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The Gig Economy Is Changing Everything—Is America Ready?

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The structure of the economy needs to adapt as a majority of Americans will make their living as independent contractors in just a few years’ time.

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The days of Americans working 9-to-5, Monday through Friday, in a cradle-to-grave job are all but over. That’s not hype; it’s just the direction the economy is going.

The digital revolution is fundamentally and permanently changing the relationship between worker and employer.

The Gig Economy Is Huge—and Growing

Consider, for example, that today, already more than one-third of American workers don’t work for companies on a W-2 employee basis. Rather, they work on a project or contract basis. If this trend continues as expected, by 2027 more than half of American workers will be working in America’s gig economy.

For the sake of clarity, the gig economy is the quintessence of the free market system at work, and is a direct result of the digital revolution. Much like the railroad in the 19th century and the national highway system of the 20th, universal digital connectivity has expanded and facilitated commercial and labor transactions, as well as the sharing of all kinds and classifications of information.

The digital revolution has truly changed the world much faster and to a greater degree than any other invention coming before it.

A Revolution for Working Americans

The digital transformation of the employer–worker relationship can hardly be overstated. Individuals can now freely market their labor and services as independent contractors to companies around the world. This allows firms to hire independent contractors alongside—and often instead of—full-time workers. They’re typically paid by the job or project.

As you might imagine—or perhaps even know firsthand—gig workers may have more than one job and employer at a time. They often work remotely from their home or, in the case of the massive ride-sharing industry, from their cars. This is an enormous shift in how the economy works. It gives both employers and contractors more control and flexibility over their relationships, schedules, types of work and locations where they perform their work.

But as fantastic and liberating as the gig economy is for tens of millions of Americans and their employers, there are some downsides that must be addressed sooner than later.

Health Care Behind the Times

One of the biggest challenges for gig workers is replacing the affordable health care coverage.

Many former W-2 employees had health care coverage through their old employers. But as contract workers, many are now under-covered or have no health care insurance at all. Excessively high and rising health care costs pose a great risk to the wellbeing of workers, putting a higher burden on social services as well as being a threat to the tax base.

In fact, out of control health care costs are already a national problem. Health care and medical bills are the cause of two-thirds of bankruptcies in the country today. That will only worsen as more working people leave the W-2 employment rolls.

Broken Health Care System a Risk to Millennials, Too

Adjusting our health care coverage choices for the gig economy is not only a political problem, but an economic one as well. It’s not just older, former W-2 workers at risk of financial ruin due to high health care costs. Almost half of millennial workers participate in the gig economy as well.

The more that the younger generation becomes engaged and invested in the gig economy, the more acute the problem will become. In a few short years, low-cost, employee-sponsored health care coverage will become less the norm in the American workforce.

Failure to adapt to the new realities poses a huge risk to the country’s citizens and the overall economy.

California Trying to Kill Gig Economy

It remains to be seen, however, if some of the major gig economy employers, such as Uber and Lyft, GrubHub, UpWork, and others, offer health care insurance to their contract workers, or even if they’re legally or financially able to.

In California, for instance, a new legislation, Assembly Bill 5, has been passed to force employers to treat gig workers as fulltime employees. But it’s a disaster in the making.

Intended to protect gig workers, the new California law only endangers their livelihoods by forcing firms that use contract workers to pay for their health care and other benefits. Gig workers are against it, as are employers.

The pain is already being felt by gig workers residing in California—they’re already being shut out of work opportunities in other states because of the new law that takes effect in January of 2020.

Outdated Tax Code Punishes Gig Workers

The tax code needs to reflect the new realities of the 21st century American workforce as well. Allowing gig workers to fully deduct expenses such as gas, insurance, office equipment, internet connection fees, and other business-related costs is crucial. But under the new tax laws, deductions are capped, making it too costly and even unprofitable to be a gig worker.

The problem is that, like our health care system, many of the tax codes—even some just passed—do more harm than good. Of course, lower taxes are key to a healthy economy; but limiting the rights of contractors to deduct business expenses and mortgage interest payments isn’t the answer. It’s the same as adding more taxes and regulations to businesses. It destroys jobs and economic growth, and only adds to the social services burden.

A New Approach is Needed

But that’s not the only problem facing gig workers in the new economy. Other negatives include missing out on sick pay, Social Security contributions, life insurance, and retirement fund matching. All of these benefits typically come in most employers’ benefit packages. These are not only safety nets for workers, but for society as well.

