Hustle and Gig
Page 24
A small, temporary change of pace can be interesting. Joshua would probably never consider cleaning houses for a living or working as a hotel’s front desk clerk, but as a short-term side hustle it has its appeal. At the end of our interview, he noted that he was moving cross-country and hiring his fiancée’s undocumented immigrant mother to manage the key distribution and cleaning. As he put it, he and his business partner “want to do as little manual labor as possible, turn [Airbnb listings] into passive income.”
RACE OR CLASS?
Is this brushing off of the social contract an issue of socioeconomic or racial inequities? As noted previously, discrimination has been documented among sharing economy services such as Airbnb, Craigslist, and eBay.75 However, when it comes to the treatment of workers, it’s not certain to what extent the issue is race-based or class-based. There are three main areas in which the experiences of workers may be affected by race: working in the sharing economy, using platforms as a client, and experiencing increased levels of risk and exploitation.
African Americans appear to be less likely to work in the sharing economy. An Uber-funded study found that Uber drivers were more likely to be white, and less likely to be black, than local chauffer-taxi drivers.76 It’s not certain if the “whiteness” of sharing economy services is due to an awareness of such discrimination or to the digital divide. For instance, lower-income minorities may be less likely to have access to the types of smartphones and robust data plans that are needed for successful hustling in the sharing economy. Additionally, African Americans also appear to be less likely to use the sharing economy.
In a March 2016 Pew Research Center survey of 4,787 American adults—a detailed study of the scope and impact of the shared, collaborative, and on-demand economy—Pew found that platform usage varied widely across the population. The survey revealed that 72 percent of American adults had used at least one of eleven different shared and on-demand services, and that approximately 20 percent of Americans had used four or more services. However, the Pew definition is especially broad and includes services that may or may not be part of the sharing economy. For instance, in the Pew survey, 41 percent of adults had “used programs offering same-day or expedited delivery,” and 28 percent had purchased tickets from an online reseller—these are hardly concepts that are novel to the sharing economy. While 50 percent of adults have purchased used goods online, there’s a sharp drop in the percentage of respondents who have tried a ride-hailing app (15 percent), utilized an online home-sharing service (11 percent), or hired someone online for a task/errand (4 percent).
The Pew study also found racial differences by service platform. Car services, such as Uber and Lyft, have been identified as helping equalize the playing field by reducing the discrimination that racial minorities may otherwise experience in hailing a cab. Latinos (18 percent) and blacks (15 percent) were slightly more likely than whites (14 percent) to have used a transportation service such as Uber or Lyft. But, while 13 percent of white adults had used a home-sharing service, only 9 percent of Latinos and 5 percent of blacks had used such a service. Blacks (36 percent) and Latinos (48 percent) were also less likely than whites (53 percent) to have purchased used items online through eBay or Craigslist, both of which were early entrants into the sharing economy.
Again, there are also distinct class differences at work. Among individuals with incomes of $75,000 a year or more, 61 percent have purchased used items online, compared to 36 percent of those making less than $30,000 a year. Home-sharing services have been used by 24 percent of those with incomes north of $75,000 a year, compared to 4 percent of those making under $30,000.77
Finally, it’s uncertain if the criminal risks that are experienced by workers are due to race or class. An unpublished joint paper by Isak Ladegaard, Juliet Schor, and myself shows that for-hire drivers in Boston and New York experienced three major categories of vulnerability: legal (e.g., involuntary inclusion in criminal activities), economic (e.g., the ever-present threat of being “deactivated”), and bodily and emotional (e.g., sexual harassment and threats of violence). Additionally, women and minorities experienced enhanced and intersecting vulnerabilities. Likewise, as noted previously in chapter 6 on criminal activity, most of the workers who found themselves in criminally questionable situations were members of minority groups.
