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On-demand Labor in the Gig Economy
by Seth Sandronsky
IN AN ECONOMIC policy speech in July 2015, Hillary Clinton, then Democratic front-runner and now the presumptive nominee, introduced many Americans to the new term “gig economy” The phrase, apparently coined in 2009 and used rather interchangeably with terms like “1099 economy” and “on demand economy,” describes an environment in which businesses hire workers “on-demand” — that is, only as needed — to provide services that customers buy.
On-demand workers labor economy-wide. They clear drains (HomeAdvisor/Google), deliver food (Caviar and Instacart), design software (WorkDesq), park cars (Luxe), ship goods (Shyp), and provide in-home care (Hometeam), lawyers (Hire an Esquire), and doctors (Heal). Businesses benefit from hiring workers as short-term, so-called “independent contractors,” since it generally saves them from having to provide benefits, office space or training.
The on-demand business with perhaps the greatest name-recognition is Uber, a ride-sharing/taxi firm, launched in 2009 in San Francisco. Uber drivers work on-demand as independent contractors, not employees, using their personal cars as taxis for riders. Smartphone-based apps connect drivers and riders via a digital dispatcher-like platform that Uber owns in part to control its drivers’ pay, contractually.
THE CLASSIFICATION of on-demand workers vs. company employees carries crucial financial and legal significance. This past April, Uber tentatively settled (subject to the approval of a federal district court judge) a class-action lawsuit that allows it to maintain its classification of drivers as independent contractors in the states of California and Massachusetts. Uber will pay the drivers a total of $84 to $100 million, though it could have been on the hook for hundreds of millions had the drivers’ claim -- that they were wrongly classified and were owed expenses and tips as employees -- been vindicated at a trial. In addition, while company employees file W2 forms, on-demand workers, as independent contractors, file 1099 IRS forms. Such gig workers, not the on-demand firms they contract with, answer to the IRS.
Investors adore on-demand firms that use such wireless technology to hire on-demand workers. Consider this: Uber’s market valuation was $62.5 billion as of June 1, 2016 — around one-third higher than the market capitalization of General Motors!
There is no mistaking the popularity of Uber’s on-demand service. “We rode Uber to the airport,” said Ramona Harvan, a wife and mother of a 7-year-old son in Sacramento, California. “It was clean and fast.” So far so good. But is there a catch?
THE NATIONAL Employment Law Project (NELP) is based in New York City. “The organization of work is changing rapidly for America’s workers,” write NELP’s Rebecca Smith and Sarah Leberstein in a report released September 9, 2015. “. . . While the latter decades of the 20th century witnessed a transformation from the post-World War II paradigm of long-term stable employment with a single employer to an economy in which many individuals expected to move through several jobs over their careers, the 21st-century surge in new technologies has upended even those expectations.” As a result, for “millions today and in the future, the hope of attaining career-long security and support through one or more jobs is giving way to the reality of piece-rate work — and piecemeal economic insecurity — often, in one-time, part-time, hours-long, and be-your-own-boss short-term ’gigs,’ assigned to them by well-capitalized brokers of labor,” Smith and Leberstein write.
It is a truism of business that the lower the pay received by workers, the higher the profits and the return on investment employers and shareholders receive. This is not rocket science, but simply the aim of for-profit firms: to achieve a better ‘bottom line’ as well as gain competitive advantages with price and market share over rivals.
Global business competition in the postwar period began to change as the Vietnam War raged and former American foes, Germany and Japan, revived economically. This period marked an end to the accord between American capital and union labor, and the ushering in of neoliberal policies that drove an erosion of labor rights and standards along with deindustrialization, deregulation and privatization.
The gap in income has widened in this neoliberal period. According to the Economic Policy Institute, “Between 1979 and 2007, the top 1 percent took home well over half (53.9 percent) of the total increase in U.S. income. Over this period, the average income of the bottom 99 percent of U.S. taxpayers grew by 18.9 percent, while the average income of the top 1 percent grew over 10 times as much -- by 200.5 percent.”
The deregulation of airlines and trucking grew during the late 1970s on the watch of President Jimmy Carter. Many unionized truck drivers became independent contractors who did not collectively bargain for pay and benefits with employers. In this sense, they resembled the union-free drivers of Uber and Lyft, Uber’s rival, who have become the independent contractors of 2016.
Kate Bronfenbrenner is a professor and director of Labor Education Research at Cornell University’s New York State School of Industrial and Labor Relations. She argues that the deregulated nature of the on-demand economy presents liability risks to consumers and workers. “Companies can come into the market with few standards,” Bronfenbrenner said. “It takes a while to see what all the risks and benefits are.”
Healthcare is a job sector where the gig economy arrived before Uber and other firms sprouted, according to Bronfenbrenner. Towards the end of the 20th century, for example, patients who had been going to a traditional hospital for care began to migrate to outpatient clinics and online doctor services for on-demand, 24/7 healthcare. Fortunately, the regulatory structure of the medical industry and its occupations protected patients and workers from the worst dangers of a race-to-the-bottom, cheap-labor dynamic, as the licensing standards of nurses and doctors required them to provide the best quality of care.