How all of these benefit needs are resolved going forward remains an open question. But what is clear is that things can’t continue as they are now.

Just as employer-sponsored health care coverage became a part of American working life back in the 1940s in response to new economic conditions, we need a quick response to the rapidly evolving, 21st century gig economy. Low-cost health care coverage must be made available to gig workers. It makes no economic sense for Americans who added over $1 trillion to the economy in 2018 to be left out of affordable health care.

The divide between our outdated systems based on old assumptions and the new economic realities must be bridged, and fast. The legislative arena is where the right protections for gig workers and the gig economy itself must be established. It begins with having access to low group rates for health care coverage and being able to write off all business-related expenses.

Now is the time to rethink how we can structure these very critical aspects of our society and government in accordance with our rapidly evolving structural economic changes. If we don’t, the negative implications for American workers’ health and economic wellbeing are staggering.

James Gorrie is a writer and speaker based in Southern California. He is the author of “The China Crisis.”

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

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Economy

Deconstructing the gig economy | Yield PRO

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With control of Congress and the White House, Democrats are making labor policy one of their first priorities. Ironically enough, that’s actually bad news for independent contractors and gig economy workers across the country.

The legislation at the core of their agenda is the PRO Act, which Democrats just re-introduced with sponsors including Speaker of the House Nancy Pelosi and Senate Majority leader Chuck Schumer. Among many other things, the bill would severely restrict the legal definition of independent contractors in a way that would largely end the gig economy as we know it.

The legislators’ stated intention is to protect workers and bolster their rights under law. Through the reclassification of independent contractors, Democrats hope to force gig economy companies to hire workers as full employees and thus provide them the accompanying salaries and benefits.

“The men and women of labor are the backbone of our economy and the foundation of our strength,” Pelosi said. “With American workers seeing their lives and livelihoods devastated by the ongoing pandemic and economic crisis, the reintroduction of the PRO Act is more important than ever.

“I am proud to join my colleagues in introducing this legislation to put more money in the pockets of hard-working Americans, creating a foundation that provides livable wages to our families,” Schumer added.

The context here is crucial, because this legislation isn’t coming out of nowhere. It’s modeled after a similar but highly controversial California bill, AB 5, that likewise forced the reclassification of independent contractors.

President Biden supported AB 5 at the time, and is on the record supporting the PRO Act, too. And now that Democrats control Congress, it could pass the House and find support from the White House.

The only question would be whether it could make it through the closely-divided Senate.

It’s worth examining the sweeping impact this legislation would have on the economy.

Millions of jobs outlawed with the stroke of the pen

The PRO Act would outlaw millions of existing jobs with the stroke of the president’s pen.

After all, it would make illegal any independent contractor arrangement where the worker provides services within “the usual course of the business of the employer,” meaning jobs like Uber drivers, Doordash drivers, Instacart grocery deliverers, and more could not exist as we know them. There are roughly 10.6 million independent contractors in the US, accounting for 6.9 percent of all employment. Some of these workers might not be affected by the law and some others may get hired on as full-time as a result. But there’s little doubt that millions more would find themselves unemployed.

For example, Uber alone employs more than 1 million drivers in the US. It’s nearly certain they would all lose their jobs under the PRO Act, because Uber already runs a loss, not a profit, and adding an independent contractor as a full staff member counts roughly $3,625 per driver. Basic math tells you that most of these workers would end up being let go; Uber could even go under. After all, the California legislation nearly forced Uber and Lyft to shut down operations in the Golden State altogether until a last-minute ballot referendum modified the law.

Uber is just one company and one example. But freelance workers such as journalists, photographers, florists, musicians and more all lost work in California under legislation similar to the PRO Act.

“Transcription allowed me to stay at home, be my own boss, and control my workflow and whom I work with,” 72-year-old transcriptionist Dori Lehner told the Independent Women’s Forum. “I only have one direct client now, and I only get work when they have it. My income has dropped down to a quarter of what it was before AB5.”

“A mom-and-pop studio can’t hire me and put me on payroll for a one or two hour lecture that I do once per month,” part-time yoga instructor Jennifer O’Connell said.

“That’s wiped out so much work,” she added, explaining that she’s lost roughly three-fourths of her freelance income.

