Companies like Uber are hitting the turbulence of government regulation, worker resistance and labor market reality.
Not too long ago, the “gig economy” looked as if it just might be the future of work in America.
The rapid rise of digital platforms that let people earn money by driving passengers, delivering groceries, walking dogs or running errands for strangers raised the prospect that one day many of us might turn to our mobile phones to find our next paycheck. “Freelance workers available at a moment’s notice will reshape the nature of companies and the structure of careers,” said a 2015 subheading in The Economist.
But California’s new measure requiring the state’s gig work force to be treated as conventional employees is only the latest sign of the limits of this approach. The gig economy is looking less like the future of the labor market, and more like a niche arrangement, applicable in a handful of industries and used primarily as a side hustle for people whose main household earnings come from a more stable type of job.
On the workers’ side, an improving economy has made more traditional jobs more plentiful, and so those who prefer to have work with benefits and predictable pay can more easily find it.
And on the employers’ side, while the app-based gig work has been transformative in transportation and a few other industries, it seems not particularly applicable in many jobs, such as those requiring collaboration or specialized training.
“I think the platform economy is a really vibrant niche, and it really has changed certain occupations, with taxi and limousine drivers the poster child,” said Matthew Bidwell, an economist at the University of Pennsylvania’s Wharton School who studies contract work arrangements. “But there are good reasons it hasn’t changed most of the rest of employment.”
In 2018, according to a Federal Reserve survey, only 3 percent of adults reported driving for a service like Uber or Lyft, smaller than the share whose gig work consisted of selling goods at flea markets and about the same as the share who walked dogs or provided house-sitting services for extra cash.
But even those numbers probably overstate how central this work is to the economic lives of Americans.
The share of the work force earning income reported on I.R.S. Form 1099 — the typical way that independent contractors are paid — rose by one percentage point from 2007 to 2016, according to a paper this year by Brett Collins of the I.R.S. and four collaborators. Virtually all of that was because of the rise of online platforms.
But strikingly, they found that growth was “driven by individuals whose primary annual income derives from traditional jobs and who supplement that income with platform-mediated work.” And fewer than half of those doing gig economy work earned more than $2,500 in 2016.
“What’s happening is you’re seeing more people using some of these new ways of getting work to supplement their current jobs,” said Katharine Abraham, an economist at the University of Maryland and former commissioner of the Bureau of Labor Statistics. “It’s not a story about a fundamental transformation of the way that people’s jobs are organized.”
If the new California bill, which the governor is expected to sign into law, survives legal challenges and is emulated elsewhere, it will further undermine the case for gig-based freelance work — at least as it exists now — as a major share of the American labor pool. The bill requires many contract workers to be treated as regular employees, which would mean that they would be covered by minimum wage, overtime, unemployment insurance and other protections afforded traditional employees.
Platform-based freelance work essentially turns a person’s labor into a freely traded commodity. To Uber, the men and women who drive passengers in cars summoned with the company’s app do not count as its work force at all. Rather, they are its customers, according to the company’s securities filings. Just like the people ordering a ride or a food delivery, they are “end-users.”
The company views its role as making a market between people who want to give a ride and people who want to get somewhere. In other words, it sees itself more like a stock exchange or an auction website. The New York Stock Exchange doesn’t set the price of General Motors stock, nor eBay the price of Beanie Babies.
That, in turn, helps explain the stark divide between the views of Uber executives and those of the labor unions and California lawmakers who want Uber’s drivers to become employees, not free-floating independent contractors.
Research by economists employed by Uber has an almost radical implication: that the company couldn’t raise hourly compensation if it wanted to.
According to the study, which relied on internal company data, when Uber raised the rates drivers are paid, it created an initial surge in earnings. But over time, higher prices cause less demand from riders and more supply of drivers, so drivers end up spending more of their time twiddling their thumbs waiting for a gig, leaving hourly earnings little changed.
But in a world with 3.7 percent unemployment, workers who prefer the predictable earnings and hours of traditional jobs may have more options.
Two leading labor market scholars, Lawrence Katz of Harvard and Alan Krueger, had published research based on data through 2015 that showed a rapid rise in gig economy work. But early this year, they published a new paper, with data through 2017, revising those numbers down. One reason for the adjustment: They concluded that the gig economy numbers in 2015 were boosted by the still-weak labor market.
“What we found was a transitional path out of unemployment were people did a lot more independent contracting gig work until they got a more permanent job, and there is more of that when coming out of a recession than during a boom,” Mr. Katz said.
Dmitri K. Koustas of the University of Chicago’s Harris School for Public Policy analyzed data on 2.1 million users of a financial management app to understand the financial situation of people who take on gig work. His work also suggests many people use the gig work to survive difficult financial moments in their lives — such as being laid off or having their hours cut in a more traditional job. Their earnings from conventional jobs fell in the period just before starting gig work, on average, then recovered.
Hints of app-based work are creeping into more traditional work settings. Last year, Walmart allowed its store workers to use their phones to swap shifts or volunteer for extra shifts.
On the surface, that is the kind of thing that could make a part-time job at Walmart more competitive with app-based work in which workers set their own hours.
But it’s taking place in the context of an employer that uses traditional payroll employees, with some of the accompanying benefits: not just health care and insurance against injury on the job, but also training and the opportunity for promotion.
Walmart has invested heavily in recent years in training to try to improve service and merchandising, seeing it as the key to long-term competitiveness. If anything, it has sought to have better employee retention, not the kind of fly-by-night relationships with workers more typical of the gig economy.
Business has been on a multidecade campaign to shift more economic risk from its balance sheet onto its work force — through de-unionization, routine use of layoffs, outsourcing and the use of independent contractors.
The gig economy was supposed to be the apotheosis of that shift. It is a form of capitalism that is brutally efficient. It can work well for people seeking a little extra cash. But it has major drawbacks for those who want a solid, predictable income and some protection from the ups and downs of the economy — or for employers who need a reliable, collaborative work force.
As the gig economy matures, it is becoming clear that every trend has its limits.
Neil Irwin is a senior economics correspondent for The Upshot. He is the author of “How to Win in a Winner-Take-All-World,” a guide to navigating a career in the modern economy. @Neil_Irwin • Facebook