Nevertheless, “the mobile health market could reach an astounding $86.6 billion by 2020, a yearly increase of 20.8 percent over a five-year period,” according to Sarah Schmidt of MarketResearch.com. One company that’s part of this change is Pager, based in Manhattan. “Pager is bringing back physician house calls,” Schmidt writes. “With the Pager app, users can access on-demand doctors from 8 am to 10 pm every day of the week. A doctor assesses patients via video conferencing, and if needed, will come to them within two hours to provide care.”
From November 16-25, 2015, the market research and consulting firm Penn Schoen Berland (PSB), in an online poll of 3,000 people for TIME, found that nearly 45 million adult Americans, or 22 percent, have provided a gig-style service (ride sharing, accommodation sharing, task services, short-term car rental or food/goods delivery). This poll also found that 86.5 million U.S. adults, or 42 percent of American grownups, have purchased at least one service in the on-demand economy.
On-demand workers, like 93.4 percent of private-sector employees nationwide, labor without union protection and representation. Employers hire and fire union-free workers at will. This trend of decoupling private-sector workers from collective bargaining agreements with employers has been decades in the making. Many trace it to the 1980 presidential election of Ronald Reagan, who famously said government is the problem and markets are the solution. In 1980, he fired the striking federal air traffic controllers, even though they had supported his presidential campaign. The demise of organized labor accelerated: Union “density,” or participation, fell from 20.1 percent in 1983 to 11.1 percent in 2014, according to federal Labor Department data.
In the meantime, the continuing growth of digital commerce has expanded the leverage of on-demand firms, allowing them to shift economic risk onto workers, who are unable to secure stable employment under conditions that prevailed in the postwar economy. On-demand workers receive no employer contributions to retirement savings or unemployment insurance. Even minimum-wage and worker-safety standards are absent.
According to author and political science professor Immanuel Ness, who teaches at the City University of New York’s Graduate Center for Worker Education, “the rise of the on-demand economy is an outgrowth of the weakening of trade unions formed by workers in the early 20th century . . . which ensure decent wages” and advocate in the public sphere for worker-friendly government policies such as public housing and public transportation. This one-two punch paved the way for the expansion of the working poor, who receive uncertain pay and provide services which they cannot afford, according to Bronfenbrenner.
PROPONENTS OF THE ON-DEMAND ECONOMY praise its tech-friendly delivery of services from self-employed workers who get to be their “own boss.” “Drivers value their independence,” says Uber Chief Executive Officer Travis Kalanick. Ideologically, this workplace model harks back to the vision of a “free market” that Adam Smith described in his 1776 book, The Wealth of Nations. His thesis was that the marketplace of liberty allows buyers and sellers the opportunities to meet each other on a level playing field. The public benefits. On-demand workers decide the sum of income to earn (or not earn). They are free to prosper (or not prosper).
But labor advocates such as the NELP, as well as on-demand workers themselves, are decrying the lack of benefits and protection in this job sector. Guy Gottlieb of Los Angeles, a former Uber driver, pointed to the fact that Uber determines pay rates, adjusting them down. Thus the class-action lawsuit filed against Uber and the potential reclassification of its workers as employees could have greatly affected that company’s bottom line, as well as the bottom lines of other on-demand firms that contract with workers as independent non-employees.
Other branches of government are entering the fray. In California, Assemblywoman Lorena Gonzalez introduced and then withdrew Assembly Bill 1727, known as the California 1099 Self-Organizing Act, which, she says, would have established for on-demand workers “the right to form associations and engage in collective bargaining to have a voice in their workplace.”
In Seattle, on December 15, 2015, the City Council approved an ordinance allowing on-demand workers in the transportation sector to organize into labor unions and bargain with employers. The App-Based Drivers Association in Seattle works with the Teamsters Local 117 to help independent contractors, Uber drivers and taxi drivers gain power over their workplace conditions in the city’s transportation sector. “The campaign has been so intense and fought passionately by drivers,” said Takele Gobena, an Ethiopian immigrant who drives for both Uber and its rival Lyft. “I was surprised by the unanimous support vote. The fearless drivers stood for their rights and worked so hard to bring changes in their working conditions.” Now, as in earlier decades, recent immigrants to the U.S. propel labor struggles.
But are such reform efforts doomed to failure? According to Prof. Ness, the answer is no -- if a workers’ movement can emerge from the present moment. “I think that workers will win gains in specific sectors -- for instance, it is possible that the state could deem Uber a transportation company, and that on-demand workers will be able to organize unions. Workers must go beyond reform efforts, which usually result in piecemeal benefits, and a broader labor movement must demand a change in the practices of these new and rapacious forms of internet technology.”
History makes clear that government laws and regulations can positively impact labor rights and standards. To this end, extending collective bargaining rights to exploited on-demand workers is a progressive move. At the same time, however, a basic conflict remains, both in and out of the on-demand economy, between the buyers and sellers of labor services.
Tx Zhuo is a managing partner of Karlin Ventures, an L.A.-based firm that focuses on enterprise software and marketplaces. Zhuo writes: “Most contract labor growth is predicted to come from the traditional economy as businesses grapple with the rising costs of employee benefits.” The implication of what Zhuo writes is clear: An imperative to grow is a driving force of the on-demand and traditional economy. What this means for the working class is plain as day.
Seth Sandronsky is a journalist and member of the Pacific Media Workers Guild. Email email@example.com