workers without employers: shadow corporations and the rise of …€¦ · workers without...

Workers without employers: shadowcorporations and the rise of thegig economy

Gerald Friedman*University of Massachusetts at Amherst, USA

A growing number of American workers are no longer employed in ‘jobs’ with a long-termconnection with a company but are hired for ‘gigs’ under ‘flexible’ arrangements as ‘inde-pendent contractors’ or ‘consultants,’ working only to complete a particular task or fordefined time and with no more connection with their employer than there might be betweena consumer and a particular brand of soap or potato chips. While the rise of this ‘gig’economy is praised by some as a response to the wishes of a more entrepreneurial gener-ation, it is more likely that it is driven by the concerns of businesses to lower wages andbenefit costs during business down-turns while also reducing their vulnerability to unfairdismissal lawsuits. The rise of gig labor calls for new initiatives in social policy because itshifts more of the burden of economic risk onto workers even while removing gig workersfrom many of the employment-bound New-Deal-era social insurance programs.

Keywords: business fluctuations, labor economics, labor policy, wage level and structure,compensation packages, payment methods, mobility, unemployment, turnover, vacancies,lay-offs, unemployment insurance

JEL codes: E32, J010, J080, J31, J33, J38, J60, J63, J65

1 AN ECONOMY WITHOUT JOBS?

With attention focused on the decline of unions and changing wage differentials, laboreconomists have devoted less attention to another profound change in the American econ-omy and labor relations: the dramatic decline in long-term employment relations and therise of what has come to be called the ‘gig economy.’ (A notable exception is Blank1998.) Shadow businesses relying on a largely transient workforce with fewpermanent employees have become prominent in the American economy. A growingshare of the American workforce is no longer employed in ‘jobs’ with a long-term con-nection with a company, a job ladder, and mutual interest in the well-being of both thecompany and the worker. Instead, they are hired under ‘flexible’ arrangements, as‘independent contractors’ or ‘consultants,’ working only to complete a particular taskor for a defined time. There is no more connection between the worker and the employerthan there might be between a consumer and a particular brand of soap or potato chips.

* I am grateful to Richard Greenwald, Rosa Friedman, and Debra Jacobson. Natasha Friedman’slife experiences (and dog-walking and cat-sitting) helped provide inspiration. The author can bereached at [email protected].

Review of Keynesian Economics, Vol. 2 No. 2, Summer 2014, pp. 171–188

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‘Gig workers’ are employed in occupations across the American economy. Whilethe term comes from the employment of musicians to play for a particular set or foran evening performance, it is now used to describe a wide range of employments.Gig workers are employed in coffee shops and university lecture halls, farms, factories,and as janitors cleaning offices at night. They work for low wages as personal careattendants, dog walkers, and day laborers for landscapers, and for high wages as man-agers of IT installations, accountants, editors, lawyers, and business consultants. Gigworkers often do the same work as do those on traditional contracts; often the samework that they themselves had performed before they were laid off from a traditionaljob to be rehired on a gig. Rather than skill or training, they are distinguished by thesocial relations of work, the form of contract not the technology or type of work.

The long-term employment of the post-NewDeal era – what is now called ‘traditionalemployments’ – had time and memory. A worker’s position and earnings depended onjob tenure, and future positions and rewards (such as promotion up a job ladder or apension) depended on current performance. By contrast, the gig economy is timeless:workers are hired on the spot for the job without regard for their past employment,with no promise for future employment, legacy pay, or deferred compensation. Gigsthus restore a type of flexibility to an economy congealed by long-term contracts andinformal arrangements connecting workers to their employers. By hiring workers forthe ‘gig’ rather than making them part of the company as employees, employers canadjust employment and even wages in response to demand conditions. Making employ-ment and wages more flexible, gig employments shift the risk of economic fluctuationsonto the workers. When conditions are bad, employment and wages will fall; to be sure,when they improve, employers will have to pay.

Some observers applaud the rise of the gig economy because they argue it reflectsthe wishes of a new, entrepreneurial generation of ambitious and talented Americans.But there is more here than simply a change in worker preferences. Every labor con-tract involves both workers and employers, and it is a change for American employersto choose to hire workers on a short-term basis rather than building a workforce.Since the 1970s, growing numbers of employers have rejected an employmentmodel where they hire ‘company men’ on long-term contracts where training, employ-ment-linked benefits, and opportunities for advancement are exchanged for ‘loyalty,’ acommitment to work hard, to support the company’s interests, and to reject alternativeemployment offers. They reject the model of a productive company where workers arewalled-off from the competitive labor market in favor of shadow corporationsproviding a brand produced by workers hired on the spot for particular tasks whoare furnished with minimal or no on-the-job training, often with minimal equipment,and replaced at the end of the task with another group of workers also with minimallasting connection with the business.