Again, however, it’s not clear how much this is an issue of race versus class. Work from the Chase Institute found that individuals with lower incomes ($44,800 and below) had a higher involvement in labor platforms (0.6 percent) compared to those with incomes in the highest quintile, $84,900 and above (0.3 percent). A McKinsey Global Institute report also noted that lower-income households are more likely to participate in independent work out of a lack of better alternatives. Forty-eight percent of the earners with less than $25,000 in household income participated in independent work, and 37 percent of such households described their work as being “out of necessity.” Meanwhile, one in three high-income earners (defined as those with household incomes of $75,000 or more) engaged in independent work, and the majority of these participated “by choice.”78
The gains for whites and minorities played out differently after the Great Depression and World War II.79 While whites were able to utilize government-guaranteed mortgages, African Americans were prevented from accessing such resources, owing to restrictive covenants in neighborhoods and bank redlining. With most of the average American’s wealth attributed to a home, the resulting homeownership gap led to a growing wealth gap. By 1994, the median white family had more than seven times the assets of a median nonwhite family; and even among upper-income families, whites had three times the median net worth ($308,000) of nonwhites ($114,600).80 After the subprime crisis, in which minority homeowners were especially targeted by unscrupulous lenders, the wealth gap has only grown. A 2016 report from the Corporation for Economic Development and the Institute for Policy Studies observed that “in the past 30 years, the average household wealth of white families has grown 85% to $656,000, while that of blacks has climbed just 27% to $85,000 and Latinos 69% to $98,000.” Based on current trends, it would take Latinos eighty-four years to accumulate the same amount of wealth as whites. For black families? Two hundred twenty-eight years.81
While nonwhite workers were in the minority in my sample for most sharing economy services (for-hire driving remains the exception), minority participants, with lower median net worth, may be especially vulnerable in the gig economy. The workers who found themselves involved in criminal activity were all Strugglers and Strivers—none were Success Stories. It’s not certain if they were targeted for involvement on the basis of their race, or if they were more vulnerable to questionable activities because of the nature of the labor platform and the need to hustle for work. All users—regardless of race—experience the same risk of sexual harassment, on-the-job injuries, and sudden deactivation, although these risks are more salient for Strugglers and Strivers than for Success Stories.
Some have suggested that as the economy further improves, gig economy services will have to increase their perks and workplace benefits in order to compete for workers. Yet even as unemployment rates drop, the gig economy continues to grow. Owing to economic volatility and income stagnation, it seems unlikely that employment in the gig economy will decrease all that much. The sharing economy—with its focus on flexible scheduling and opportunity for workers to pick up shifts as necessary—is fulfilling a real need. Indeed, while I was doing this research, one of my family members, seeking to soften a financial blow, began driving for Uber and Lyft. As he put it, driving was helping “make ends meet.”
As critical as I am of the sharing economy and its lack of worker protections, if we aren’t going to increase incomes overall or implement a universal basic income, then we need a way to help people supplement their incomes as needed without experiencing an undue burden of risk. An easy fix would be to change how gig economy workers are classified by employers.
INDEP
ENDENT CONTRACTOR (MIS)CLASSIFICATION
While many sharing economy services tell their workers that they are small business owners or independent contractors, the determination of employee or independent contractor is actually based on federal laws, although definitions and interpretations can vary. The Fair Labor Standards Act, the Migrant and Seasonal Agricultural Worker Protection Act, and the Family and Medical Leave Act have broader definitions of employee. For instance, under the Fair Labor Standards Act , an employee is “‘any individual employed by an employer’ and employ is defined as including ‘to suffer or permit to work.’ The concept of employment in the FLSA is very broad and is tested by ‘economic reality.’”82 Economic reality is composed of six factors, including whether the work is an integral aspect of the employer’s business; whether the worker’s managerial skill affects his or her opportunity for profit or loss; the worker’s and employer’s relative investments; the worker’s skill and initiative; the permanency of their relationship; and the employer’s control over said relationship.83
Worker classifications are policed by the Labor Department, the IRS, and local and state tax authorities, but employers manage classification, and it is notoriously difficult to root out violators. Seth Harris, a deputy labor secretary under President Obama, explains that, without worker complaints, “your chances of finding a worker that’s been misclassified . . . are worse than your chances of finding a leprechaun riding a unicorn.”84
As noted previously, classifying workers as independent contractors reduces payroll taxes, including Social Security contributions, workers compensation, and health insurance premiums. Misclassifying workers can also lead to issues when workers file for unemployment, delaying their ability to collect on claims. This misclassification, and the fact that state laws differ, has also led to some Uber drivers in New York and California being considered employees for unemployment purposes, while drivers in Florida are deemed independent contractors (see fig. 14).85
Figure 14. Not all Uber drivers agree that they are independent contractors. Some drivers attended the June 2015 protest at city hall as part of a counterprotest to raise awareness of their status as 1099 workers. Photo by author.
Although it may sound as though worker classification is arbitrarily decided by companies, the IRS has released a twenty-factor test (see box 1) to assist employers in determining how to classify their workers. While the idea of a multiquestion test may bring to mind magazine quizzes, the test is not as simple as marking yes or no and then adding up the score. While having control over the work is seen as a sign of employer status, it is not necessary that the employer actually control the work—just that he or she has the right to control it. To further complicate the situation, the IRS “emphasizes that factors in addition to the 20 factors identified in 1987 may be relevant, that the weight of the factors may vary based on the circumstances, that relevant factors may change over time, and that all facts must be examined.”86
Box 1. Twenty Factors in Determining Whether an Employer-Employee Relationship Exists
The 20 factors identified by the IRS are as follows:
1. Instructions: If the person for whom the services are performed has the right to require compliance with instructions, this indicates employee status.
2. Training: Worker training (e.g., by requiring attendance at training sessions) indicates that the person for whom services are performed wants the services performed in a particular manner (which indicates employee status).
