The Problem with Worker Protections and Benefits in the Gig Economy

Kathleen Lantto |

neetalparekh / Flickr

neetalparekh / Flickr

From Forbes:

Economics and Finance Opinion Piece by Tim Worstall

This is actually an interesting problem that the new gig economy of Uber, TaskRabbit and the rest is throwing up. How do we provide those usual employment protections to people who are, legally and for the moment at least, working as independent contractors, not employees? Those benefits and protections being the usual difference between employee and contractor. And the really interesting thing about this is that the answer might well be, well, we just don’t. This is not certain by the way: it’s only a possibility. But there is indeed that possibility that the workers themselves say that they don’t want to have the protections, they’d rather have the cash. And if that’s so then there’s near a century of progressive legislation at risk here. But, if the people don’t want it then there’s nothing wrong with dismantling the structure.

This is brought on by Laura Tyson’s piece on worker protection in the gig economy. Entirely sensible points and suggestions are made:

New policies are needed to provide workers in contingent employment relationships access to benefits, and new institutions are needed to deliver them. There is growing support for the view that benefits should satisfy at least three conditions. They should be portable, attached to individual workers rather than to their employers. They should be universal, applying to all workers and all forms of employment. And they should be pro-rated, linking employer benefit contributions to time worked, jobs completed, or income earned.

I’ve certainly no objection to such individual security accounts. Sounds like a sensible way of dealing with the problem in fact. Except for one point. If you ask people whether they’d like sick pay they say yes. If you ask them whether they’d like to pay for sick pay, as opposed to be paid for it, they’re, at minimum, a lot less sure. If you ask them whether parental leave should be included in an employment contract most do say yes. Ask them to pay for it and support drops rather dramatically. And so it is for most of the components that make up the standard benefits package. Sure, there’s bits that employers have to give (paying their share of your Social Security pension for example) and there’s bits they’re tax privileged in providing (health insurance) and bits that some of them provide to produce a nice package (paid maternity leave for well paid staff). But economically all of these come directly from the cash wages of the employees. There’s always a choice here: pay more money or provide more in the benefits package. The employer is going to craft whatever mixture she thinks will best captivate those she wants to employ but all employers get this.

The sad fact is that not all employees do quite get this. That those benefits come at the cost of their cash income from the same work. And that’s a problem for this idea of individual security account. Because inevitably such accounts will make those costs highly visible. And those costs are high:

This is because most individuals who find work through digital job platforms operate as independent contractors, leaving them without the benefits and protections provided in standard employment contracts for full-time and part-time workers. The difference between the cost of a full-time employee with benefits and an independent contractor can be 30% or more, so there is a strong incentive for companies to replace workers on standard full-time employment contracts with independent contractors as long as companies can attract the talent they need.

The point being that the number of things in that package has grown over the decades. As has the cost of financing them. Social Security taxation started out at 2%: it’s now over 12%. And the whole package has never really been challenged on the grounds that it has just accreted. But now we come to a change, one that makes instantly obvious to the people paying into such an individual fund, quite how much that whole package is costing them. What? I can get a 30% pay rise just by saving for my own retirement and vacations?

I’ll do that then: that will be the answer of some significant number offered such a choice. And that, to talk politics for a moment, is why I think that the idea isn’t going to get very far. Because there’s people who insist that that package must be extended and more who insist that it should never be reduced. And yet if the workers are able to see directly, in each and every paycheck, how much it does cost them then there’ll be a lot of pressure to walk back on those rights.

It is actually economically sensible that everyone, whatever their employment status, should have such individual accounts. As such I support it as a policy idea. But I do fear it won’t happen, once people realize quite how many people are likely to say they’d prefer to have the money please, not the protections they’re supposed to want.

Find the full article from Forbes.