The shift from long-term employment to the gig economy has profound effects onthe American economy and labor force. For workers, the shift to the gig economy dra-matically increases uncertainty and economic risk. Employment and income havebecome more variable, forcing workers to work extra hard when there is work tocompensate for the down-times. Uncertainty is magnified by the lag in social policy.Our social insurance safety net is designed for workers with regular and lasting jobs;health insurance, retirement pensions, unemployment insurance, and other socialprotections are all designed for people with jobs, not gigs.

If the trend towards more contingent labor with alternative contracts continues, thegig economy will change the nature of the American economy, shifting the balancebetween employment and inflation, and changing the nature of worker collective action.

172 Review of Keynesian Economics, Vol. 2 No. 2

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In this paper, I will discuss the changing dimension of the gig economy and will suggestways that economic policy can be adapted to the new industrial relations system. I beginby discussing the nature and spread of the gig economy before considering the wayschanges in industrial relations will affect macroeconomic policy. I then conclude by dis-cussing the implications for social policy and our system of social insurance.

2 THE RISE OF THE GIG ECONOMY

Pundits and columnists say that the world has changed. Two years ago, Atlantic calledthe ‘Freelance Surge’ ‘the Industrial Revolution of Our Time,’ and said that the rise ofthe gig economy is ‘nothing less than a revolution,’ as important a shift as ‘when wetransitioned from an agricultural to an industrial economy’ (Horowitz 2011). Criticsoften cite the benefits to businesses: how the transition to gigs frees companiesfrom legacy responsibility for workers hired in the past. Workers may also see advan-tages from gigs (Greenwald 2012; Greenwald and Katz 2012). Gig work frees workersto seek for themselves the best possible working conditions and wages even whileupgrading their skills or setting up a business for themselves. Gigs can be liberating,freeing the previously untapped entrepreneurial energies of the American worker.‘Everywhere we look,’ says one fan, ‘we can see the US workforce undergoing amassive change’ (Horowitz 2011).

No longer do we work at the same company for 25 years, waiting for the gold watch, expectingthe benefits and security that come with full-time employment.We’re no longer simply lawyers,or photographers, or writers. Instead, we’re part-time lawyers-cum-amateur photographers whowrite on the side. Today, careers consist of piecing together various types of work, jugglingmultiple clients, learning to be marketing and accounting experts, and creating offices inbedrooms/coffee shops/coworking spaces. Independent workers abound. We call them freelan-cers, contractors, sole proprietors, consultants, temps, and the self-employed. (Ibid.)

‘And,’ she concludes, ‘perhaps most surprisingly, many of them love it’ (ibid.).Ambitious workers can revel in the opportunity to structure their own time and careerpaths; working enough to pay the rent while focusing on designing their own work port-folio and developing their own business plans. Working gigs allows ‘unemployed andunderemployed professionals to keep their careers moving forward, and it has also pro-vided many full-time workers an opportunity to practice facets of entrepreneurshipbefore taking the full plunge’ (Carson 2012). Young workers especially are said towant to break free of the confining restraints of traditional jobs. A survey of young‘millennials’ finds that over a third have started their own businesses on the side. Called‘sidepreneurs,’ they are said to demonstrate that ‘entrepreneurship is a viable solution toyouth unemployment and under employment. We have to find a way to support sidepren-eurship. Whether it’s a Mary Kay party or selling vacuums, people are looking forways to make extra money on the side’ (Ribitzky 2011).

The pattern of the growth of the use of contingent labor should raise questions aboutthis optimistic, preferences-driven approach. There have always been workers on gigs:part-time employments, independent contractors and others employed under what theBureau of Labor Statistics (BLS) now calls ‘alternative arrangements.’ When suchemployments began to rise rapidly in the 1970s and early 1980s, the increase mayhave reflected changes in worker preferences, but it can definitely be linked withchanges in the American political economy: changes in labor law, the decline of unions,and rising levels of unemployment. First, the traditional concept of employment-at-will

Workers without employers: shadow corporations and the gig economy 173



was challenged by federal legislation and state court rulings. The right of employers todischarge an employee at will was first challenged by the National Labor Relations Actand then by the Civil Rights Acts.1 Then, court cases beginning in the late 1970srestricted the right to fire even in situations where there was no written contractualprotection and no racial or collective-action concerns. Instead, state courts began to insiston protection for implied commitments to respect investments that workers make in jobswhere they have reasonable expectations of employment security and long tenure.2 Withcourts establishing this ‘implied contract exception,’ employers who had made promisesof job security, either explicitly in employment handbooks or implicitly in their corpor-ate cultures, found themselves legally bound by them when they sought to fire long-tenure workers during the recessions of the late 1970s and early 1980s (Edwards1993; Krueger 1989; Stone 2009; Weiler 1990).

