Protecting Workers in a Patchwork Economy
By Shayna Strom and Mark Schmitt
This report originally appeared on TCF.org
Work, once a matter of years of commitment to a single trade, career track, or even one employer, has in recent years undergone a radical transformation. From measuring work in units of decades, all pointed toward an engraved watch at retirement, we have swung far in the other direction, toward a world in which work will sometimes consist of brief transactions with multiple clients, customers, or employers. New technology has enabled apps such as TaskRabbit and Lyft, which allow us to measure work in units of minutes, seconds, or fractions of a mile moved.
But it is easy to be distracted by the sparkle of new technology, or the changes in our own experiences as consumers, and fail to see the underlying transformation of work for many Americans — from something that generally provided security and self-sufficiency, toward a world in which workers themselves bear most of the economic and personal risk. The jobs in the “gig” or “on-demand” economy that have transfixed journalists and pundits are still a relatively small part of the overall labor market, but the situation of workers in gig economy jobs is not starkly different from those in less technology-centric jobs whose work falls outside of traditional labor and employment law protections — taxi drivers, domestic workers, delivery drivers, and temp agency workers. We call this broader set of work experiences the “patchwork economy”1 — a patchwork of jobs and a patchwork of protections — encompassing gig workers and non-gig workers alike, all of whom struggle with gaps in the safety net in various ways.
Politicians, academics, and the media have been absorbed in an argument about whether the gig economy is really something new and important,2 or how large the gig economy is. The Department of Labor has not conducted its Contingent Workers Survey since 2005, and thus has not yet been able to capture the rise of the gig economy in its count (although it expects to resume this survey in 2017). Some estimates of nontraditional work put levels as low as 8 percent of the workforce (4 percent as self-employed independent contractors, and another 4 percent as temporary workers), while others put the percentage of people doing at least some freelance work as high as 34 percent of the workforce.3 Economists Larry Katz and Alan Krueger recently found that the percentage of workers in alternative work arrangements (temporary help agency workers, on-call workers, contract workers, and independent contractors or freelancers) had increased from 10.1 percent of the workforce in February 2005 to 15.8 percent in late 2015, with online platforms like Uber still only 0.5 percent of the 2015 workforce.4 Debates over the numbers are important; better data makes for better social policy. But we do not need to answer all questions about the scope or importance of the gig economy to know that we need to make the safety net work better for those of us living in the patchwork economy. Designed for the workplaces and families of the 1950s, today’s safety net does not reflect the realities of life, work, and family in the twenty-first century.
Concurrent with the growth of the patchwork economy, though not entirely independent of it, there has been an astonishing rise in economic inequality and economic insecurity in the United States. The growth in inequality is, at this point, well-documented; as University of California, Berkeley professor Emmanuel Saez notes, from 1993 to 2014, Americans in the top 1 percent of incomes captured 55 percent of total U.S. income growth.5 Just as importantly, however, economic insecurity also dramatically increased. An indicator of economic insecurity developed by the political scientist Jacob Hacker shows a steady rise in insecurity from 1986 to 2012, measured as the share of families that experienced at least a 25 percent drop in available family income year to year, whether due to job loss or a medical emergency.6 These economic disruptions may lead to home foreclosures or poor credit, and become increasingly difficult to recover from. In such unforgiving circumstances, the disappearance of the social safety net is especially cruel.
The discussion here is intended to serve as an introduction to the issues and policy options surrounding the patchwork economy, and the need for a new social contract.
This report will outline the range of ways that the safety net could be improved for people in the patchwork economy, with an eye toward identifying some of the strengths and weaknesses of different approaches — how they could fit together, affect each other, or preempt each other. The discussion here is intended to serve as an introduction to the issues and policy options surrounding the patchwork economy, and the need for a new social contract. Much work remains on each of these questions, but the choices we make over the next few years may shape the terms of work and family life for decades to come.
To start, this report briefly outlines the historical background for the American social contract and the critical difference in legal status between employees and independent contractors, which shapes workers’ entitlement to various benefits and protections. The report then presents some possible solutions — first by exploring some of the efforts that help patchwork economy workers have a stronger voice, including efforts to organize workers and alternative business models that ensure that workers have more input and better working conditions. Next, the report looks at legislative and legal solutions, including those that enforce existing laws and those that would propose alternatives to the existing classification of workers as employees or independent contractors. Finally, the report looks at efforts to provide support structures that are not tied to traditional full-time employment, often known as “portable benefits” — whether those benefits be delivered privately, through government, or other mechanisms. It considers the various questions involved in structuring portable benefits, as well as their role in the broader social policy debate for patchwork economy workers.
The American Social Contract and Employees versus Independent Contractors
The social contract that helped build a broad middle class, expand prosperity, and reduce inequality from the 1950s through the 1970s was shaped to some extent by the New Deal, but perhaps even more by what Fortune magazine in 1950 called the “Treaty of Detroit.” That year, the United Auto Workers ended a period of intense conflict with the “Big Three” automakers (General Motors, Ford, and Chrysler) and negotiated a generous agreement first with G.M. and then with the other two companies. The contracts included a pension plan; a provision by which productivity increases would directly lead to wage increases; and health insurance (a few years earlier, large employers had begun to offer health coverage as a way around wartime wage controls).
The Treaty of Detroit reflected two choices that shaped work over the next several decades: first, a recognition by business that the security and well-being of its workers was in its own interest; second, a decision by labor that it was better off obtaining benefits linked to a specific employer than waiting for government to act.
The Treaty of Detroit reflected two choices that shaped work over the next several decades: first, a recognition by business that the security and well-being of its workers was in its own interest; second, a decision by labor that it was better off obtaining benefits linked to a specific employer than waiting for government to act. Similar contracts followed in the steel industry. Even nonunionized firms and industry sectors would later follow the pattern set in Detroit in 1950, helping to shape an American social contract that is deeply linked to the workplace and built on a specific model of employer and employee.7
Under U.S. employment law, however, not all workers who perform a task for someone else are “employees” — workers may also be “independent contractors.” While the difference between these two categories has been explored at lengthelsewhere,8 the distinction is important enough to the state of the today’s social contract to warrant describing briefly here.
Legally, an “employee” (a worker who receives an IRS Form W-2) is engaged in a labor agreement with an employer that requires the employee to give up control over certain aspects of his or her work life (for example, control over the hours she works) in exchange for certain protections and benefits under the law. An employee, for example, is obligated by law to be paid at least the minimum wage; to be paid overtime (if the type of work she is doing is eligible); to have taxes for Social Security and Medicare withheld by her employer; and, if provided with a retirement plan through work, for that plan to have to fulfill certain conditions. She is also able to organize collectively with her peers to form a union (depending on the exact type of job she does) and to sue if she has been discriminated against by her employer.
…continue reading the remainder of the story on The Century Foundation’s website.
Shayna Strom is a senior fellow at The Century Foundation where she researches and writes on future of work, future of organizing, poverty, and inequality.
Mark Schmitt is a contributing writer to The Century Foundation.
