National Association for Urban Debate Leagues Financial Literacy Debate Series

2018 Guide for Students

All rights reserved © 2017 NAUDL

Table of Contents Introduction ....................................................................................................................................................................................................... 2 Resolution .......................................................................................................................................................................................................... 2 Debate Format .................................................................................................................................................................................................. 3 Core Concepts ................................................................................................................................................................................................... 4 Case Guidelines ................................................................................................................................................................................................. 6 Ballot ................................................................................................................................................................................................................... 7 The Case for Working as an Independent Contractor ............................................................................................................................... 8 The Case for Working as a Traditional Full-Time Employee.................................................................................................................... 9 Evidence Set - Background Information ....................................................................................................................................................10 Arguments for the Gig Economy ................................................................................................................................................................ 13 Arguments for Traditional Employment .................................................................................................................................................... 27

Introduction Welcome to the 2018 Citi Financial Literacy Debates! As a participant in this debate series, you will be asked to debate a resolution centered on personal financial choices. This format of debate is a bit different than other formats. It focuses on financial decisions made by ordinary citizens. These decisions could be made from the point of view of your parents, teachers or even you and your classmates. This guide is designed to provide you with the structure and requirements of the debates and the research resources for this topic. This research guide provides all the articles you will need to create cases on this topic. These are the only articles you can use in the debates. While we encourage you to creatively rearrange and restructure these arguments, you should not do additional research for this debate series. This guide and the accompanying evidence set will give you a better understanding of financial literacy concepts related to career decisions and the gig economy. You will use this research guide to construct arguments and make your case for either working full-time as an independent contractor in the gig economy or working full-time as a traditional employee. Each section will provide a prompt for what a sample contention could look like. You should supplement those ideas with evidence from the packet. During the 2018 Citi Financial Literacy Debates, you will be able to use the same advocacy, analysis and problem-solving skills that you employ in other forms of debate. The critical difference here is that you will be called upon to apply those skills to determine what the best financial decision is when considering your future career options. The topic focuses on the differences between being employed full-time as a traditional employee versus working as an independent contractor full-time in the gig economy. You will debate both sides of the resolution.

Resolution Framing – Economic and employment opportunities are changing significantly in the 21st century. As of 2017, more than 3 in 10 American workers work in the gig economy and that number is growing. More Americans will be working as independent contractors in the gig economy as opposed to having full-time employment at a company. There are financial benefits and challenges to both options that need to be clearly understood before determining which choice is best.

Resolution – When given a choice between the two, it is a better financial decision to work as an independent contractor in the gig economy than to work as a full-time employee for a company or organization.

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Debate Format In the Financial Literacy Debate Series, each side has two speakers. Each side’s speakers are divided as follows: one presents the Case and Closing Statement, the other does the Cross-Examination and presents the Rebuttal. Each side gets four minutes of discretionary prep time. Affirmative Case (AC)

1 Aff

3 Minutes

2 Neg

6 Minutes

1 Neg

3 Minutes

2 Aff

Negative Rebuttal (NR)

5 Minutes

2 Neg

Affirmative Rebuttal (AR)

5 Minutes

2 Aff

Negative Closing Statement (NCS)

4 Minutes

1 Neg

Affirmative Closing Statement (ACS)

4 Minutes

1 Aff

Cross Examination Negative Case (NC) Cross Examination

• • • •

st

6 Minutes

nd

st

nd nd nd

st st

Both the Affirmative and Negative Cases should have two or three contentions, which are the main arguments for its side, supported by evidence, and clearly organized into supporting subpoints. The Negative Rebuttal should refute the Affirmative Case, and not defend or extend the Negative Case. It should do this by line-by-line refutation, emphasizing responsiveness. The Affirmative Rebuttal has the challenging task of both refuting the Negative Case line-by-line and defending the Affirmative Case against the Negative Rebuttal. The Closing Statements should summarize and crystallize the main arguments in the debate and extend one or two of their Case’s contentions.

