Technology has significantly changed work over the past twenty years. The emergence of opportunities to essentially earn a living from one’s hobby, which I discussed last week, is one change. New ways to earn a living outside of the traditional employer-employee relationship now exist as well.
New work arrangements, though, have run afoul of labor law, which, intentionally or not, is trying to force people back into traditional employee relations. As a result, we may fail to realize the potential of the sharing economy.
An estimated 31% of Americans worked as independent contractors, temps, or were self-employed in 2006. Government regulation has driven some of this, by tightly controlling the employer-employee relationship and creating opportunities for litigation. Tax advantages encourage and regulation requires employers to provide benefits like health insurance, pensions, and overtime pay for workers. Businesses face a considerable cost beyond wages or salaries when hiring employees, and will do so only when they need services regularly over an extended period of time.
Technology is also creating new opportunities for contractors, particularly in the sharing economy. The ride sharing service Uber, which offers a virtual platform connecting people needing rides with willing drivers using their personal cars, provides a notable example. Similarly Angie’s List connects homeowners with contractors, electricians, and other service providers. Uber and Angie’s List do not employ the drivers or service providers.
The sharing economy needs the flexibility contracting offers. Traditional economic relationships tend to be extensive and long term; people might work as cab drivers full time for years, with cars used exclusively as taxis. Sharing economy relations tend to be broad but only as long as needed to use presently idle resources. For instance, college students might use their car to earn extra money driving for Uber when convenient. We need the flexibility to deploy people and resources when, where, and only for as long as necessary.
In addition to economic advantages, contractors often experience greater autonomy. Consider a writer who could either work as an employee of a magazine or free-lance. The free-lance writer has greater freedom to choose topics, and can avoid doing pieces for editors who have treated them poorly in the past.
State labor commissions in California and Oregon, however, recently classified Uber drivers as employees. Uber is successful enough now that it should survive this decision, but other businesses will not. One casualty has been virtual personal assistants startup Zirtual, which could not afford the reclassification of its contractors as employees.
Many politicians probably think that reclassifying contractors benefits workers. Some people also believe that raising the minimum wage makes low wage workers better off. In both cases, those still working after the policy might be better off, but those no longer able to work or supplement their income by driving a few hours a week for Uber will be worse off.
The New York State Attorney General’s campaign against “on-call” shifts also strikes a blow against flexibility. The practice involves an employer requesting that employees be ready to work at a given time, and then informing the employee less than 24 hours in advance if they will need to report. Some retailers use this practice to adjust staffing to forecasts of customer demand.
I suspect that people can manage their affairs better than the New York AG thinks. Employees regard being available for “on-call” shifts an imposition, and so businesses will have to pay extra to get employees to work “on-call.” People who find this work least burdensome will end up in “on-call positions, and may consider the extra pay more than adequate compensation. Politicians unable to see the invisible hand of the market will act to protect people who do not want or need protection.
Many Americans have long enjoyed the flexibility and autonomy of being their own boss. Innovation is allowing more people to work as contractors instead of employees. Government should recognize the value created by our evolving world of work and not needlessly impose yesteryear’s employee-employer relation today.
Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision.