through an existing welfare program known as the Earned Income Tax Credit).
So, in the near future, some type of large cash transfer may be a viable policy option.
Benefit: Training and Education
Labor unions and community colleges have long helped employees advance in their careers through vocational training and résumé building. Training is all the more critical now that millions of workers are at risk of unemployment from automation while millions of new workers are entering the workforce without all the skills to fill available jobs. There are some nuanced reasons why workers, especially gig workers, do not have access to training that could help them advance or find new jobs.
Solution 1: Change Laws Preventing Gig Companies from Training Their “Independent Contractors.”
At the moment, even if gig economy companies had an incentive to train their workers, it would run afoul of independent contractor laws.
Betsy Masiello noted that if Uber decided to train employees, it could be subject to lawsuits reclassifying drivers from independent contractors to W-2 employees. That is, if companies engage in training, courts would treat them as regular employees, which would be financially unsustainable for many gig economy companies.
As a result, even if a state such as California passed a law allowing Uber to educate independent contractors, a lawsuit could still be brought at the federal level based on IRS and Department of Labor classifications.
Kristin Sharp, the new head of Bloomberg Beta’s research organization on the future of work, The Shift Commission, noted that the only safe way to permit employee training of independent contractors is through congressional legislation. Thus, if the technology sector wants this to happen, it’ll have to build political will.
Solution 2: Mixed Results from Government-Assisted and Non-profit Job Transitions
Since 1962, the government has heavily funded transition work for employees impacted by free trade agreements.
“When considerations of national policy make it desirable to avoid higher tariffs, those injured by that competition should not be required to bear the full brunt of the impact. Rather, the burden of economic adjustment should be borne in part by the Federal Government,” said President John F Kennedy, who helped authorize a long term program which would eventually become the Trade Adjustment Assistance Program.
So, could worker retraining help those displaced by automation? Unfortunately, evidence of the efficacy of government funded retraining programs is mixed at best. One recent study from Mathematica policy research found that workers in training programs end up earning $2,100 less than those on unemployment and welfare.
The lower pay could be because re-trained workers end up a jobs without a labor union, and thus do not pay as high as their previous employers. It also could be because re-trained workers are starting out on the job market with less experience, and thus do not command the pay they once did at a job where they worked for many years.
It is worth noting that very recent experiments in training have had more luck: research organization MDRC finds that a New York based program, WorkAdvance, has seen considerably more success, with workers earning more than a comparison group, thanks in part to an extraordinary emphasis on pre-screening applicants and long-term retention assistance.
Samasource, a San Francisco-based nonprofit, which previously trained remote workers in war-torn or refugee zones, has opened up an American school to train people in distressed communities for gig work.
Such efforts are promising and could be accelerated with private-sector or government resources.
Benefit: Collective Action and Worker Voice
A major function of labor unions is allowing workers to all stand as one in negotiations with management of a single company or industry.
However, extending similar influence in the gig economy is much more difficult. First, gig workers are usually not high-skilled and in as high-demand as engineers, scientists, and coders. There leverage is therefore smaller. Further, some gig workers are part-time and have no vested interest in the long-term executive decisions of the company. Uber and Lyft, for example, have little reason to consult their tens of thousands of contractors on company decisions, when many of their drivers work less than 10 hours a week and often work for the competitor ridesharing company.
Additionally, it’s illegal for independent contractors to unionize for the sake of collective action, as it violates current antitrust law (each independent contractor is treated as their own business, and coordinated efforts to standardize wages are seen as a kind of price-fixing violation). The question therefore becomes how it is possible to allow tens of thousands of contractors to nonetheless express their voice in company decisions.
Solution 1: Works Councils
European countries have long used an alternative to labor unions, known as “works councils”. Such organizations are officially recognized by the company, consist of elected representatives, and allow workers to take collective action, but do not engage in wage or benefits bargaining.
Research on works councils finds that they do improve employee employer relations and increase the amount of resources invested in labor rather than capital. Unfortunately, the very same study finds that works councils cause lagged decision-making and increased bureaucracy. In other words, workers councils do not get around the fundamental problem of workers protecting themselves from the cost of innovation and productivity.
Worker councils are also difficult to implement under US law. For instance, in 2014, after Volkswagen workers voted against joining the United Auto Workers, the company left open the possibility of giving US workers the same kind of representation that their employees enjoy in Germany.