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Core Concepts Concept

Definition

Guide

1

Asset

20, 27, 36, 40

2

Credit

28, 30

3

Debt

4

Digital Divide

5

Discretionary Income

6

Disruptive Technology

7

Expenses

8

Full-Time Employee

9-11, 15, 18, 20, 3238

9

Gig Economy

8, 9, 10, 11, 12…

10

Health Insurance

9, 15, 26, 31, 36

11

Income Instability

27, 38, 40

12

Income Tax

11, 15, 22, 23, 26

9, 29

8, 22, 33

4

13

Independent Contractor

13-16, 19, 20, 26, 31

14

Minimum Wage

27, 30, 34, 37

15

Online Platform

8, 32, 33, 34, 37, 38

16

Overtime

9, 27, 34, 37

17

Pass Through Tax

11

18

Personal Budget

19

Retirement Plan

25, 26, 27, 30, 32, 36, 40

20

Risk Tolerance

8, 9, 30, 31, 35…

21

Salary

8, 9

22

Sick Leave

9, 27

23

Social Security

15, 34

24

Transaction Cost

20, 23

25

Work Flexibility

10, 15, 17, 20, 31-40

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Case Guidelines Introduction  Each case should have a short introductory paragraph that includes: o an identification of the speaker and the speaker’s school, o a statement of the resolution and whether the speaker’s team will affirm or negate (or support or oppose) it, o an overview of the framework of the case and the terms by which the debate should be judged. Contentions  Each contention should be an independent, discrete primary argument in support of or in opposition to the resolution. Each contention should be a reason by itself to affirm or negate the resolution if it is won by its side.  A contention should not merely restate the resolution itself, either in support or opposition. It should be a specific reason the resolution is true or false.  Each contention should be developed with analysis and evidence, to make the contention as strong as possible.  Contentions should be formulated as complete, coherent arguments; they may be efficient but should not be one or two-word labels.  Teams should consider saving arguments and evidence that directly refutes a likely contention from the other side for their rebuttal speech. In fact, teams should write rebuttal blocks for their rebuttal speech that answer likely contentions from the other side. Those rebuttal blocks should include evidence and analysis.  Contentions should be made up primarily of analysis and explanation, with evidence used to support that analysis and explanation. Contentions should certainly be primarily in the speaker’s own voice. Evidence  Textual evidence should usually be summarized and paraphrased, into the speaker’s own words.  Direct quotations should not exceed 2 – 3 short sentences. Quotes should include memorable lines, statistics, and comparisons that need to be attributed to an author.  The source of evidence should be integrated into the language of the speech itself. The speech can and should include a fuller citation in brackets on the page, but the text of the speech should include a reference to the author of a quote and where the quote occurred o e.g., Janet Yellin, the chairperson of the Federal Reserve Board, stated in a recent official White Paper issued from the Fed, “Earnings potential for college graduates, even at the current 2% American growth rate, is higher on average by about $1 million, over the average earning potential for those adults who do not graduate from college.”  Most of each paragraph should be made up of language that is the speaker’s own. Public debate speeches are not made up of a string of cards.  Analyzing the persuasiveness, authority, warrants, and factual basis of evidence is a fundamental pillar of all good debate, as are refutation and critical thinking, so of course debaters are expected to do this in the Financial Literacy Debates. Conclusion  Each case should have a short concluding paragraph.  The conclusion should sum up the position of the speaker’s side, perhaps remind the audience of the speaker’s framework, and re-state that the speaker affirms or rejects the resolution in the debate. 6

Ballot Judge’s Name

Round:

The Winning Team (Presenting a more effective argument as expressed on a scale of 100 and described below) Judge’s Signature Affirmative Team

Negative Team

School Name of Speaker One

School Name of Speaker One

Knowledge of Financial Concepts (1-20) Use of Evidence & Logic (1-10) Speaking Style and Persuasiveness (1-10) Closing Summary (1-10) Sum of Scores (out of 50) Name of Speaker Two

Knowledge of Financial Concepts (1-20) Use of Evidence & Logic (1-10) Speaking Style and Persuasiveness (1-10) Closing Summary (1-10) Sum of Scores (out of 50) Name of Speaker Two

Knowledge of Financial Concepts (1-20) Use of Evidence & Logic (1-10) Speaking Style and Persuasiveness (1-10) Cross Examination (1-10) Sum of Scores (out of 50) Team Total (out of 100)

Knowledge of Financial Concepts (1-20) Use of Evidence & Logic (1-10) Speaking Style and Persuasiveness (1-10) Cross Examination (1-10) Sum of Scores (out of 50) Team Total (Out of 100)

