At the Philanthropy Roundtable, we work with donors who want to help strengthen our free society through philanthropy. A key interest of ours is to help ensure that pathways to opportunity are open to all, and that the government, at all its various levels, isn’t in the way of people pursuing meaningful employment.
We’re all familiar with what has become a creative solution for some: the gig economy. Uber, Instacart, Task Rabbit and so on are well known platforms in this area. But there are also many other forms of self-employment and contract work. The gig economy has become an essential way for many Americans to earn the extra dollars needed to keep their families housed, clothed and fed during these challenging economic times. For others, it has become their full-time employment—allowing an individual to put identify and combine the best options for them, maximizing flexibility, creativity and productivity. For people who have child care, elder care or other constraints (including physical limitations), the gig economy can be a life-saver.
We recently held a webinar on “Making a Living the Gig Economy Way.” I had a chance to follow up with two of our panelists to ask them why the gig economy is working so well, what the latest threats are to its continued existence and what devastating impacts there would be in curtailing it. Patrick Tuohey, co-founder and policy director for the Better Cities Project and Iain Murray, vice president for strategy and senior fellow for the Competitive Enterprise Institute (CEI) shared these thoughts:
Question: What are the most valuable aspects of the gig economy from you point of view?
Patrick Tuohey: Gig workers take advantage of their own time and talents to meet the needs of their community. To the degree that individuals are free to do so, they can act quickly to meet demand. Nothing demonstrated this more than the COVID-19 pandemic and subsequent lockdowns, when individuals jumped into the food-delivery market through services such as GrubHub, Doordash and Uber Eats. They put food on their own table by bringing food to others’ tables, and in doing so, permitted people to quarantine and helped keep many restaurants afloat. No large-scale, top-down plan could have acted as swiftly.
Iain Murray: The most important aspect of the gig economy is that it takes advantage of lower transaction costs to enable a greater number of wealth-creating economic transactions. It also enables people to realize some value from underused assets, such as a spare room or a car that would otherwise be idle. The results are an increase in work flexibility for those who value it, a supply of contingent jobs that can be used to supplement income and/or ease unemployment difficulties and lower costs for consumers.
Question: Why and in what ways have various levels of government attempted to regulate the gig economy?
Patrick Tuohey: Much of the burden on gig workers is due to legacy regulations based on past concerns. Barriers against home-based businesses have been on the books in many places for years; occupational licensing requirements were not designed with gig workers in mind and zoning codes have been used to deny homeowners the ability to rent rooms. Each regulation served to meet an old need, yet they remain barriers to creating wealth and independence today.
Iain Murray: Government has been most concerned that gig economy jobs do not offer the same terms and conditions as employment, and wants to impose those terms and conditions either by reclassifying gig economy jobs as employment or by creating a new, third category. Government has also been keen to see increased portability in benefits between jobs although as this is a complex area, efforts have been more focused on the classification issue. In areas like house-sharing, government has been keen to impose stricter regulations, often in an attempt to mollify the powerful lobby of hotel companies and their labor unions.
Question: What would happen to employers and independent contractors if these regulatory attempts become successful?
Patrick Tuohey: The gig economy is here to stay and it is growing quickly. Stifling it lowers cities’ and states’ economic resiliency and reduces their ability to benefit from the innovation and entrepreneurship of their citizens.
Iain Murray: If government is successful in having most gig jobs reclassified as employment, the number of opportunities in these areas would shrink dramatically. Importantly, as was shown by California’s AB5, this would adversely affect traditional freelance jobs as well as newer gig economy jobs. This would be particularly burdensome for those who value flexibility, such as single mothers, who would be forced to choose between having a job and being around for their children. As the opportunities shrank, there would be a consequent reduction in the wealth created by the gig economy. People who would otherwise participate in it would be forced to increase reliance on the welfare system. Costs for consumers would certainly rise – a CEI study in 2019 found that AB5 would increase the cost of a rideshare ride by 30 to 50 percent. Finally, there would almost certainly be consolidation in the gig economy market, resulting in yet fewer options for workers and consumers.
Watch Philanthropy Roundtable’s webinar “Making a Living the Gig Economy Way” here.