While labor advocates support providing financial assistance to gig workers, many worry that interventions like the recent Pandemic Unemployment Assistance will validate Uber’s contentious claim that their drivers should be classified as independent contractors, not employees. But this is bigger than just ridehail. During the coming recession, as in previous ones, firms that are struggling themselves will likely increase their reliance on subcontracted and gig labor rather than hiring full-time employees. The pandemic has demonstrated that workers’ access to unemployment (not to mention other vital benefits, such as health insurance) shouldn’t depend on their employment status, and that it is in fact entirely possible for the benefits traditionally associated with employment to be detached from any particular job. It’s time for lawmakers to think bigger, and work towards making permanent changes that protect all vulnerable workers – regardless of their employment status – through this crisis and the next.
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Over 48 million Americans have applied for Unemployment Insurance (UI) in the wake of the Covid-19 pandemic. And though ridehail drivers are considered “essential” workers, Uber’s business dipped by 80% in April as shelter-in-place orders kept passengers at home. As demand for rides has plummeted, many ridehail drivers have also become uneasy about continuing to work because of the health risk to themselves, their families, and their passengers.
Julie*, based in Cincinnati, has enjoyed driving for Uber for the last four years. She’s proud to be the sole breadwinner for herself and her 16-year-old daughter, but she was scared to continue even after switching from passenger to food delivery. “I applied for unemployment because I delivered to four different houses and each of the people tipped me just a little over a dollar and I’m sorry, but my life is not worth that,” she explained.
Historically, gig workers like Julie have not been eligible for unemployment benefits. But in March, the federal CARES Act extended Pandemic Unemployment Assistance to independent contractors such as gig workers (an outcome that Uber lobbied for). Julie added, “I don’t feel it would be anyone’s responsibility for my finances except myself. I am so grateful for the help, but I feel absolutely awful for having to take it. I would much rather be out driving people around and pointing out all the cool stuff and history of Cincinnati!”
Further Reading
While labor advocates support getting financial assistance to gig workers, many worry that interventions like Pandemic Unemployment Assistance will validate Uber’s contentious claim that their drivers should be classified as independent contractors, not employees. These concerns are legitimate, but they also overlook a larger public policy opportunity to make gig work in the U.S. work better for everyone. This crisis is a chance to update our benefit and safety net systems for how people actually work (and sometimes don’t work) right now — we shouldn’t let it pass us by.
To be sure, classification isn’t just a matter of terminology. Categorizing drivers as independent contractors has long enabled Uber and Lyft to avoid paying employee payroll taxes for their drivers, taxes which fund benefits like state and federal UI programs. This means that taxpayers are effectively subsidizing many gig employers under the CARES Act, and state budgets are losing out on a significant source of revenue. New Jersey, for example, alleges that Uber evaded taxes and incurred fines amounting to $650 million by misclassifying their drivers. Similarly, California may have missed out on $413 million in contributions from ridehail companies to its rapidly depleting UI fund.
However, despite these costs, the biggest threat to the American economy right now is mass unemployment, not misclassification. This crisis is an opportunity for policymakers to break out of the contractor-employee binary by creating a permanent social safety net that would cover all types of workers. This would let companies like Uber (along with other employers) off the hook for the costs of traditional employment. But as more people seek out gigs to make ends meet, it could significantly improve economic security for independent workers.
After all, this is bigger than just ridehail. During this recession, as in previous ones, firms that are struggling themselves will likely increase their reliance on subcontracted and gig labor rather than hiring full-time employees. Today’s gig economy sprung from the last recession, and these gig work platforms — which offered a job to anyone who wanted one — emerged as a lifeline for many facing financial instability. This trend is likely to be even more pronounced as the current crisis is pushing many people to search specifically for non-traditional forms of employment that can be done from home.
Ultimately, gig work exists because companies, workers, and customers all benefit from it. In the past, even when Uber blatantly evaded transportation and employment laws, regulators hesitated to crack down because both shutting down popular services like ridehailing and eliminating jobs with a low barrier to entry were understandably unpopular stances. We can anticipate that as states reopen for business, politicians will once again encourage people to find or create any job they can to mitigate mass unemployment. And Uber’s gig economy model, despite its flaws, is excellent at one thing: connecting a worker in need of a job with a customer who wants a service.
To be sure, there are major problems with the gig work system — and the current interventions are an imperfect solution to the financial precariousness that stems from both misclassification and mass unemployment. The unemployment insurance that’s currently available to gig workers, along with other temporary benefits, is just one of the rights employee status confers on workers. A temporary emergency bailout of gig employers’ UI obligations does not make obsolete that entire bundle of rights, which includes OSHA protection, overtime pay, collective bargaining, and more. In addition, the current status quo of misclassifying drivers puts employers who do pay their employment taxes at a disadvantage.
Given the unemployment landscape we’re facing, however, we need to acknowledge and plan for the reality of a rapidly expanding gig economy. Instead of hoping in vain for gig employers to reclassify their workers as employees, we should accept that the gig model will only become more entrenched, and as such we should focus on expanding the temporary gains gig workers have seen during the pandemic into a permanent social safety net. This will likely necessitate corresponding changes in how companies that rely on gig workers, such as Uber, pay into that system. Uber has signaled their willingness to make compromises, such as supporting portable benefits, so if policymakers can meet them in the middle with a new model for taxing employers, it could create a more stable foundation for all gig businesses.
The pandemic has demonstrated that workers’ access to UI — not to mention other vital benefits — shouldn’t depend on their employer’s classification choices, and that it is entirely possible for the benefits of employment to be detached from any particular job. Some labor scholars suggest that the longer-term solution to fissured or sub-contracted workplace relationships — as well as other threats to formal employment, such as automation — is to shift certain costs of employment from employers onto society at large. Instead of pushing gig employers to reclassify their workers (which is unlikely to be successful on a national scale, given the significant financial disincentives in place), we should think more broadly about delinking healthcare, unemployment insurance, and other vital benefits from specific forms of employment, while providing a protective labor standard for all workers that includes collective bargaining (even for self-employed workers), OSHA, and other workplace rights.
Creating buffers, from extended UI to a universal basic income, that support a baseline of broad economic security for all working people (including those who cannot or should not go to work due to health concerns, layoffs, or any other valid reason) could improve the status quo for workers across the wider spectrum of low-wage and unstable work. The CARES Act shows that there is bipartisan support for distributing public resources more equitably among workers. It’s time for lawmakers to think bigger, and work towards making permanent changes that protect all vulnerable workers — regardless of their employment status — through this crisis and the next.
*Name changed to protect identity.
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