Tie-Breaking Factor (if applicable) Feedback for Affirmative One

Feedback for Affirmative Two

Feedback for Negative One

Feedback for Negative Two

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The Case for Working as an Independent Contractor Many studies show that there has been a drastic shift in the economy. It was once common for employees to work with the same employer for most of their career, advancing in salary and status as they put in additional time. However, that form of employment is increasingly rare. Workers have been looking to Independent Contracting as an alternative to Traditional Employment. This trend has been bolstered by the growth of Digital and Online Platforms that have made it easier for workers to market their skills or time in more flexible ways. For each contention below, identify two pieces of evidence from the Gig Economy Evidence Set that help make that argument. Underline or highlight the parts of the evidence you’d use to make this argument stronger. Sample Contention: Flexibility Independent Contractors have substantially more flexibility in choosing their hours. This can be particularly helpful for young parents who are worried about the cost of child care, or for people who have other familial obligations. The number one reason Independent Contractors give for preferring working outside of a traditional setting is freedom and flexibility. Some argue this also contributes to happier and healthier workers. Sample Contention: Developing different skills Independent contractors can develop their key skills and focus on micro-credentialing that allows them become experts on areas that align with their passions. They can pick jobs and projects that advance those skill sets and help them develop a portfolio of work that is more satisfying to them. Sample Contention: Digital platforms are eliminating the barriers to success Digital and online platforms have eliminated many of the barriers independent contractors once faced in terms of being their own boss and working on their own. Companies have created apps that provide a low-cost way to match the services and skills of the independent workforce with the needs of their surrounding population quickly and accurately. Ratings systems have provided a wealth of information to ensure that these opportunities are trustworthy and high quality. Sample Contention: Disruption and innovation Digital platforms disrupt the inefficiencies in traditional markets and highlight new ways to increase productivity and the economy. These platforms provide customers with more satisfying experiences at lower costs than their competitors and force competitive industries to adapt to customer demand and better serve their markets. Additionally, as more workers become full-time independent contractors, their needs are likely to be met with digital innovations as well. Sample Contention: Wages have been stagnant and Independent Contractors can earn more than their peers Wages have been stagnant since 2007 and workers in traditional jobs have barely seen their salaries grow. Additionally, there have been trends towards cutting the benefits associated with traditional employment. As income security and benefits have declined in traditional employment settings many workers have taken to working as full-time independent contractors because they can make more income than they would in a traditional setting, even if there is more risk associated with that.

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The Case for Working as a Traditional Full-Time Employee For many workers the risk associated with being a full-time independent contractor is not worth the increased flexibility. These workers prefer the stability of a traditional 9-5 job, because even if their salary is slightly less, it is stable and consistent. Additionally, these workers have access to many benefits that they would lose if they were to work as free agents. Many traditional employers have human resource departments that take care of several bureaucratic tasks that independent contractors must take care of on their own. That list includes submitting payroll taxes, maintaining capital equipment and depreciation, and providing work space and training. Additionally, traditional full-time employment often includes benefits packages that are quite valuable including items like health insurance, unemployment insurance, retirement packages, overtime and sick pay. Sample Contention: Independent contractors assume a lot of risk and their income is less stable Traditional employees have much more stable and predictable income than their independent counterparts. They often make a salary that is predictable and have much more predictable hours than independent contractors. Digital platforms fluctuate with demand by design and are therefore unpredictable both in terms of the amount of income a worker can expect to bring home and the number of hours they can expect to work. Sample Contention: Traditional jobs take care of a lot of overhead All workers are responsible for training, capital management, finding a suitable workplace for the work one needs to do, filing taxes and other overhead items. In a traditional employment situation that overhead is taken care of by employees of the company for all employees – independent contractors must figure out a way to manage these items on their own, without necessarily having the expertise to do it, or additional compensation for that work. Sample Contention: Benefits Health coverage, dental coverage, overtime pay, sick leave, vacation time and access to retirement packages are all standard offerings of most traditional offices. These are costs that the employer covers in full or in part to maintain a high-quality workforce and to protect the well-being of their employees. These are all costs and benefits that traditional workers enjoy that their independent counterparts must provide on their own at their own expense. Sample Contention: Access The Digital Divide creates real access issues for workers and consumers who may not have access to the Internet or a Smart Phone. That access limits the number of people who can participate in digital platforms and therefore also limits the number of people who can realistically access some aspects of the sharing economy. Sample Contention: Labor Traditional work arrangements are the results of long-term labor battles that have resulted in certain protections for workers. The length of the work day, when employees are owed overtime pay, sick leave, unemployment benefits and other features of these work arrangements were often the result of lengthy negotiations between unions, labor rights activists and employers. An expanding gig economy could undermine these rights and expectations resulting in substantially worse working conditions for many employees.