3. Integration: Integration of the worker’s services into the business operations of the person for whom services are performed is an indication of employee status.
4. Services rendered personally: If the services are required to be performed personally, this is an indication that the person for whom services are performed is interested in the methods used to accomplish the work (which indicates employee status).
5. Hiring, supervision, and paying assistants: If the person for whom services are performed hires, supervises or pays assistants, this generally indicates employee status. However, if the worker hires and supervises others under a contract pursuant to which the worker agrees to provide material and labor and is only responsible for the result, this indicates independent contractor status.
6. Continuing relationship: A continuing relationship between the worker and the person for whom the services are performed indicates employee status.
7. Set hours of work: The establishment of set hours for the worker indicates employee status.
8. Full time required: If the worker must devote substantially full time to the business of the person for whom services are performed, this indicates employee status. An independent contractor is free to work when and for whom he or she chooses.
9. Doing work on employer’s premises: If the work is performed on the premises of the person for whom the services are performed, this indicates employee status, especially if the work could be done elsewhere.
10. Order or sequence test: If a worker must perform services in the order or sequence set by the person for whom services are performed, that shows the worker is not free to follow his or her own pattern of work, and indicates employee status.
11. Oral or written reports: A requirement that the worker submit regular reports indicates employee status.
12. Payment by the hour, week, or month: Payment by the hour, week, or month generally points to employment status; payment by the job or a commission indicates independent contractor status.
13. Payment of business and/or traveling expenses. If the person for whom the services are performed pays expenses, this indicates employee status. An employer, to control expenses, generally retains the right to direct the worker.
14. Furnishing tools and materials: The provision of significant tools and materials to the worker indicates employee status.
15. Significant investment: Investment in facilities used by the worker indicates independent contractor status.
16. Realization of profit or loss: A worker who can realize a profit or suffer a loss as a result of the services (in addition to profit or loss ordinarily realized by employees) is generally an independent contractor.
17. Working for more than one firm at a time: If a worker performs more than de minimis services for multiple firms at the same time, that generally indicates independent contractor status.
18. Making service available to the general public: If a worker makes his or her services available to the public on a regular and consistent basis, that indicates independent contractor status.
19. Right to discharge: The right to discharge a worker is a factor indicating that the worker is an employee.
20. Right to terminate: If a worker has the right to terminate the relationship with the person for whom services are performed at any time he or she wishes without incurring liability, that indicates employee status.
More recently, the IRS has identified three categories of evidence that may be relevant in determining whether the requisite control exists under the common-law test and has grouped illustrative factors under three categories: (1) behavioral control; (2) financial control; and (3) relationship of the parties. The IRS emphasizes that factors in addition to the 20 factors identified in 1987 may be relevant, that the weight of the factors may vary based on the circumstances, that relevant factors may change over time, and that all facts must be examined.
Source: Joint Committee on Taxation, Present Law and Background Relating to Worker Classification for Federal Tax Purposes, House Committee on Ways and Means, JCX-26-07, 2007.
The twenty-factor test is especially ambiguous when it comes to the sharing economy. If a worker can be deactivated, is that the same as being fired? If a Kitchensurfing chef must wear an apron (factor 1, regarding following instructions), but is paid a set amount for a set shift, regardless of the number of hours actually worked (factor 12, regarding payment), is he an employee or an independent contractor? If a driver can work for both Uber and Lyft (factor 17, regarding
working for more than one firm), but her rates are determined by the services (factor 3, regarding integration), where does she fall? If a TaskRabbit must work in a preset four-hour shift (factor 7, regarding set hours of work), but sets her own schedule (factor 8, regarding whether full time required), is she an employee or an independent contractor?
There’s enough disagreement about the difference between an employee and an independent contractor that some researchers have suggested adding a third category, the so-called dependent worker or on-demand contractor.87 In Germany and Canada, this option is limited to workers who “depend mainly or entirely on a single employer or client,” in some cases making as much as 80 percent of their income through one client.88 Such a classification in the United States might actually increase worker risks and exploitation. For instance, a worker who was a “dependent contractor” for Uber might not be able to take advantage of special rate incentives with competing services or an entirely different gig economy platform.
An alternative category—independent worker—has been recommended by former deputy secretary of labor Seth Harris and Princeton economist Alan Krueger.89 If US antitrust laws were amended, the independent worker category would allow independent workers to organize and bargain collectively, to be covered by civil rights laws, and to have taxes deducted from their paychecks. Workers would also have the opportunity to pool with other independent contractors to receive certain benefits, such as disability insurance, retirement accounts, and liability insurance, much like workers who join the Freelancer’s Union. However, under this model, workers would not be covered by minimum wage requirements, overtime laws, or workers’ compensation, and workplace injuries would generally be addressed through the tort system. This option continues to put the onus on the worker to organize and to find and fund benefits such as disability insurance; and the lack of workers’ compensation and minimum-wage requirements is especially troubling.