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.
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.