The authors of AB 5 and the PRO Act likely earnestly believed they were going to help workers like Lehner and O’Connell. But the ugly results of their policy naivete will leave many like them unemployed instead.

Unintended consequences always plague big government regulation

The lesson here is clear. The Democrats’ latest labor proposal is a case study in unintended consequences, which inevitably plague big-government interventions into a vast and diverse economy.

“Economic policies need to be analyzed in terms of the incentives they create, rather than the hopes that inspired them,” famed free-market economist Thomas Sowell wrote. “The programs that are being labeled for the poor, for the needy, almost always have effects exactly the opposite of those which their well-intentioned sponsors hope them to have.”

“It’s not enough… to endorse legislation that has a nice title and promises to do something good,” economist Robert P. Murphy wrote. “People need to think through the full consequences of a policy, because often it will lead to a cure worse than the disease.”

Nancy Pelosi and Chuck Schumer clearly haven’t thought this through. If the PRO Act becomes law, it won’t help independent workers—it will eliminate their jobs or strip them of the flexibility that attracted them to the gig economy in the first place.


Source Brad Polumbo, fee.org

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EU launches gig economy consultation

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The European Commission has launched a six-week consultation with unions and employer bodies on how to improve working conditions for digital platform workers.

On 24 February 2021, the European Commission launched the first phase of its consultation on working conditions for digital platform workers in the gig economy.

The consultation comes as the COVID-19 crisis has accelerated the digital transformation of the European economy and the expansion of the platform model: 11% of the EU workforce say they have already provided services through a platform. It will tackle particular areas of concern around health and safety and limited access to social protection and benefits for platform workers.

European trade unions and employers’ bodies will be asked to give their views on the following questions:

  • Do you consider that the European Commission has correctly and sufficiently identified the issues and the possible areas for EU action?
  • Do you consider that EU action is needed to effectively address the identified issues and achieve the objectives presented?
  • If so, should the action cover all people working in platforms, whether workers or self-employed? Should it focus on specific types of digital labour platforms, and if yes which ones?
  • If EU action is deemed necessary, what rights and obligations should be included in that action? Do the objectives presented in this document present a comprehensive overview of actions needed?
  • Would you consider initiating a dialogue under Article 155 TFEU on any of the issues identified in this consultation?

(Article 155 of the Treaty on the Functioning of the European Union provides for dialogue between employers and labour unions or representatives)

The consultation will be in two stages, and the results will feed into the legislative initiative on platform work which the EU has promised by the end of 2021.

The consultation document is available here.

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EU takes step to help ‘gig’ economy workers

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Belgium: The European Commission launched a public consultation to look into the legal employment status and conditions of gig economy workers (a labour market characterised by the prevalence of short-term contracts or freelance work as opposed to permanent jobs).

It is the bloc’s first step aimed at improving the rights of such workers, who work through digital labour platforms, such as ride-hailing or food-delivery apps.

Uber, Just Eat and Deliveroo are among some of the digital platforms used by gig economy workers in Europe.

Such platforms have been particularly in-demand during the coronavirus pandemic, as consumers turned online during lockdowns across the EU.

The gig economy debate
The gig economy allows for flexible working conditions, as well as “job opportunities and additional revenue, including for people who might find it more difficult to enter the traditional labour market,” the commission said on Wednesday.

But companies working in the sector are frequently accused of taking advantage of the self-employed status of workers to avoid covering social security payments and other benefits.

Courts in the UK and Spain have already overruled “self-employed” claims from some companies in the sector.
On Wednesday, Italy followed suit.
Prosecutors told Uber Eats, Glovo, Just Eat and Deliveroo in Italy their couriers were employees and not independent workers.

The companies were fined €733 million ($892 million) for a breach of labour safety rules. The more than 60,000 couriers must be offered non-permanent contracts with fixed pay, the Milan prosecutors’ office said in a statement.

What will the EU consultation do?
The first phase of the EU initiative will see six-week consultations with trade unions and employer organisations about their views on improving working conditions.
If labour and business representatives choose not to enter negotiations on the issue, there will be a second round of consultations on possible measures the EU could take.
If the two sides still do not come to the table after that, then the commission said it will “put forward an initiative by the end of the year.”   
Uber said it plans to work with policymakers and social groups on the proposal.       

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