by Alec Ross
Government deems gig economy or other forms of contract work illegal (such as in Italy where Uber is confined to being a limousine service in just two cities).
New models for financing flexible benefits are enacted into law.
In the same way that capital has become more mobile in the globalized, technology-driven economy of the 21st century, labor has also become more mobile. Gig work and other alternative work arrangements provide people with more flexibility and freedom than they could have ever had with a traditional nine-to-five job. But as with mobile capital, mobile labor has its costs. As we will examine at length in the next chapter, global capital flows allow companies to legally minimize their tax bills and force countries into a race to the bottom on tax policy. Similarly, flexible labor markets mean employee benefits are no longer fixed in place. To guarantee workers a share in the economic prosperity to come in the 2020s, we need to explore models of pay and benefits that are as flexible as their jobs. We cannot solve the labor problem on a company-by-company basis.
In a letter to the New York Times entitled “I am the CEO of Uber. Gig Workers Deserve Better,” Uber CEO Dara Khosrowshahi wrote, “There has to be a ‘third way’ for gig workers, but we need to get specific, because we need more than new ideas—we need new laws. Our current system is binary, meaning that each time a company provides additional benefits to independent workers, the less independent they become. That creates more uncertainty and risk for the company, which is a main reason why we need new laws and can’t act entirely on our own.”
Khosrowshahi’s proposal is that gig economy companies be mandated to establish funds that workers can draw on to pay for benefits in an amount corresponding to the number of hours they put in. In his example, if a law enabling this were put in place across the United States, Uber would have paid $655 million into the benefits fund. That sounds great until you extrapolate it across Uber’s millions of drivers. In his own example and using his own math, a driver in Colorado averaging over thirty-five hours per week would have accrued approximately $1,350 in benefits funds in one year. That’s horrendous given the cost of health insurance and anything else that might be termed a benefit. Give Khosrowshahi credit for acknowledging the problem and proposing a solution, but his own example demonstrates that employer-based benefits on Uber’s terms leave drivers in a hellish position.
The game theory here just doesn’t work. Uber will never be profitable until it engages in enough mergers and acquisitions to stumble into a better business model or until its cars are autonomous and the single biggest cost (the drivers) is eliminated.
The labor movements that lead us into the future will be those that pioneer models for securing benefits for those who work in the gaps not reached by traditional unions. As people change jobs more often over the course of their careers, it is no longer practical to have benefits tied to their employers. As workers move from job to job, they should carry their health care, parental leave, and retirement plans along with them. We are already seeing this “portable benefits” system emerging with the help of innovative techniques from a new crop of union leaders.
Organized labor is in Sara Horowitz’s blood. Her grandfather helped establish one of the most prominent garment workers’ unions in the United States; her father worked as a labor lawyer for hire; and her mother was an active member in the teachers’ union. As a child, Horowitz would make frequent visits to her grandmother’s one-bedroom apartment on Manhattan’s Lower East Side to snack on ice cream mashed with instant coffee. The apartment complex, named after New York labor leader Sidney Hillman, housed members of the Amalgamated Clothing Workers of America union.
Growing up in Brooklyn Heights, Horowitz assumed everyone shared the same enthusiasm for unions as she and her family. It was not until college that she was exposed to less rosy perceptions of organized labor. President Ronald Reagan had recently broken the PATCO strike, and attitudes toward worker movements in the United States and United Kingdom were shifting.
“The culture just really stopped seeing the benefits of unions,” she said. “There are many legitimate issues with unions for sure, but I think we’ve now seen that we’ve thrown the baby out with the bathwater.”
In 1995, Horowitz founded the Freelancers Union. Though technically a nonprofit, the group offers independent workers many of the same features as a traditional union. It helps members network and organize, and, most consequentially, it provides benefits. Today, the group offers health insurance, retirement plans, and other coverage to contractors who do not qualify for benefits through their employers. But unlike employer-based programs, these benefits follow workers from job to job.
This is especially valuable given that it is not only gig economy employers that fail to provide benefits. Just focusing on retirement benefits, for example, we see that there has been a massive shift from employer-provided retirement. In decades past, “defined benefit” plans such as pensions were the norm; under these plans, employers would make specific payments to past employees during their retirements. Now the norm has shifted to “defined contribution” plans, which are dependent on employees’ own savings. This is especially tough for low-wage workers, who have scarce funds to contribute to their retirement after paying for their basic living expenses. Thirty years ago, more than half of American workers had defined benefit plans; today that number is near 20 percent.
This, in turn, is part of a pattern of greater individualization of the social contract. Both employers and the government are doing less across the whole of society to cushion people from hard-edged developments in our economic life. In addition to guaranteed pension levels dropping, an increased share of both health care and education costs is private. This hyper-individualization of benefits and the social contract contributes to the Mad Max–like competition to meet basic needs.
The portable benefits pioneered by the Freelancers Union could serve as a model for other labor organizations to pursue and for government to help support and scale.