In practice, it has proven relatively simple for companies to avoid suits for wrongfuldismissal; good management practices, like clear employment guidelines and periodicperformance reviews, have allowed employers to discharge workers almost at will,even while improving communication and productivity. Nonetheless, fear of lawsuitsand of further incursions on the doctrine of employment at will has led many employ-ers to seek alternatives to traditional ‘permanent’ employment by hiring more contin-gent workers (Berkhout et al. 2013, p. 15; Krueger 1989; Stone 2009).3 Othereconomic changes since the late 1970s associated with the rise of conservative stateregimes and neoliberal economic policies have also contributed to the increasinguse of contingent labor. The recessions of the 1970s and early 1980s, the worstsince the 1930s, lowered the cost of labor on the spot-market even while rising com-petition with foreign suppliers forced employers to downsize, and to reduce theirworkforce. High unemployment and the slow-down in wage growth widened thegap between the cost of labor in internal labor markets and the cost of hiring workerson the outside spot-market. Vigorous attacks on labor unions, encouraged by theReagan Administration and after, have also reduced a barrier to the use of low-wage contingent workers. Finally, rising benefit costs, for social security contributionsand health insurance premiums, led employers to hire contingent workers without ben-efits (Dube and Kaplan 2010; Houseman 2001).

Most American workers continue to work under traditional contracts (see Figure 1).Government data collection is organized around market productivity, occupations, andearnings rather than employment arrangements, and the means of production ratherthan the social relations of production. In 1995, 2001, and 2005, however, the BLSdid question about workers’ social relations (Bureau of Labor Statistics 2001; 2005;Cohany 1996; General Accounting Office 2000; a privately conducted employer sur-vey is described in Houseman 2001; Polivka 1996). The BLS made three estimates of‘contingent labor,’ and one comparing alternatives with traditional employment rel-ationships (see Table 1); the ‘contingent labor’ estimates give various measures ofthe number of workers on temporary contracts while the ‘alternative contract’ measure

1. State legislation also prevented wrongful dismissal for various actions. By the early 1980s,22 states, for example, had made it unlawful to dismiss an employee for filing a workers’ compens-ation claim; and 34 states gave legislative protection for whistle-blowers (Stone 2009, pp. 9–10).2. One of the first of these, Foley v. National Cash Register Co., 364 N.E. 2d 1251 (Mass.1977) involved a company discharging a salesman on the verge of earning a large commission.3. The share of workers with alternative contracts is lowest in the United States of all OECDcountries and highest in countries with the most legislated protection against unjust dismissal(Berkhout et al. 2013).




includes those working for temporary help agencies and companies doing contractwork even if these are long-term jobs4 (General Accounting Office 2000). While

100%

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40%

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0%1995 2001 2005 2013

Alternative arrangements

With traditionalarrangements

Figure 1 Share of workers under traditional and alternative contracts, 1995–2013

Table 1 Estimates of share of contingent workers of United States employment:BLS estimates 1995–2005 and projections for 2013

Year Estimate of share of contingentworkers

Share of workers under alternativearrangements

Estimate 1 Estimate 2 Estimate 3

1995 2.3% 2.9% 5.1% 9.8%2001 1.7% 2.2% 4.0% 9.3%2005 1.8% 2.3% 4.1% 10.7%2013e 2.0% 2.5% 4.3% 13.4%

Note: e = estimated.Source: BLS survey questions added to Current Population Surveys for 1995, 2001, 2005. Projection for2013 made assuming annual rate of growth in the share of contingent workers would continue at thesame rate as in 2001–2005. For the estimate of workers under alternative arrangements, it is assumed thatthe number of workers in traditional arrangements and under each of the alternative arrangements (indepen-dent contractors, on-call workers, employees of temporary help agencies, and workers provided by contractfirms) would increase through 2013 at the same rate as from 2001–2005 except for a slowdown reflecting theslowing of aggregate employment.

4. Contingent workers are persons who do not expect their jobs to last or who report that theirjobs are temporary. The narrowest estimate includes those who expect their jobs will last for anadditional year or less and who had worked at their jobs for 1 year or less; self-employed work-ers and independent contractors are excluded from the estimate. The second estimate includesthe self-employed and independent contractors, who expect their employment to last for an addi-tional year or less and who had worked at their jobs (or been self-employed) for a year or less.The third estimate includes those who do not expect their jobs to last regardless of their jobtenure. Alternative work arrangements includes independent contractors, on-call workers,employees of temporary help agencies, and workers provided by contract firms. The GAOadded to these estimates ‘self employed’ and ‘part-time workers’ to arrive at a larger estimatethat nearly 30 percent of the labor force are contingent workers. I will be using the narrower




none of these perfectly captures the size of the ‘gig economy,’ they provide insight intosize, composition, and change over time.