However, as the New York Times notes, works councils are only legal in the U.S. if the employees are represented by a labor union. Otherwise, the law treats councils as a company-created union, which can violate terms set forth by the National Labor Relations Board, an independent government agency that regulates labor law.
So, if gig workers were to get an organization that represented their interests in management decisions, but did not negotiate pay or benefits, we may have to change U.S. law.
Solution 2: ‘Delegative’ Democracy
SEIU’s David Rolf suggests that there may be a technological solution to collective action. So-called “Delegative Democracy” is a distributed decision making strategy popularized by both a German political third party, the Pirate Party, and demonstrators during the Occupy Wall Street movement.
Delegative democracy allows an infinite number of users to debate ideas and vote for the most popular proposals. Under this system, users who propose popular ideas are given increased weight in the discussion. As such, delegative democracy tools function as a hybrid between representative and direct democracy.
Users with a strong reputation have an easier time getting their ideas seen, since their ideas carry the mathematical weight of others who trust their submissions.
It would be possible to allow thousands of moderately engaged independent contractors to voice their concerns, just as citizens do for their political system.
However, even the most widely used tools of delegative democracy, such as the Liquid Democracy software program, are still in their infancy and would need substantial development before they are ready to be used in the workplace setting.
Part III: Policy and pilot goals and challenges
In the Spring of 2017, T4A convened several members from the New Democrat coalition in the House of Representatives, and the Mayors of San Jose and Stockton. Together with representatives from a wide swath of the tech industry, such as Uber and Lyft, they broke out into small group discussions to explore what challenges were arising from the aforementioned solutions.
Overall, members of Congress and mayors spoke about the challenges of how to give their constituents a vision of what work will be like in the future. Many expressed frustration at how to convey the unpredictability of future labor markets, in terms of where they might have to live, how often their job skills may need to be upgraded, or how quickly careers may change.
While there were many solutions discussed, including cheaper educational alternatives, overall there was a need to come up with ways to give constituents a path to predictable employment, pay, and benefits.
In the group moderated by Donnie Fowler (T4A), with Rep. Pete Aguilar (CA), and Rep. Bill Foster (IL), the group discussed the problems of the urban and rural divide in job opportunity, complications of full time employment vs. part time employment, and the difficulty in transitioning between jobs
In particular, the group discussed the possibility of giving corporations federal financial incentives to alleviate the complications of job transition. One gig company, Etsy, noted that many of their workers wish they could sell their crafts full time, meaning that at least some gig occupations both pay well and are fulfilling. Finally, this group also discussed the possibility of incentivizing relocation to cities from rural communities through welfare payments.
Other groups found potential solutions to the the urban/rural divide. In the group moderated by Kate Gordon (T4A) with Rep. Scott Peters (CA), and Rep. Derek Kilmer (WA), a representative from Upwork noted that the company sees a lot of urban-based companies outsource tele-jobs to rural areas (such as virtual assistants). But, such opportunities require broadband access (a policy area that T4A has previously addressed, in part by sparking the independent Education Superhighway organization whose focus is better broadband to American schools).
Finally, participants discussed how access to high-skill work could be facilitated by changes to the education system. In the group moderated by Natalie Foster (Aspen Institute) with Rep. Jim Himes (CT), NewDemPAC Chair Suzan DelBene (WA) and Mayor Sam Liccardo (San Jose) participants discussed how changing models of educational accreditation (typically 2 and 4-year colleges) could change. Opening up accreditation to organizations, such as the vocational education provider General Assembly (also a participant), might help people in rural America get access to high skilled jobs.
Overall, the direction of the questions and solutions seemed to indicate that we lack a coherent vision of the future of work. The next steps might involve creating ecosystems of gig work and education that can help policymakers point to a working microcosm that help the public understand how the economy could function in the future. Federal policies can support broad experimentation for more ecosystems.
Next Steps
Policymakers, companies, and cities appear to be ready to start experimenting and introducing legislation. For instance, in June 2017, participant and Congressman Jim Himes (CA) announced The Portable Retirement and Investment Account Act, which creates a permanent retirement account tied to a social security number that begins at birth.
There is still much confusion about how most Americans will fit into the future work. More convenings could help policymakers and tech companies work through these issues and move forward on productive solutions.
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