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Evidence Set – Background Information Makeup of the Gig Economy

McKinsey & Company October 2016 - Independent Work: Choice, Necessity and the Gig Economy – Executive Summary https://www.mckinsey.com/global-themes/employment-and-growth/independent-work-choice-necessity-and-the-gigeconomy The popular concept of work as a traditional 9-to-5 job with a single employer bears little resemblance to the way a substantial share of the workforce makes a living. Millions of the self-employed, freelancers, and temporary workers—as well as individuals renting out rooms on Airbnb, driving for Uber, or selling goods on eBay—are part of a significant trend that we call “independent work.” Although independent work has a long history, it has never been clearly defined or consistently measured in official labor statistics. This report aims to fill in that gap. We used government data and findings from other studies to estimate the size of the independent workforce. To get a deeper understanding, we undertook an extensive survey of more than 8,000 respondents in the United States, the United Kingdom, Germany, Sweden, France, and Spain.1 Our goals were to size independent work and to understand who does it and why as well as how satisfied they are.

What defines an independent contractor?

McKinsey & Company October 2016 - Independent Work: Choice, Necessity and unpredictable Gig Economy – Executive Summary https://www.mckinsey.com/global-themes/employment-and-growth/independent-work-choice-necessity-and-thegig-economy We look at the full spectrum of ways in which individuals earn income outside of the traditional employee role, focusing on the characteristics of the work itself rather than the legal arrangements surrounding it. Focusing on the characteristics of the work enables us to compare across geographies, as government classifications vary across countries. Additionally, some independent workers choose to incorporate or form some other business entity, while others in the same occupation do not. Our definition thus allows us to count them in the same way since they are performing the same work. Our definition focuses on three key features: ƒ A high degree of autonomy: Independent workers have a high degree of control and flexibility in determining their workload and work portfolio. They can decide which assignments to accept based on criteria such as the fee, the desirability of the client, or the timing, and they can change those choices over time. ƒ Payment by task, assignment, or sales: Independent earners are paid by the task, assignment, contract, or the volume of sales they make. Unlike salaried employees, they are not paid for time not spent working. ƒ Short-term relationship between the worker and the customer: Independent earners perform short-term assignments, such as giving someone a ride, designing a website, treating a patient, or working on a legal case. Both the worker and the customer acknowledge the limited duration of the relationship. Some contracts may extend for months or even years, at which point the individuals become indistinguishable from traditional employees; we therefore define independent work as assignments lasting less than 12 months.

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Pass-Through and Tax Reform

Marketplace 12/21/2017 “Not Everyone is Going to get the Same Pass-Through Benefits A lot of things factor into your ultimate tax bill: Where you live, whether you own or rent, the makeup of your family and so on. One thing that's going to become especially important on Jan. 1 is how you make your money — whether you're a wage worker who gets a paycheck from your company, a small business owner or an independent contractor. Our own Kimberly Adams joined us to explain. Below is an edited transcript of their conversation. Kimberly Adams: So, this is all about pass-through businesses.... These are the types of businesses where the owners pay regular income taxes on the profits of their businesses, those profits pass through to their income taxes. And actually, the vast majority of American businesses are these kinds of businesses. It's not just like a business with workers, it can also be an independent contractor or somebody working in the gig economy — a freelancer or an Uber driver. And under this tax bill, depending on what you do, you may get a lower tax rate as an independent contractor as opposed to a regular employee. Kai Ryssdal: Help me understand that a little bit. The whole thing about "what you do." Adams: Right. So under this bill, what really matters is the kind of pass-through business you're in. Now let's keep in mind, under the tax bill ... you can deduct 20 percent of [pass-through business income], and that ends up being giving you a lower rate than the top tax rate, which is 37 percent. Ryan Alexander is president of Taxpayers for Common Sense and here's how she lays this out: Ryan Alexander: There's a set of favorite business activities and disfavored business activities in the pass-through rules. And I think that there will be shifts in both of those groups if you're in a favored activity industry. You're going to certainly look at shifting from being an employee to being a partner or an independent contractor. Adams: OK, so what does that mean? So, for example, a construction worker who's in a favored industry might end up with a lower tax rate as an independent contractor instead of working for a construction company. On the other hand, if you're a doctor or a lawyer, which landed in the unfavored industry category, it may be better for you to be a partner or owner — or maybe just relabel your business as something else entirely, like a real estate company. Ryssdal: Let's get back to the construction worker. If one person working construction sets him or herself up as a passthrough independent contractor, and the other one takes a paycheck from the company, you can have two people doing basically the same job getting to pay different tax rates and thus taking home different amounts of money. Adams: Yep, you certainly could. This bill has some guard rails in it to try and limit people from reclassifying themselves just for the sake of lowering their tax bill. For example, there's an income cap on the eligible income you can have to still get that pass-through deduction. But on the other hand, Ryan Alexander says there's probably going to be a bunch of those situations: Alexander: I'm gonna say that if you're a wage earner and you're sitting next to someone who's doing the same thing you're doing and just paying less taxes because their job is structured differently on paper, I think you're just going to be mad. Ryssdal: Uh, yeah. Adams: On the other hand, it's important to keep in mind that as a wage earner, as an employee, you're going to get benefits that an independent contractor will not, such as health care benefits, who knows, maybe child care [or] transportation benefits. And having been an independent contractor myself in the past, I can tell you that paperwork is absolutely no fun to do, especially when it comes to taxes. So even though it may lower people's tax rate to reorganize their businesses or their lives, it's not the only consideration that people are going to have. Ryssdal: Right. And as always, consult your own financial professional.