“I think that we are going to be really riffing off a guild model in many ways—it’s going to be much more about self-help and mutual aid, and using technology to link these things together,” Horowitz said. “I think that people are going to come together around the things that they have in common and the things that they need, like training, or education, or finding out about jobs, or that kind of thing. I think that the unit of labor representation is going to be still a collective, but the collective may be geographically based or professionally based and less based on the particular employer.”
Policy makers in the state of Washington have developed a possible solution built around a new mandated fee for companies that connect workers with clients or customers. The fee would apply to online or app-based rideshare and freelancing platforms, as well as more traditional non-internet-based employment that would fund portable benefits for those workers. Labor leader David Rolf and venture capitalist Nick Hanauer collaborated to design what they call a Shared Security System, which reflects the nature of labor in the 2020s and is based on social security but includes all the employment benefits that used to characterize a full-time job. These benefits would build up through automatic payroll deductions, regardless of employment classification, and would mirror social security in being portable (moving with you from job to job), prorated (paid in proportion to the amount of work done), and universal (employment classification does not matter). These are compelling ideas that are the necessary starting points for change.
Yet, on the whole, there aren’t many precedents for such an approach in the United States or the United Kingdom; it’s better to look to the models of central and northern Europe for inspiration.
THE CENTRAL AND NORTHERN EUROPEAN MODEL
In the US, unions negotiate on behalf of the workers at individual companies, but in much of Europe they advocate for and represent entire sectors of the economy. This “sectoral” bargaining has enabled labor unions to penetrate new industries and keep wages h
igh across the economy.
In countries including Denmark, Finland, Norway, and Sweden, unions negotiate with employers at three levels: At the national level, union federations and business associations set standards for workers across the entire economy. At the industry level, select unions and employers do the same for individual sectors of the economy, like manufacturing, financial services, and retail. And at the local level, unions hammer out specific agreements with individual companies. Under this system, the vast majority of workers reap the higher pay and benefits that come with union membership, even if they do not belong to the union themselves. Just as the Freelancers Union offers workers portable benefits, sectoral- and national-level bargaining provides them protections and rights that extend beyond a given employer. Variants of this also exist in other countries in specific industries.
For example, when I asked Italian designer Brunello Cucinelli how much he paid the seamstresses and other workers in his factories, he told me that a national contract was negotiated between fashion entrepreneurs and the trade unions under the supervision of government. Wages were set based on the type of job, and Brunello then added 20 percent more to the wages. Instead of a race to the bottom, wage standards were decided by stakeholders from business, labor, and government and set at a satisfactory minimum standard, which Brunello then took 20 percent higher.
In Denmark, Finland, Norway, and Sweden, more than half the workforces belong to labor unions, and more than 70 percent are covered by collective bargaining. In Denmark, Sweden, and Finland, unions are also responsible for administering unemployment insurance, which gives workers an incentive to sign up and pay dues. Today, these countries have some of the world’s highest rates of union membership.
And unlike in the United States and United Kingdom, many of the European states seem to try to outdo themselves by making working conditions better. Finland’s prime minister has called for reducing the standard workday from eight to six hours. The prime minister in neighboring Sweden, where 70 percent of the workforce is unionized, is a former union welder who got involved in politics through his work as an ombudsman for the country’s metalworkers union, a fact that makes me think back to Richard Trumka looking out his window, talking about power and the potential implosion to come. In Sweden, a union welder holds that power.
In addition to the prominence and power of unions, a handful of European states have found an additional, creative way to ensure companies act with their employees’ interests in mind: giving workers seats in the boardroom.
These countries—which include Germany, Austria, Denmark, Sweden, Finland, Norway, and the Netherlands—require private companies of a certain size to reserve a portion of the seats on executive boards for worker representatives. This policy, called codetermination, lets company employees weigh in on high-level decisions.
Different countries set different thresholds for board-level representation. In Denmark, workers at companies with at least thirty-five employees elect one-third of the board of directors. The same goes for Dutch firms with more than one hundred employees. In Germany, companies with between five hundred and two thousand employees must reserve one-third of the seats on their supervisory boards for worker-elected representatives. For German firms with more than two thousand people, half the supervisory board is selected by employees.
Douglas Alexander, a former British Labour Party politician and cabinet member, said this high-level representation directly translates to better economic outcomes for workers.
“There is a strong case for ensuring employee representation on boards,” Alexander told me. “In the same way we have learned that diversity and inclusion changes the conversation, if you establish a critical level of representation, simply the presence of divergent voices impacts the conversation. Many of the companies in countries with codetermination have managed to retain international levels of competitiveness while sustaining a social contract more generous to their employees than many other countries and companies have managed.”
The data support his claim: board-level representation for employees is linked to greater job security and lower income inequality. During the Great Recession, Scandinavian firms with employees on their boards were more likely to favor short-term cost-cutting measures like furloughs and reduced hours over layoffs. The pay gap between CEOs and workers in the United States is twice as large as it is in Germany and more than four times as large as it is in Sweden.