Clearly, the great majority of American workers continue to be employed under tradi-tional arrangements at jobs with fixed hours, location, and a certain expectation ofemployment security.5 Furthermore, any significant increase in the share of gig employ-ment is recent, dating only from the end of the Clinton boom of the 1990s. When work-ers were in a strong bargaining position from 1995 to 2001, the share of contingentworkers fell.6 Gig jobs declined as a share of the economy when workers had more bar-gaining leverage during the employment boom – the first internet boom – of the secondClinton Administration. This suggests that it is employers, not employees, who are push-ing the gig economy. When employment rose to full employment levels, for the firsttime since the 1960s, and workers had a choice, they avoided gig work and employershad to offer them regular jobs. The gig economy expanded only when workers lost bar-gaining leverage with rising unemployment after the collapse of the internet boom. Andthe gig economy exploded with the economic collapse and the Great Recession.

While traditional arrangements accounted for most of the growth in employmentduring the Clinton boom years, the pattern of employment growth has been dramati-cally different since 2001, a period of economic slowdown and recession. It is since2001 that the pundits who celebrate the rise of the gig economy are right; most ofthe growth in employment since 2001 has been among workers employed under alter-native work arrangements. While such workers accounted for only 3 percent ofemployment growth during the late 1990s, including the years of the first internetboom, they have accounted for a sizable majority of growth since. Alternativearrangements accounted for a majority of employment growth from 2001–2005; andsince 2005, the period that includes the Great Recession, estimates suggest thatalternative work arrangements account for almost 85 percent of employment growth(see Figure 2).7 Because of the great stock of traditional jobs, they continue todominate the economy; but change is coming.

3 EXPLAINING GIGS

The BLS surveys provide snapshots of the emerging gig economy that discredit some ofthe popular enthusiasm for it. While some contingent workers are young and well-educated in jobs using advanced technology, much gig labor is employed inlabor-intensive traditional work. The different employments are shown in Figure 3. Giglabor is relatively common in sectors employing well-paid consultants and computertechnicians with degrees from elite schools, including financial services and professionaland business services. But the sector which uses the most gig labor is construction,

definition here both to maintain continuity across the different surveys and to exclude profes-sionals, farmers, and other traditionally self-employed workers and those who are part-timeby choice (General Accounting Office 2000).5. While most jobs are under traditional contracts, most firms were experimenting with con-tingent labor as early as the 1990s (Houseman 2001, p. 152).6. Consistent with this, Dube and Kaplan (2010) use the regular current population survey totrack the rise of contingent employment among janitors and security guards, and find that thisincreased steadily after the 1980s except for the late 1990s when it leveled off.7. This is based on the assumption that employment growth in each of the contract categories(alternative arrangements and traditional employment) increased after 2005 at the same rate as2001–2005, adjusted for the general slowdown in employment growth with the Great Recession.




followed by agriculture, and the catch-all sector of ‘other services’ which includes per-sonal care attendants as well as two fast-growing occupations employing recent liberal-arts college graduates: dog walking and cat sitting. Sectors employing relatively little giglabor are distinguished less by their technology than by the relative strength of workerorganization, including public services, education, and health care. While they all usehigh technology, they employ little gig labor because they have relatively strong unions.

The high proportion of gig labor in both high- and low-tech occupations, and finan-cial and business services, as well as agriculture and services, suggests the breadth ofthe category of contingent labor. The gig economy includes some workers who are

100%

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0%1995–2001 2001–2005 2005–2013

Alternative arrangements

With traditionalarrangements

Figure 2 Share of employment growth accounted for by workers under traditionaland alternative contracts, 1995–2013

3.5

2.5

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Agricu

lture

and r

elated

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ufac

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lesale

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ilitie

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Figure 3 Relative use of alternative labor by industry – ratio of share of workersunder alternative contracting to the national average, 2005




doing very well. Free to market their labor broadly, some middle-aged andwell-educated independent contractors have high earnings as independent contractors.(See Figures 4 and 5 for the characteristics of these workers.) On average, however,most gig workers earn less than their equally educated counterparts on traditional con-tracts; and younger and less educated workers do much worse in alternative contractualarrangements.8 Companies hire gig workers to lower labor costs, especially benefits,and gig workers earn significantly less than other workers, especially when account

14%

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8%

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0%16–19 20–24 25–34 35–44 55–6445–54

Age

Independent contractors and contract workers

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On-call and temporary help workers

Figure 4 Share of workers under alternative contract arrangements by age, 2005

10%

9%

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4%

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0%HS and less Some college BA+

Independent contractors andcontract workers

On-call and temporary helpworkers

Figure 5 Share of workers under alternative contract arrangements by educationlevel, 2005

8. The greater age and education of independent contractors and the higher proportion of menaccounts for the nominal 11 percent greater earnings. Adding in the effect of employer-providedbenefits and even independent contractors earn significantly less than workers under traditionalcontracts (see Figure 6).




is taken of benefits. While few contingent workers receive employer-provided bene-fits, even for government-mandated benefits such as social security, virtually all work-ers under traditional contracts receive mandated benefits and over half receive healthinsurance. Including the value of benefits magnifies the earnings differential for tradi-tional workers (see Figure 6).

