When this crisis is studied from the lens of economic history, we will learn more about the winners and losers. Surely, though, we have good reason to know already that a significant group of losers have been gig economy workers.
Who Are They?
No one knows how to accurately count gig economy workers; the US Bureau of Labor Statistics estimated them at 21 million
in 2017. The problem is that we do not even have a consistent definition of the term. Are they full-time freelancers or do we include people who work as a W-2 employee part of the time and drive for Uber UBER or run an Airbnb during the rest of their work time? What about traditional freelancers – those who have been around since before Uber and DoorDash and the myriad of other gig companies – like architects, dentists, computer programmers, and realtors? That is why estimates range so widely. US Bureau of Labor Statistics estimates about 15 million
higher earning self-employed and potentially an additional 21 million contingent workers. The Freelancers Union estimates a total population of 57 million freelancers in 2019. Analysis of the Survey of Consumer Finances
(SCF) shows 13% of households have a worker who qualifies as one of the following: self-employed, consultant, or partners at a law, dental or medical partnership.
Gig Economy Workers Lack The Traditional Supports of Employment
Gig workers typically do not get health insurance, retirement plans, or even unemployment if they get laid off; though, an exception was made in the stimulus package for some gig economy workers.
Systemically, what is needed is a partnership between the public, private, and nonprofit sectors to provide these workers with the infrastructure they need. Private employers alone cannot fill the gap.
While private employers feel the pressure from both workers and customers to do more for these workers, they risk making contractors into employees, which defeats the benefits of the relationship for both sides. Employers want the flexibility to use contractors on an as-needed basis and individuals seek the flexibility to design their own hours and be entrepreneurs.
To date, government action has sought to blur the distinction between gig workers and employees by making more of them employees, e.g., a law in California classifying Uber drivers as employees (which is now being contested in California state court)
. The public sector has limited itself to the interpretation of existing laws governing employment relationships and has not brought any innovative solutions to the lack of gig infrastructure. Broad programs, such as a single-payer health insurance system, that would level the playing field between gig workers and employees face resistance from employees who have access to high quality health insurance.
Thinking Collaboratively Outside The Box
Substantively, what is needed is a way to fill the gap, and there is a way in which all three sectors (public, private, and nonprofit) can partner. Let us consider the example of retirement savings, where many employees have access to an employer-sponsored 401(k) plan. While self-employed individuals have access to a number of tax-deferred retirement savings options, such as Roth and traditional IRA accounts and solo 401(k) plans – in reality they rarely take the initiative to save on a consistent basis. According to data from the SCF, only 10% of the US labor force (approximately 16.2 million
workers in 2018) contributed to an IRA. We cannot estimate how many of these individuals are self-employed, but in any event, this number is far short of the freelancer estimates discussed above. Of the households including an individual who is self-employed, only 18% contribute to an IRA, a higher contribution rate than the general population. Despite this higher contribution rate, many gig workers are still not contributing to an IRA nor are they covered by a 401k.
Both the lack of easy access and an employer match negatively impact the savings of the self-employed. Having access to a 401(k) plan with automatic enrollment makes a huge difference to savings. We know from the 401(k) space that employees are much more likely to contribute to a 401(k) plan if there is an employer match
. Even without one, the Bureau of Labor Statistics
shows that the majority of people who have access contribute, albeit at low rates.
But a match certainly increases both the likelihood of contribution and the percentage of income contributed. The bar graph below shows contribution rates by income with and without an employer match as computed with data from the SCF.
What if the government were to match for everyone? We would end up in the same debate that we have for healthcare. What about employees who like their 401(k) plans? Would employers be disincentivized to provide 401(k) plans?
On the other hand, what if nonprofits were to provide a match, particularly for low-income workers? They could provide a match for a gig economy worker earning less than a certain threshold. That match can go into an IRA account that the worker could keep in any brokerage firm or it could be set up for the worker to receive automatic contributions.
And even better, what if these gig economy companies were incentivized to donate to those charitable institutions? For instance, Uber could donate to the Gates foundation which could match 401(k) or IRA contributions for Uber drivers (or all individuals) earning less than $30K annually.
Could this ever happen? Why not? Perhaps the companies do so for publicity. Perhaps they do so for tax incentives. But in this way, companies can retain the contractor status of these workers and still help them navigate the system of social benefits. Across benefit categories – retirement savings, disability insurance, health insurance – we need creative solutions and new partnerships to enable gig workers to have the financial security they need and the rest of society, which depends on them more and more by the day, to be able to rely on the continued development of the gig economy.
*by Jasmin Sethi via Forbes*