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Independent Contractors are Diverse

McKinsey & Company October 2016 - Independent Work: Choice, Necessity and the Gig Economy – Executive Summary https://www.mckinsey.com/global-themes/employment-and-growth/independent-work-choice-necessity-and-the-gigeconomy The MGI survey reveals that the independent workforce is diverse in terms of age, income levels, educational attainment, and gender—and this holds true across countries. The desire to be your own boss clearly cuts across borders. We also find independent workers in all occupations and industries, roughly mirroring the broader sector mix of each country. Our survey debunks some common myths. First, independent work is not dominated by millennials. While more than half of those under age 25 participate in all countries, they represent less than one-quarter of independent workers (Exhibit E2). Nor is independent work solely about low-income workers doing one-off jobs to make ends meet. Although 40 to 55 percent of low-income households engage in independent work, they make up less than 25 percent of all independent earners in all countries except Spain. While independent work is prevalent in the construction trades, household and personal services, and transportation, it is also preferred by many professionals such as doctors, therapists, lawyers, accountants, interior designers, and writers.

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Arguments for the Gig Economy Gig Workers are Diverse & Choose Independence

MBO Partners, 2017 “The State of Independence in America: Rising Confidence Amid a Maturing Market” https://www.mbopartners.com/uploads/files/state-of-independence-reports/StateofIndependence-2017-Final.pdf With each passing year, our picture of the independent workforce comes into sharper focus. Now more than ever, it is apparent that people are independent by choice, and that there is no “standard” portrait of an independent worker. Independents are not just an undifferentiated mass of young Uber drivers, those working because they can’t find full-time jobs, or older quasi-retired consultants. Rather, independents, who now represent about 31 percent of the private U.S. workforce, are distributed across every demographic, age, gender, skill, and income group.

A Strong Economy makes Independent Work More Competitive & Lucrative

MBO Partners, 2017 “The State of Independence in America: Rising Confidence Amid a Maturing Market” https://www.mbopartners.com/uploads/files/state-of-independence-reports/StateofIndependence-2017-Final.pdf By many measures, the U.S. labor market has not been this tight in more than a decade, with the unemployment rate at 4.3 percent, a record 6 million job openings, and an economy that added 2.2 million payroll jobs in the past year. This strong job market means independents have an easier time than ever finding work as jobs open and companies experience a talent shortage. The tight labor market and ongoing economic expansion enables those with in-demand skills to get more work, and to command a premium for their services. In 2017, for the sixth year in a row, the number of High Earning Independents rose. Now, 3.2 million Full Time Independents make more than $100,000 annually, up 4.9 percent from 2016. This population now represents nearly one in five Full Time Independents, those working independently more than 15 hours each week.