4 WHO WORKS GIGS?

Some prefer gigs to jobs. Some relish the freedom from commitments to an employer,not having to go to an office; they are said to consider themselves the Pajama Gener-ation, ambling ‘out of bed in the morning in our PJs and fire up the Mac’ (Brenoff2010). Young people are supposed to be too entrepreneurial for ‘Dad’s’ old-type-career. They want to strike out on their own, to form their own start-ups, forge theirown paths (Pofeldt 2013; Ryan 2012;). Others value the flexibility to be home atodd hours to care for children or to fulfill other family responsibilities.

$900

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$600

$650

Median weekly wages Median weeklywages with

government benefits

Median weekly wageswith government benefits,

health insurance,and pensions

All alternative

Traditional

$800

Notes: Earnings for workers under traditional arrangements include employer share of Social Security,Medicare, Unemployment Insurance, workers compensation, and disability coverage. Health insurancepremiums are from http://kff.org/other/state-indicator/individual-premiums/.The average value of health insurance premiums paid by employers are estimated by assuming the familystatus for workers under different family arrangements is available for 1995, from http://www.bls.gov/mlr/1996/10/art4full.pdf.The share receiving employer-based health insurance coverage is from http://www.bls.gov/news.release/conemp.t09.htm.Average employer pension contribution is from 2013, at http://www.bls.gov/news.release/ecec.nr0.htm.The value of insurance coverage is the weighted average of the benefits for each type of contract where theweights are the proportion of workers under each type of alternative arrangement. For each, the value is theproduct of the weekly value of premiums for each category of family type weighted by the distribution offamily-types within each category of contract and the proportion receiving employer-provided coverage.

Figure 6 Median weekly earnings by contract arrangement and employer-providedbenefits, 2005




Few of the workers in the gig economy actually enjoy this happy life-style. Therelatively well-paid independent contractors are happy with their alternative arrange-ment, but solid majorities of workers in the other categories of contingent workerswould prefer traditional jobs (Bureau of Labor Statistics 2005, tables 10 and 11).

It may be that even more would prefer a traditional job today than in 2005 aftereconomic recession pushed many workers out of traditional jobs into positions as inde-pendent contractors and other ‘entrepreneurial’ vocations. While workers becomeindependent contractors from choice in good times, such as the late 1990s, in the reces-sion years since 2000, companies have turned jobs into gigs, often reneging on infor-mal commitments to reward senior workers for long job tenure. While many youngerworkers have been disappointed that they have been unable to find the secure employ-ment that their parents had held, entry into the new gig economy has been a shock formany older, senior workers. Such was the experience, for example, of the editorialstaff of Out magazine in 2012, when they were discharged and invited to apply todo their work as employees of an independent contractor established by the maga-zine’s editor, a company with one client: Out (Pompeo 2012). Discharge followedby rehiring as independent contract labor has become so routine that CBS news rana story called: ‘The Companies that Laid You Off? They Want You Back, Sort Of’(Ceci Rodgers, MoneyWatch, March, 2010).

It may not be coincidental that the gig economy has expanded during the worstrecession since the 1930s. Long-term contracts were a way for companies to protectthemselves from labor shortage during times of low unemployment. While a badstrategy when unemployment is low, it becomes irresistible when there are manylooking for work and spot-market wages are low. Without loyal workers andlong-term contracts, tied to short-term labor markets, shadow corporations aremore vulnerable to the macroeconomy; they benefit from low labor costs duringrecessions but are forced to pay dramatically more for workers during booms. Hiringlabor on the spot market, they need a reserve army of the unemployed available towork at stable wages. If we returned to full employment, they might find it hard tolocate workers who are ready-to-work: healthy, trained, and imbued with enoughintrinsic sense of responsibility that they will work without promise of futurereward. Short-sighted managers may not care about the loss of corporate identityand team spirit that was used to build companies. When unemployment remainshigh, companies like Out can replace regular workers with outside contractors tolower labor costs without giving up access to experienced and trained workers.Over time, however, if companies hire short-term they will not be reproducingtheir workforce training and acculturation.

