Gig a what?
Gig a what?
Why not embracing the future can be a problem
Many years ago, as a young(ish) man, I quit the law firm I was at and spent many months frolicking in the waters of funemployment. But eventually I realized I was incredibly bored and missed interacting with people. I was also hopelessly lost in a city I’d lived in for two years. A far cry from the man who can still rattle off all the east/west cities in Philadelphia in order. So I signed up to begin rideshare driving.1 I had entered the gig economy.
And I loved working in the gig economy. For starters, I genuinely enjoyed the driving. I learned the city, met loads of interesting people, got great stories, and crushed the Hardcore History back catalogue. But the broader benefits of the gig economy were even better. I worked when I wanted, where I wanted, how I wanted. If I didn’t feel like working, I wouldn’t. If I was bored, I would. I could tailor my work to making more money, creating a spreadsheet of how much I made at what time slot and what zip code. After a few months I felt it was time to get back to my profession, so I stopped to work at the worst law firm I’d ever worked at. A month later I quit and went back to driving which I did for another six months before finally deciding that I needed to put that law degree to work. Thus, I exited the gig economy. But it left me with nothing but wonderful memories – except the guy who threw up on my car and the guy who punched me. Which were actually great stories. However, just because I enjoyed the gig economy doesn’t mean anything. Should the world enjoy the gig economy?
What the gig economy is can be easily deciphered from the name. Just as musicians take “gigs” – working for others when work is available – gig economy workers don’t have full time employers. They’re independent contractors using digital platforms to take work when available and get paid for that task. This technically includes many things, such as the artists on Fiverr and freelance writers. Really, what are the guys waiting in the Home Depot parking lot other than gig workers? But when we use the term what people are referring to are those who work for the handful of gig economy giants such as Uber, Lyft, Taskrabbit, Instacart, or Doordash.
The promise of the gig economy is basically the freedom I talked about earlier. For the worker, it’s freedom and flexibility, the ability to make money off your spare room or the car you already own. You’re also not as tied in like at a traditional employer and can come and go as you please. For the business, they don’t need to hire full-time employees and all the travails that includes, such as paying benefits, nor do they need to invest in things like “the actual equipment a business uses” such as a fleet of vehicles. And for consumers, they get services for less money. Unsurprisingly for something spawned from Silicon Valley, many hailed this as revolutionary, including the book I read a decade ago that was so unmemorable I can’t remember its name. Also unsurprisingly, it has yet to revolutionize the world – only about 16% of Americans have ever partaken.2 Whether the gig economy will revolutionize the world – and whether that will be as welcome as Revolution or as unwelcome as Revolution #9 – really comes down to two problems.
The first of those problems is that the gig economy may be a mirage. It’s wonderful to think that for a low price you can have people drive you around, buy your groceries, or bring you food from wherever you want. But the problem is that’s not profitable. There’s a reason that these companies lose massive amounts of money. Not to always pick on Uber, but the chart in this thread by Alison Griswold – author of the wonderful Oversharing – makes the point well:
Lyft isn’t much better. And the problems with Doordash are even more stark. The more these companies grow, the more money they lose. It seems as if even Wall Street is starting to notice.3
It may be that the profitability of these companies depends on automation. And although this is getting closer with food delivery, it’s looking like autonomous vehicles – for reasons too numerous to get into here – are farther away than once thought. It seems likelier by the day that these companies are structurally unprofitable. Which means the gig economy is being propped up by loads of VC cash. I’m not going to complain about that – although I think they should give some of that VC money for me for writing this newsletter. Seriously, I’ll agree to any terms you propose. But I enjoy the gig economy as a consumer. I just Doordash’d a pizza while writing this. Just remember that the next time you get your Drizly order to thank a VC, because they’re the ones making this possible
The second problem is that the overall American economy is not hospitable to gig workers. In my politics days, I would often say that we were focused on the problems of the 1970s and weren’t talking about the problems of the 2020s. Now the 2020s are here, but we still aren’t doing much of that either. The dead hand of history controls how our society is setup. This can be seen in the fight over whether rideshare drivers are independent contractors or employees. It seems somewhat obvious that they’re not employees. Forgive me for being a lawyer, but I’ve applied the independent contractor test many times and I can’t see how people who provide their own equipment, have no training, have complete control over when and how they work, and are paid by the task aren’t independent contractors.4 Even ignoring the law, it seems like rideshare drivers fit the very concept of independent contractors. Most of the public and the drivers agree. And I doubt that the people pushing it think that they are employees either. But they want access to privileges that are only available to employees due to the dead hand of history.
The easiest example is healthcare. Due to a historical quirk, America tied healthcare into employee benefits. Once created, attempts to change that have continually failed. One of the most common complaints about workers in the gig economy is they don’t have benefits. Whether it’s healthcare or paid leave, the reason gig economy workers don’t have them isn’t because of Big Bad Uber, it’s because we’ve chosen to tie them to full-time employment. We’ve done this with far more than benefits. As anyone who is not a W2 employee knows, navigating anything from student loan repayments to child support payments is far more difficult. We force the self-employed to pay more in taxes (because they’re not splitting it with their employer) and we make the very act of filing taxes more difficult.5 It’s more expensive to be self-employed than it is to work for someone else.
