Recession and the Gig Economy

News is starting to percolate that global disruption, tax giveaways, a ‘crash out’ Brexit, and trade wars are destabilizing an economy under strain from disparate wage growth and technological disruption. As CNN reports, “It’s gonna take awhile for American farmers, and US businesses that have been affected by the trade war with China, to get back on their feet again.” The China, UK, and U.S. challenges are coming to a head, making both main street and wall street nervous.

But changes in the U.S. economy have created a new population of workers at greater risk from economic disruption than in recent years. The drivers at Uber and Lyft are at the leading edge of the “gig economy.” They are highlighting their vulnerability with a caravan from Southern California to Sacramento – with a drive-thru of San Francisco – running from August 26th through 28th. Led by the advocacy organizations Gig Workers Rising and Mobile Workers Alliance,  the caravan is designed to highlight the labor issues at the heart of the gig revolution.

TechCrunch reports that over 200 drivers in more than 75 cars plan to drive south to north, with more drivers joining along the way, to take dramatic action in advocating for California State Legislature bill AB5, and for a drivers’ union.

What is the Gig Economy? In my book, The Entrepreneur’s Intellectual Property and Business Handbook (or Kindle Edition), I question the merits of the so-called sharing and gig economies and my economic concerns:

For employers, gig employees are an excellent choice: employees have no rights to continuous employment; no right to minimum wage; no rights to health care contributions; and no right to receive an employer portion of their taxes. At the same time, gig employers have no duties to protect employees from harassment or dangerous working conditions and theoretically no obligation to respect child labor laws. But if the success of the modern economy is dependent on stripping its workers of protections from employer predation, then it is a disheartening return to the world that existed before unions and OSHA regulations. This is not the progress promised by Silicon Valley, and the public must look beyond the rhetoric to the harmful strategies involved in stripping workers of their minimal employment rights.

Gig employees are an important part of many industry sectors. Higher education’s use of adjunct faculty is perhaps the most extreme form of outsourcing the employment cost. Over 50% of college faculty are adjunct or part-time. Less than 25% of faculty today are eligible for tenure.

The focus of the efforts by the Uber and Lyft drivers is to highlight the lack of employee rights for non-employees. The political process has focused on health care, but issues of discrimination, fair dealing, and working conditions are often ignored for independent contractors. When an economic downturn hits, these temporary workers suffer first and worst.

These two workers organizations give a different voice to the concerns:

Mobile Workers Alliance asks self-employed drivers, crafters, and temps to “join thousands of other drivers and gig workers across California who are fighting for fair wages, benefits and a union.

Gig Workers Rising hosts a website demanding answers to these questions: Uber and Lyft executives make billions. But what about drivers?

Drivers are standing up to demand a fair return on the billions they make for Uber & Lyft:

  • Living wage – Uber and Lyft must pay drivers a livable hourly rate (after expenses).
  • Transparency – Clear policies on wages, tips, fare breakdowns and deactivations.
  • Benefits – Such as disability, workers comp, retirement, health care, death benefits, and paid time off.
  • Voice at work – A recognized independent worker organization, the freedom to stand together without fear of retaliation and a fair and transparent process for deactivations.

If the economy hits a downturn, the lack of employment for such a large segment of the population will exacerbate the employment disparities very quickly. Our institutions and social services are not prepared.

Worse, Uber and Lyft have yet to turn a profit. Drivers are a drain on their bottom line. The real goal for these companies is to shift to a driverless car service.

The threat of economic downturn is adding momentum to efforts to eliminate drivers. And other companies and industries are following the same playbook. As technology eliminates old jobs, and new jobs enter the marketplace as gig work, the risks for the economy will grow and accelerate. The preparations are not keeping pace.

Welcome to the new economy!

* * *

In my book, The Entrepreneur’s Intellectual Property and Business Handbook (or Kindle Edition), I question the merits of the so-called sharing and gig economies and my economic concerns:

Sharing Economy.

As often used, the sharing economy is a catch-all for a number of modern, economic interactions that have always existed in society but operate efficiently through the mediation of mobile technology. The idea behind a sharing economy is that underutilized infrastructure can be bartered or time-shared in a manner that allows the owner to recoup costs or earn a profit. The phenomenon is best highlighted by Uber, Lyft, and Airbnb.

For example, many automobiles sit unused most of the day and night. Under the Uber/Lyft model, these cars can be repurposed by enabling their owners to become part-time chauffeurs, using personally owned cars to replace the need for others to buy cars. Overall, car purchasing would go down and efficiency of the auto purchases would increase. Under the model, the preferred operational approach would be to conduct this with self-driving vehicles, so the role of the car owner as chauffer could be eliminated. Other car companies such as Zipcar and Car2Go provide short-use car rental services in urban markets through centrally owned cars while providing the customer the ability to drive a car.

Municipalities also have been doing this for a long time. Public transportation is actually a function of the sharing economy, as are bike rental services in downtown and tourist districts. Whether the focus on the consumer’s purchase of the capital equipment makes this a new phenomenon is a debate best left to economists.

Vacation rentals, in the form of timeshares, have also been in the market for decades. They also provide something of a warning story. The rental of timeshares provides significant convenience to travelers who want an experience outside of standard hotel accommodations. But the fractional ownership of timeshares often leaves the owners with an unmarketable asset and unanticipated maintenance expenses. The secondary market for timeshares suggests that most consumer-entrepreneurs lose money, time, and vacation freedom through these systems.

Similarly, the misconduct rife within Uber has cast a shadow over the sharing economy it promoted. The consumer ownership of cars and apartment units avoids the regulations designed to protect the public from unsafe conditions in public accommodation and transportation. Perhaps the inroads of the sharing economy suggest the need for revisions to the regulations on these public accommodations, but the emerging privacy, safety, and security issues surrounding these operations suggests that these opportunities may have unintended consequences.

Gig Economy.

If the book reflects some skepticism with the sharing economy, it reflects outright contempt for the so-called “gig economy.” In the gig economy, creative knowledge-based workers and others have the ability to move from project to project, independent of direct employment supervision, to maximize their remuneration and personal autonomy. In the old economy, those people were known as independent contractors, and they have always played an important role in society. Most commercially successful artists, authors, filmmakers, and entrepreneurs are independent contractors, who work in their own companies and contract with other enterprises when the economics justify the relationship.

But most people in the gig economy do not have the creative output to command the incomes needed to justify nontraditional employment. Instead, these individuals are essentially the piece-meal workforce of the 19th century—paid to drive cars, sew clothes, write software code, sell goods, pick fields, and provide menial labor just as the underpaid immigrant workforce has done in every era of exploitation.

For employers, gig employees are an excellent choice: employees have no rights to continuous employment; no right to minimum wage; no rights to health care contributions; and no right to receive an employer portion of their taxes. At the same time, gig employers have no duties to protect employees from harassment or dangerous working conditions and theoretically no obligation to respect child labor laws. But if the success of the modern economy is dependent on stripping its workers of protections from employer predation, then it is a disheartening return to the world that existed before unions and OSHA regulations. This is not the progress promised by Silicon Valley, and the public must look beyond the rhetoric to the harmful strategies involved in stripping workers of their minimal employment rights.

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