Substituting gigs for long-term employment relationships marks a change in thepolicies of American businesses which for over a century have provided job ladders,pension benefits, and other inducements to encourage workers to make careers oftheir employments (Conference on Labor Market Segmentation 1975; Doeringer1985; Edwards 1979; Jacoby 1985; 1997; Slichter 1960). Long-term contractingmay have been attractive to workers but it was a policy established by employers.They converted short-term jobs, or nineteenth century ‘gigs,’ into ‘positions’ and‘careers’ to gain leverage over workers, to stabilize wages, especially during periodsof economic boom and low unemployment, and so that they could safely train work-ers and develop new technologies confident that their workers would not use theirnew knowledge to step out on their own. Entrapping their workers within careers,they bound their workers’ interests to those of the company to encourage hard workand productivity (Dow 2003; Freeman and Medoff 1984; Jacoby 2005; Meyer 1981;




Slichter 1960). Long-term employment relationships protect company investments inhuman capital and training while encouraging workers to identify with their employerand to discover new productivity improvements. They also stabilize wages; while stickywages for workers in protected jobs becomes a problem when unemployment is highand wages are falling, they become an advantage when wages are rising and workershard to find because unemployment is low (Buttrick 1952; Gordon 1982; Kalecki1943; Marx 1935).9

Job ladders with implicitly guaranteed deferred compensation for long-tenure workerswere always problematic for workers whose careers depended on the good will of theiremployer not to renege on promised deferred compensation (Edwards 1993; Krueger1989; Medoff and Abraham 1981; Summers 2000). This temptation has proven toostrong for the managers of many American companies, and not only those with heavylegacy costs. The rise of the gig economy during a period of recession reflects ways thatthe American economy has moved away from the conditions favorable to long-term con-tracts. Fear of unions and labor unrest no longer drives employers to establish internallabor markets; they have developed an arsenal of other tools – legal and other – to defeatlabor militancy. Companies also believe that they have developed other means to main-tain productivity; rather than relying on initiatives from a stable and comfortable work-force, they use research and development, outside consultants, and direct supervision.Finally, the benefits of a stable workforce during periods of low unemployment seemless important after 40 years of go-slow macroeconomic policy during which theeconomy approached full employment only once, in the late 1990s – which, not coin-cidentally, was when companies backed away from gigs.

5 CHALLENGES FOR MACROECONOMIC POLICY

The rise of the gig economy raises issues for economic research and policy. As is clearfrom the earlier discussion, the Bureau of Labor Statistics and the Census Bureau donot collect appropriate data for analysis of ‘contingent employments’ and alternativeemployments.10 With more people holding multiple part-time employments, includingworking on their own account, the number of jobs per person and hours worked peremployment have become more variable; the economy’s supply of labor has becomemore elastic with respect to output because gig-laborers work more when they canfind work, but drop out of the regular economy to engage in home production orwork on their own account when there is no work. Without paid employment or immedi-ate prospects of finding it, gig laborers do other things; they retrain, they upgrade theirportfolios, they work at home and spend more time with family and friends. Thus thepopulation with jobs or looking for work becomes more elastic. In a depressed economyit contracts, understating the number of people willing to work if the economy werestronger and the hours they would work.

For individual employers, gig employments provide more flexibility. Dispensingwith long-term contracts and minimizing separation costs allows employers to adjustemployment quickly to demand conditions. For the workers involved, and the econ-omy as a whole, however, this means that employment will be reduced more quickly

9. Companies also established benefit programs and job ladders to discourage union involve-ment (Brandes 1976; Ozanne 1967).10. The contingent worker survey was dropped after 2005 for budgetary reasons; PresidentObama has unsuccessfully proposed restoring funding.




as the economy heads into a recession.11 (This may have contributed to the extraordin-ary fall in employment in late 2008 and early 2009.) Employers’ gain thus risks ampli-fying economic distress, reducing employment and wages, as well as consumerspending, in the downturn.

The movement of gig workers in and out of the workforce in response to economicconditions makes the economy’s labor supply more strongly procyclical. The withdrawalof gig workers minimizes the measured increase in unemployment in recessions; theirreturn when the economy expands allows longer expansions before the measured unem-ployment rate indicates full employment. Not only does the current measure of reportedunemployment, U3, understate the magnitude of recessions but even the augmentedmeasure, U6, understates distress because it does not take full account of the willingnessof gig workers to work additional hours and to substitute paid work for other activities.When businesses increase hours of employment for contingent and gig workers, or whengig workers shift from portfolio development to paid market work, production increasesfaster during business cycle upswings than does reported employment. To put it anotherway, there is change in the amount of employment for every increase in output becausethere is more change in hours worked while the content of unmeasured output changes.Larger increases in the GDP are needed, therefore, to achieve the same reduction in gen-uine unemployment; the Okun curve has become steeper.

Changing relations of production also change the relationship between inflation andwage changes and employment. Long-term employment relations flattened the PhillipsCurve because long-term contracts locked-in wage changes regardless of current busi-ness conditions. For a time, the gig economy may flatten the Phillips Curve evenfurther because the return of gig workers to the labor force and their willingness toincrease hours worked will restrain wage increases during expansions. But once thelabor supply effect is exhausted and full employment is reached with all gig workersfully employed at increased hours of work, the Phillips Curve will be much steeper. Byintention, the growth of gig employment makes wages more flexible, and labor costsmore responsive to unemployment. While employers and policy-makers have focusedon the benefits this provides in inflation management, the same principle will work onthe other side of the business cycle to raise wages more steeply when unemployment islow. Hiring labor on the spot market will put employers at the mercy of busy workersunder circumstances that would vindicate the efforts by their predecessors to lock-inworkers with long-term contracts and careers.