Partly this is based on an assumption that if you have your own business you can make enough money to cover this. That assumption falls apart with the gig economy. I could, for example, grow my law firm by bringing in enough business that I can hire others and pay them less money than the business they allow me to bring in generates, thus creating an excess which I keep. Theoretically, the cap on how far I can grow that business is endless, thus resulting in law firms with thousands of lawyers. But how does a Doordash driver grow their business? There is a strict limit on what they can earn based on the amount of time they can put in. And time is fixed. Even when I was doing an Excel-fueled analytical approach to earn more money – don’t drive Tuesday nights, make sure I’m downtown at 1:30 AM, etc. – I was never close to having a formula to earn enough money to compete with being a lawyer. I was fiddling around the margins with a job I was doing for fun. Although a gig economy worker may not be an employee, they are nevertheless going to remain in the tax brackets of employees. And it’s our choice to punish them for that.
Our country is setup for people to work at a factory in Detroit making cars. That’s the problem, not Uber or Doordash. And that system is for an increasingly outdated economy. For half a century the old economy has been getting pummeled by a myriad of factors. The gig economy isn’t a solution to that but it could at least help. These aren’t the oft glorified manufacturing jobs of yore, but they are at least jobs. And for as much as politicians of all stripes in all countries bloviate about the importance of creating jobs, nothing is being done to facilitate the creation of these jobs.
I’m no Uber fanboy. And I’m certainly not blind to some of the issues these companies have – particularly in relation to the sometimes fraught relationship between delivery services and restaurants. But I also firmly believe that it’s better to reward people for hard work and an entrepreneurial spirit than it is to punish them.
This newsletter’s remit is somewhat loose, but the idea of what happens when tech is unleashed from the proverbial laboratory into the real world is roughly what I’m going for. Few things hit that spot better than the gig economy. As we said at the start of this series, new technologies can unleash negative effects we are not prepared for. The technologies that facilitate the gig economy are certainly capable of doing that. We could create a wave of crappy jobs, highly taxed and benefit free. But if we do that, just like slaughtering the buffalo, it’s simply a choice we’re making. We could change our tax code to make it more livable to be self-employed. We could make it easier to file your taxes as an independent contractor. We could change how certain systems operate so it’s easier to get by without a W2. We could change who receives benefits so things like “taking care of a newborn” or “recovering while injured” or “going to the doctor when sick” aren’t merely for well-compensated employees but for everyone. Or we could just blame the tech companies and do nothing about it while continuing to live with one foot in the future and one foot in the past. But it’s a choice.
I’m not sure if the gig economy can survive without a flood of VC cash and that even if it does it’ll be good for society. But I do know that it won’t achieve its full potential if we continue to try to force a 2020s peg into a 1970s hole.
If you’ve made it to the end, thank you! I also want to say thank you to all our new subscribers over the last week and last month. The growth has been phenomenal. I hope you’ll like, subscribe, and share. But I also hope to grow a vibrant community in the comments so please join. I’m also always looking to hear what people would like to read here – my first series came from a suggestion in the comments – so please don’t hesitate. I look forward to seeing you next week for a standalone post on a bit of a lighter topic.
The first half of this time period was when Uber and Lyft had withdrawn from Austin. So I was driving for a small startup that was crushed as soon as the giants came back. I still remember the messages to drivers begging us to keep the faith while the writing was on the wall.
The uncredited charts I use come from that Pew report so I’m crediting them now instead of repeatedly throughout.
I disagree with the tone of this Tweet but I both like the chart and wanted to include a negative opinion different from my own.
Because I’m a lawyer I can also see the opposite argument that their work is fully integrated into the business. There is no rideshare company without drivers, or food delivery company without deliverers. I find that argument less persuasive but I understand if you don’t.
This is in part because of a years long effort by Intuit to lobby – or as we’d say if referring to a Latin country, bribe – Congress to make online tax filing more difficult to protect their business.
Terrific article, Dan! Right now we have the worst of both worlds--gig workers make low pay plus they have no benefits. The only way to make it sustainable for workers and investors alike is to have benefits like healthcare and paid time off be part of a public social safety net, as they are in every other developed country. Otherwise, the workers are just subsidizing the consumers. And I totally agree about taxes. When I was in grad school and adjuncting, I had to pay estimated taxes every year on money I had not yet earned and had no way of knowing whether I would even receive. I would send off my little checks to the IRS, hoping all the while that I had gotten the amounts right and wouldn’t get audited, and completely skeptical that if I had overpaid I would ever see the money owed me. It is insane that the lowest-paid workers have to cope with this, especially since the Uber app could just keep track of earnings and generate a W2, and workers could pay their taxes for the previous year, like all other workers.
Good, thought-provoking post.
On the one hand, I have been part of the gig economy, as a freelance writer, since 2008. OTOH I barely participate in this economy: I've used Uber a handful of times and never have food/groceries delivered.* I live in NYC and hate how the delivery people - whom, I acknowledge, are generally poorly paid and have crappy jobs - tear through my neighborhood on their motorized bikes, ignoring traffic laws and endangering people on sidewalks. I hate how the ride-hail drivers look at their phones when they should be watching the street and idle in crosswalks and bike lanes. I've never hired someone to help me hang pictures or put together Ikea furniture, things (like grocery shopping) I'm perfectly capable of doing myself and don't want to pay a premium to have others do. I get why some people use them, and don't have a problem with them existing per se, but just as the economy needs to catch up with reality, the built environment of cities - where the market for these services is concentrated - also has a lot of work to do.
*Obviously, as I never have food delivered, I am not a real New Yorker, I'm a transplant from the rustbelt by way of DC.