Gig Economy in the Crosshairs of a Benefits Blunderbuss

Our so-called “gig economy” is the spontaneous contracting for labor and services on a short-term, low entanglement basis, much as a musician might join a band for one or two night’s work.  Those fleeting labor contracts are made easy by Internet as it supports contractual interactions by sellers and buyers.  In the gig economy, some traditional employee-employer relationships evolved into contracts between self-employed people and those who pay for their labor without including employee benefits.  The usual panoply of employee benefits is available to self-employed workers, but some advocate a standardized set of benefits, and making it a mandatory obligation for employers.

The currently proposed portable safety net of benefits for gig workers would require a pension, health care, unemployment and disability insurances, and paid time off.  The proposal is vague on key issues such as which benefits, which employees, who pays, and whether participation is voluntary or the next ACA-like mandatory purchase.  The benefits list includes more benefits than most US workers have, except for the a few unionized employees in large firms.  Some of the more than 50 million self-employed workers may want all of the benefits, some a few of the benefits, and some none.  The relevance, cost and appeal of each benefit needs to be carefully studied.

Quick to ignore the views of employers and self-employed workers, the National Labor Relations Board (NLRB) demands that the self-employed receive a blivet of benefits for which employers will pay.  To force employers to pay, the NLRB had to redefine contracts used by self-employed workers.  NLRB thinks only government and unions know what is good for workers.

The proposed “safety net” list needs some flexibility.  For example, the Affordable Care Act marketplaces are available to anyone, so a separate health coverage benefit is unneeded.   Pensions are largely extinct or replaced by contributions to retirement accounts.  Since anyone can start an IRA (the self-employed can start a SEP account), there is no need for a separate retirement benefit, but perhaps the federal limit on IRS contributions needs increasing.  Disability insurance is already available commercially.  Almost everything is there for the self-employed workers to obtain.  The real issue is can they afford the benefits?

A well-known example of the gig economy is short term stays in privately owned homes.  A firm called AirBnb intermediates some of this and it competes with hotels, causing new revenues to flow to home owners and it lets renters enjoy lower accommodation costs, perhaps in superior locations.  Much of the short rentals market reflects temporary vacancies during owner vacations.  A few weeks of rental income could not fund the employee benefits proposed.

Services such as pasture maintenance are inexpensively promoted region-wide to ranchers and farmers through websites such as Craig’s list.  A farmer who invested in a tractor with a bush hog, cyclone spreader, and trailer can earn $600 for a day’s work a few times per month.  A gig-economy farmer can rearrange his schedule to earn $1200 toward his monthly agricultural equipment payment, but he is unlikely to earn enough from a pasture maintenance sideline to pay for his equipment and a portable safety net of benefits.  Both the farmer and the short term rental homeowner are converting some of their idle capital assets into income.

In my own foray into the gig economy, I have been self-employed for 5 years.  I pay the usual self-employed payroll and income taxes and supply my own work tools.  Almost all my interactions with employers are through the Internet.  At age 69, my wife and I receive Medicare and Social Security retirement benefits following 33 years of contributions.  We fail the portable safety net of benefits standard because we have no pension, no unemployment insurance, and no disability insurance.  We do not need any of those.  We did save for retirement.  For us, a portable safety net of benefits is unnecessary and if it dislodges contracts with employers, it would do catastrophic damage to the little guy.

The proposed portable safety net of benefits for gig economy workers is atypical of what many of today’s workers want or can afford, and if made mandatory for employers to fund, it will impose a 30% higher labor cost penalty on employers.  Employers, self-employed workers, and those who advocate for the benefits list should discuss the proposal without presuming that government knows better than taxpayers.

If taxed to fund the benefits, employers are likely to halt filling positions that lack a 30% or higher margin and jobseekers will face fewer job openings.  A 30% hike in labor cost can sink new ventures – releasing employees to walk the digital pavement, while they clutch press releases lauding a portable safety net of benefits.  No sane person wants credit for engorging the list of standard labor benefits, albeit for far fewer workers.

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