The use of contract labor and independent consultants may facilitate the dissemina-tion of new technologies if it reduces the lag between first-movers and followers. Shed-ding long-term employment relationships may also make it easier for companies to raiseproductivity by shifting production to the most efficient sites. In other ways, however,the spread of gig jobs may undermine productivity growth. By reducing any attachmentemployees feel towards their employer, the rise of gig jobs may slow learning-by-doingand the development by workers of productive innovations. While employers may usethe threat of job loss to push employees to work harder, fear is a poor prod for creativeand innovative thinking (Ariely 2008, pp. 80–83; Pink 2009; Woolhandler and Ariely2012). Ironically, flexibility may make the new shadow corporation better at mass pro-duction of products with clear, easily-taught technology but less competitive at thoserequiring adaptation and innovation (Gramm and Schnell 2001).

11. The ability to adjust employment levels quickly is one of the advantages of contingent con-tracts cited by employers (Houseman 2001).




The rise of gig labor raises a problem for a free-market capitalist economy. As agroup, capitalists need a labor force trained in skills and acculturated in a capitalistwork ethic (Becker 1975; Bowles 2011; Sennett 1993) as well as the authority tohire and fire easily (Moudud and Martinez-Hernandez 2013).12 But individual capital-ists have no incentive to provide this training unless they can be assured of employingthem for long enough to earn a return on their investment. By reducing turnover,internal labor markets bridged the gap between private interest and public; the riseof the gig economy blows this bridge, bringing back the problem for the capitalistclass as a whole. For a time, American gig capitalists can live off past traininginvestments; but if companies do not invest in worker training, they may haveto rely more on threats and punishments, higher rates of unemployment, andcost-of-job loss to maintain continued work effort; and, as mentioned earlier, suchpunitive incentives cannot elicit creative and innovative work (Bowles 1985; Bowlesand Boyer 1988). Public education has been a source of general workforce training andacculturation, which makes attacks on public education by tax-resistant capitalistsparticularly counter-productive to capitalists’ own long-term interests; but recentattempts to make schooling mesh better with the ‘needs’ of industry may be seen asan attempt to have schools fill this emerging skills gap in the gig economy.

6 CHALLENGE FOR SOCIAL POLICY

The rise of gig employment threatens our system of income security where social insur-ance is provided through employment in traditional jobs. This system was built on anearlier capitalist initiative, the efforts by welfare capitalists to discourage labor unrest orlabor mobility by linking workers with their employment. Unemployment insurance,workers’ compensation and disability insurance, health insurance, and many retirementpensions are all linked with employment, provided as an added benefit to workers. Theseare benefits that go with holding a job; they are withdrawn if workers leave a particularemployment.

Behind this system of employer-based social insurance is a social safety net that isincreasingly frayed. After a lay-off, workers receive unemployment insurance if theyhave had a traditional job for enough of the past year and they may be eligible to buyinto their health insurance through the COBRA program. Apart from this employment-based insurance, the unemployedmay be eligible for safety-net programs like food stampsand health insurance through Medicaid; and they can go to food banks and beg on thestreets. Programs that in the past gave support to the poor, such as Aid to Families withDependent Children and General Relief have been drastically scaled back since the1980s. The combination of gig employments and cutbacks in general social supportmeans that Americans now experience dramatically more income fluctuation than inthe past (Hacker 2010). As a country, we could have mitigated much of the last decades’rise in inequality and income instability with a system of social insurance providing uni-versal benefits available to all; or we could have provided these benefits through unions,as is done with unemployment insurance in Scandinavia (Esping-Andersen 1990;Rodgers 1998). Instead, we have continued to rely on a system of employer-sponsoredbenefits, a system established by businesses to ward off both unions and social

12. In an extreme form of worker lock-in, slave owners avoided the problem of human capitalinvestment by owning their workers.




reformers, reinforcing the market by rewarding workers for holding good jobs andmaintaining long job tenure (Klein 2003; Lichtenstein 2002; Quadagno 2006).

