The Gig Economy – Don’t Quit Your Day Job

Steven Hill is an internationally renowned political writer and researcher. His latest book Raw Deal: How the ‘Uber Economy’ and Runaway Capitalism are Screwing American Workers deals with the “freelance society” and the impact of the sharing-economy on the labour market and working conditions. We’ve talked with him in Berlin, where he is a fellow at the American Academy this spring.

Ralf Grötker: Where is the major difference between companies such as Uber or Taskrabbit, who like to present themselves as “just a website”, and more traditional temporal work agencies?

Steven Hill: Temporal work agencies used to give you a job for a couple of days or even a few months. With these new services, which I call the “gig economy”, it’s really just for an afternoon. But the way Uber conducts business is becoming more and more the dominant model. Take Upwork, formerly known as Elance oDesk. This company is a broker for freelancers, many of them in the creative sector. More than 10 million freelancers worldwide offer their services via Upwork. But the company itself has just a staff of 800 people – only one third of them being regular employees, the rest freelancers themselves. To many, Upwork represents the company of the future. I would rather call it the “lean and mean”-style of conducting business.

Before the arrival of Taskrabbit and like companies, one used to hire a carpenter who was doing carpentry as a job and who was working on a regular labor contract. He had social security. But these days, you hire a contractor from an online service. He is not member of a labor union, he operates without a safety net of social security, and will make hardly more money than minimal wage. Especially in the US, after the economy crashed in 2008, we see this happen. Good jobs are being replaced by bad jobs.

Or take a company like Spare5. Spare5 recruits freelancers for jobs which are so small that they can be done while waiting for the bus, such as manually labeling websites representing certain products, so that these products can be found easier by customers using search engines. Jobs – if you still want to call it that – are actually getting smaller and smaller. Communication technology makes this possible.

RG: How big is the “gig economy”, actually?

SH: There is a lot of debate in the US about this question. The bureau of labor statistics says: The gig economy doesn’t really show up in our numbers. Other researchers think that in households and employer surveys, people are just not reporting that they have second and third jobs. Judging by the numbers of 1099 forms, which, in the US, employers file for their freelance-contractors, the whole gig-economy business has been going up by 20 percent in the recent past. The number of people filing for Schedule SE, which is for self-employment, at the Internal Revenue Service, is also up by 20 percent.

The issue of wages, in my view, is tied to the globalization of trade and services and other trends.

RG: You propose to fix at least some of the problems of the “gig economy” with the introduction of an Individual Security Account. The basic idea: If you hire a freelancer, you will have to pay a certain amount into a social insurance-pot, in addition to the remuneration which the freelancer himself gets paid. Out of that insurance, social security, healthcare, unemployment benefits and injured workers compensations will be covered. Who should actually pay into these accounts: individual consumers or companies such as Uber or Upwork?

SH: Definitely the companies! At least in those cases, where they act not as a marketplace only, but employ freelancers as contractors who are bound to the company’s own rules. It just would be too hard for the government to pass costs for Security Accounts directly on to consumers. Surely, those companies also will pass the cost for the Individual Security Account on to the consumers. But that’s how it should be. Many of those consumers will be the people who are at the same time benefitting from the social security plan of the Account. A rising tide will float all the boats.

RG: An Individual Security Account still doesn’t change anything about the very low income which very many freelancers make. Do you also have a solution for this?

SH: It’s right that the Individual Security Account doesn’t change the income situation. There is not one fix to all of this. But still: There are two ways to increase the standard of living of a worker. One is to give him more money, so that he can afford to buy what he needs. The other way is to lower the costs of the things he needs to buy. Healthcare for sure is among these things. If one manages to make the individual worker to be part of larger pool, then costs for health insurance can be drastically reduced. This way, he doesn’t need higher wages. Also: The issue of wages, in my view, is tied to the globalization of trade and services and other trends. More and more, we are in competition with countries where wages are much lower. All this is fairly complex. That’s why I have chosen on focusing on the Individual Security Account.