Codetermination is also shown to promote more long-term decision-making within companies. Businesses in Denmark, Sweden, Germany, and Austria spend a greater share of their income on research and development than those in the United States. Between 1998 and 2014, American companies announced 11,096 stock buybacks, compared to only 533 in total across firms in Germany, Austria, Denmark, Sweden, Finland, Norway, and the Netherlands. Though many argue that codetermination results in slower growth and lower profits, dozens of studies have found no clear evidence to support this claim.
In Germany, Austria, Switzerland, and other European states, employees are also represented by work councils. These organizations often have close ties to labor unions, but their responsibilities are distinct—while unions bargain with employers over wages and benefits, work councils act more like employee advocates at individual companies. Though their exact responsibilities vary by firm, work councils generally have broad say over issues that directly affect employees. They work with managers to determine employees’ hours, holidays, and payment methods. Councils must be consulted before layoffs or other major staffing changes, and they play a major role in setting workplace safety standards. In some cases, councils have the right to veto decisions made by management.
I sit on the board of directors of a publicly traded Swiss company, and the dialogue there between executive management and the work council is more positive and productive than anything I have seen in the United States. The work council advocates for its employees but does so recognizing that the overall health of the enterprise makes for better long-term prospects. It is not a coincidence that our employees are an exception to mass employee mobility, with most choosing to stay at the company for decades.
Compared to unions, which represent workers across one or more industries, work councils are much more intimate. Council members are company employees, elected by their coworkers. Larger companies have larger work councils, but even at the biggest firms the councils have only a few dozen members. Each member has personal relationships with the workers they represent and the managers with whom they negotiate. The system fosters camaraderie—you are more likely to trust the guy you eat lunch with to do the right thing than a union leader eating a twenty-five-dollar omelet in Washington.
“Most workers are more committed to their work council than they are to their union,” said Harvard economist Richard Freeman.
That is not to say industries with work councils do not need strong unions. Stephen Lerner, an organizer and fellow at Kalmanovitz Initiative for Labor and the Working Poor at Georgetown University, said work councils sometimes favor their own company’s employees over the interests of workers across the industry. To strike a balance, you need both internal and external groups advocating for workers.
Germany was the first to develop this system of employee participation in company decision-making. Though many European states have adopted similar corporate governance structures, the system is still known as the German model. While labor relations in the United Kingdom and United States have been “historically adversarial,” countries with strong unions and worker representation have found a “far more consensual approach” to conducting business, said Douglas Alexander.
THE MEDITERRANEAN MODEL
Not all of continental Europe benefits from labor unions that reshape entire industries for the better of both business and employee. To the south and west of the countries employing the German model are workforces with comparably high levels of union participation but near-constant friction between employer and empl
oyee—often to the detriment of both.
Italy and France lack codetermination, and their unions see workers as perpetually in opposition to management. I’ve lived in Italy three different times in my life and on any given day somebody is striking. It could be the rail workers, it could be the taxi drivers, it could be any sector, anywhere.
It’s important for workers to have that right, but when strikes happen too frequently and without result, it’s also a sign that something in the system has broken. In Italy, strikes happen so regularly, grinding business to a halt for the day, that nobody raises an eyebrow. It’s almost treated like a little holiday. Ask about it and you’ll just get shrugged shoulders and be told, “È un giorno per uno sciopero”—it’s a day for a strike. Workers will often plan vacations weeks in advance, knowing that they will have a long weekend with a strike planned for a Friday or Monday. Yet the strikes tend not to be built around a specific grievance or intended outcome, and nobody is organizing online or out protesting in person. It’s basically just a day off.
In France, strikes regularly shorten five-day school weeks to four days. In Spain, Portugal, and Greece, work councils occasionally exist in name but rarely in practice, and all suffer from regular striking to no effect.
The result of this is a chasm between employers and employees that ends up hurting both. The lack of commitment between employees and management leads to dysfunction and a lack of dynamism within the company, the sector, and the economy overall. This is one reason that countries using the German model have achieved substantially higher levels of growth and higher wages for employees than has been the case in Mediterranean Europe. Because it’s somewhere between difficult and impossible for employers to fire their employees, a significant chunk of the labor force ends up being pushed into the black market. Many businesses simply are unwilling to hire employees, knowing that once they do so they will never be able to fire them. That shifts many jobs off the books, which in turn has the effect of reducing tax payments and, ironically, the rights of those workers. The system is bad for business, bad for employees, and bad for government. The Mediterranean model is worse than the American and British models, which enable entrepreneurial freedom, and a far cry from the German model, where codetermination gives workers a stake in their company’s success and forces management to consider workers as stakeholders in the decisions they make. Union members and management in Mediterranean countries feel no such mutual loyalty.