A system of employment-based social insurance has little space for workers ongigs. Few gig workers are protected by federal labor laws; the National LaborRelations Act, the Americans with Disability Act, and other basic protective legislationhave no place for the self-employed and little for part-time and contract workers. Statesprovide little protection; few offer unemployment insurance benefits for workersemployed part-time or for the self-employed (General Accounting Office 2000). Notonly do gig workers miss the cash value of any employer-provided benefits (includinghealth insurance and workers’ compensation), they lose the employer subsidy forsocial security (including the employer share of social security retirement andMedicare as well as unemployment insurance premiums). When they buy insuranceor pension coverage as individuals, the cost is much higher than the group plansoffered by large employers.13

Gig workers also miss many of the workplace public goods provided as a natural partof stable employments. Where they work alongside traditional workers in factories,offices, or shops, some gig workers can benefit from some employment-based benefits,such as health and safety regulations. Many part-time university instructors, for exam-ple, have safe offices and lecture halls because they work in the same facilities as doregular tenure-track faculty. Even these gig workers are at a disadvantage, however,because their precarious employment situation makes them reluctant to bring com-plaints to their supervisors and employers. More vulnerable still are those who arehired without a place in an established workplace, a group that not only includesthose running their own businesses, like musicians, jewelry makers, and caterers work-ing out of their homes, but also many consultants, delivery workers, freelance research-ers, writers, and editorial workers. Responsible for their ownworkplaces, working out oftheir bedrooms and neighborhood Starbucks, they are denied the protection of OSHA orother health and safety regulation.14 Not to mention such matters as holiday pay, sickdays, or disability or any other form of social insurance.

At times, the use of gig labor not only threatens health but undermines productivitygrowth. Employers can also lose because workplaces filled with gig workers becomeless productive when individual workers fail to develop skills through productivesocial connections. Thirty years ago, for example, copyeditors helped each otherbecome better workers when they worked together in the offices of newspapers or pub-lishing houses. Today, however, most publishers hire freelancers scattered throughoutthe country (or the world). For the gig freelancers, working at home (or in a coffeeshop) opens work opportunities with flexible hours, and allows them to work withoutmoving. The price of this opportunity, however, is that workers and the employer losethe benefits of workplace public goods. Employment contracts can be individual, butworkplaces are inherently public. Both workplace safety and productive convivialityare available to all in an office but are difficult, or impossible, to produce for workersscattered over the globe. Outside of office settings, freelance copyeditors struggle tocarve ergonomic worksites out of crowded homes, or coffee shops. And the experienceof working near other freelance gig workers at a Starbucks is no substitute for that ofcopyeditors at a publishing house like Norton who could talk together informally about

13. This is because of risk-sharing with group plans and economies to scale in administrationas well as the greater bargaining leverage available to administrators of larger plans.14. With its free internet, Starbucks has become a center of the gig economy for young profes-sionals (Henderson 2013; Schenkel 2013; Woody 2013).




language and other editing issues.15 Employers as well as workers lose when thephysical dispersal of production comes at the cost of the public good of shared experi-ence and learning.

7 CONCLUSION: GIGS AND THE FUTURE OF INSECURITY?

We should not expect gigs to replace traditional employments any more than insidelabor markets replaced simple at-will employment after the 1930s, or factory mass pro-duction replaced artisanal shops in an earlier time. Nonetheless, the rise of the gigeconomy presents us with a new opportunity to reconsider social policy. Gigs can lib-erate American workers trapped within oppressive organizations, forced to remain onhated jobs to hold onto insurance benefits and programs of deferred compensation.Replacing fixed employments with gigs can produce an economic boost, not onlyby allowing a better match of workers to jobs but by freeing the energies of workersfrustrated with their jobs.

Our social problem is to use this chance to open opportunities without undermininggoals of promoting high productivity, stable full employment, and rising and stableincomes. Gig employments can create a class of isolated individuals living from jobto job, without lasting financial or social connections to workplaces or to otherworkers. Dubbed the ‘precariat,’ this class of individuals not only suffer from precar-ious employment and income, they also lack the workplace social connections thatbound together unionized workers during the capitalist Golden Age after WorldWar II; the loss of these social connections is not only a problem for the health andincome stability of the workers involved but threatens social cohesion and communitystability in general (Kawachi 2002; Putnam 2000; Standing 2011).

Those who are enthusiastic about the gig economy are right that breaking downrigid organizations and internal labor markets can be liberating both for individualworkers and for businesses. The social problem is to find a way to expand individualautonomy while providing security and community through new forms of socialsupport: when the labor contract becomes more individual, with gigs rather thanemployment in an organization, society needs to provide more structure and supportto balance the market’s individualism.16 When employers do not provide essentialbenefits to contingent workers, these needs can be provided either through state pro-grams or through renewed programs of mutual aid. The Affordable Care Act’s provi-sions for individual pooling through insurance exchanges is an example of statesupport, as are proposals for state pooling of individual pension plans (Walsh2012). Aware that its shops are used as offices by many gig workers, one corporation,Starbucks, has stepped forward to provide mutual aid by continuing free internetaccess. The New York-based Freelancer’s Union, one of the fastest growing labororganizations in the United States, looks to organize large group social insuranceprograms for its members as well as provide mutual support in winning workplacesafety and employee rights. Their slogan speaks to the problem of our new times:‘Do Together What You Can’t Do Alone’ (Horowitz 2013).

15. I am grateful to my mother-in-law Esther Jacobson for stories of her days as a copyeditor atNorton.16. This need is recognized by some (Horowitz 2011; 2012).




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