Biggest Threat to "Gig Economy"? Crony Capitalism and Excessive Regulation

COMMENTARY Jobs and Labor

Biggest Threat to "Gig Economy"? Crony Capitalism and Excessive Regulation

Sep 26th, 2017 3 min read
COMMENTARY BY
Rachel Greszler

Research Fellow in Economics, Budget and Entitlements

Rachel researches and analyzes taxes, Social Security, disability insurance, and pensions to promote economic growth.
Just imagine if Uber had to treat its 1.1 million registered drivers as employees. iStock

Key Takeaways

Job flexibility is usually considered an "immeasurable" employee perk.

But while many workers desire the flexibility offered by gig-economy jobs, entrenched interests are trying to shut them down with protectionist regulations.

By stifling innovation, these anticompetitive measures succeed only in reducing employment and driving up costs for consumers.

Job flexibility is usually considered an "immeasurable" employee perk. Not so, says an economic study that used data from more than a million registered Uber drivers. It pegs the value of a fully flexible job at 40% to 50% of earnings, or $150 per week for the average Uber driver.

That information should interest local policymakers around the country. Increasingly, they are being pressured by entrenched interests — such as taxicab companies — to drive out the types of flexible work platforms that provide "immeasurable" benefits to workers and customers alike.

The study of driving patterns and earnings, published by the National Bureau of Economic Research, found that the average Uber driver receives a significant earnings "bonus": the freedom to choose when and where they work, literally on a minute-by-minute basis. Compared with more restrictive work arrangements — such as taxicab companies that require drivers to commit to a full shift of work — the fully flexible work arrangements offered by "gig economy" companies such as Uber, TaskRabbit, and DoorDash enable workers to log as many or as few hours as they want. They also allow employees to reject gigs they don't want.

Flexible contract work — a category that includes the gig economy — is one of the fastest-growing sectors of employment, having increased by more than 55% over the last decade.

One study shows that as many as 30 million people — almost one of every five workers in the U.S. — engage in independent, flexible work as either their primary or secondary job.

Why are flexible, gig-economy-style jobs so popular? It's a combination of factors, including the ability to "be your own boss," to earn income when it suits you, and to balance your unique personal and family needs.

Surveys asking drivers why they chose to partner with Uber found that 91% said it allows them to earn more income to better support themselves and their families. Nearly as many (87%) cited the ability to be their own bosses and set their own schedules. Eighty-five percent wanted flexibility and better work-family balance, and 75% said it was a way to maintain more steady income amid other unstable income sources.

But while many workers desire the flexibility offered by gig-economy jobs, entrenched interests are trying to shut them down with protectionist regulations. One common tactic: insisting that gig-economy workers be classified as employees rather than independent contractors.

Such a move denies the main reason people seek these jobs in the first place — the chance to work independently. It would upend — if not completely ax — this growing sector of the economy.

Just imagine if Uber had to treat its 1.1 million registered drivers as employees, or if Etsy had to do the same for its 1.7 million sellers. That would mean guaranteeing a minimum wage and overtime pay for work over which Uber and Etsy have almost no control. (Remember, drivers can have their app on 24 hours a day and accept only a few riders. Etsy sellers set their own prices and make their own products.)

Opposition also comes in the form of redistribution.  In Massachusetts, Uber must charge each of its riders a five-cent tax — totaling about $1.5 million per year. Those taxes don't go to government coffers for the public good; they get handed over to Uber's competitors: the state's taxi companies. In Massachusetts, it pays to have cronies in government.

Imagine if everyone who bought an e-book had to pay a tax to dead-tree publishers and paper companies. Where would we be if every company threatened by innovation had been able to wangle subsidies from its competitors? "Western Union Telegraph" might be just a P.O. box collecting subsidies from phone providers instead of an evolved money transfer and loan company.

Most locations in Oregon have outright banned Uber. In Austin, Texas, officials drove Uber out of the market by imposing burdensome regulations.

By stifling innovation, these anticompetitive measures succeed only in reducing employment and driving up costs for consumers. Policymakers would do well to shun efforts to depress the gig economy.

This piece originally appeared in Investors Business Daily