Macroeconomic impact

MBO Partners, 2017 “The State of Independence in America: Rising Confidence Amid a Maturing Market” https://www.mbopartners.com/uploads/files/state-of-independence-reports/StateofIndependence-2017-Final.pdf Independents are a vital economic force. Over the past year, independent workers generated roughly $1.2 trillion of revenue for the U.S. economy, equal to about 6 percent of U.S. GDP. They are also a part of the exporting economy. In 2017, 17 percent of Full Time Independents provided goods or services to customers outside the U.S., up from 13 percent in 2016.

Skilled Independent Workers can earn more than traditional workers

MBO Partners, 2017 “The State of Independence in America: Rising Confidence Amid a Maturing Market” https://www.mbopartners.com/uploads/files/state-of-independence-reports/StateofIndependence-2017-Final.pdf The average income for Full Time Independents was $65,300. As a point of reference, the median family household income in the U.S. was $56,516 in 2015. Fully 3.2 million, about one in five Full Time Independents, make more than $100,000, our High Earning Independent designation. But there was a sharp divergence among demographic groups, with Millennials earning $43,800 while the older cohorts earned more than $77,000. This difference can largely be attributed to time spent in the workforce, as older workers have more years of experience and strong professional networks and can command higher rates for their skills.

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Independent Workers Report Earning More

MBO Partners, 2017 “The State of Independence in America: Rising Confidence Amid a Maturing Market” https://www.mbopartners.com/uploads/files/state-of-independence-reports/StateofIndependence-2017-Final.pdf In addition to making them healthier, some independents find this work can make them wealthier too. Of those polled this year, 36 percent of all independents (and 43 percent of Full Time Independents) said they earn more money working on their own.

Taxation & Compliance

Rudy Tellis Jr., June 2016 Digital matching firms: A new definition in the “sharing economy” space, US Department of Commerce Economics and Statistics Administration, ESA issue brief number 01-16 The applicability of hotel taxes to room and residence rentals via Airbnb and other lodging-specific digital matching firms have been raised in a number of localities. Initially, digital matching firms did not require that service providers pay lodging taxes that are typically required of hotels and other lodging establishments, potentially reducing government revenue and creating a competitive advantage for lodging-specific digital matching firms. Many localities, such as Santa Monica, California have banned the use of Airbnb-like services for short-term lodging unless the service provider obtains a business license and pays a hotel tax.28 In response, Airbnb has agreed to collect taxes in several cities, including the District of Columbia and Portland, Oregon in order to meet local tax collection responsibilities while not burdening potential service providers with the need to apply for licenses or collect taxes themselves.

Comparatively “Free Agents” are Happier

McKinsey & Company October 2016 - Independent Work: Choice, Necessity and the Gig Economy – Executive Summary https://www.mckinsey.com/global-themes/employment-and-growth/independent-work-choice-necessity-and-the-gigeconomy The MGI survey asked respondents to rank their satisfaction on 14 aspects of their work life. Free agents report higher satisfaction than those who choose traditional jobs on 12 of the 14 dimensions we measured, and they are just as satisfied on the remaining two dimensions (Exhibit E3). They are more engaged in their work, and they relish the chance to be their own boss and have more control over their hours. Free agents cite higher satisfaction than traditional workers across issues ranging from the creativity they can express to opportunities for learning and recognition. They are happier with their overall level of income and are just as satisfied as traditional workers on income security and benefits. These observations hold regardless of gender, age, education level, or household income.

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Worker Classification

Rudy Tellis Jr., June 2016 Digital matching firms: A new definition in the “sharing economy” space, US Department of Commerce Economics and Statistics Administration, ESA issue brief number 01-16 Currently, many digital matching firm service providers are classified as independent contractors, and not employees. As discussed earlier, in the United States this distinction carries with it differences in rules and regulations related to areas such as unemployment insurance, workers’ compensation, training, and health insurance coverage. The IRS has a list of 20 factors that “may be examined in determining whether an employer-employee relationship exists.” These factors include worker training and set hours of work. Government regulators are examining whether or not these service providers should be classified as employees, and some are ruling that they should be. California’s Labor Commission, for example recently ruled that Uber drivers should be classified as employees. The U.S. Department of Labor also recently reemphasized concern over companies claiming their workers as independent contractors when they should be employees, although the guidance did not specifically reference the “sharing” economy or any of the other commonly used designations. 24 However, in anticipation of similar rulings, some companies, such as Shyp, have begun converting their independent contractors into employees. Further, companies are required to withhold income taxes, pay unemployment taxes, and pay and withhold Social Security and Medicare taxes for workers classified as employees. As mentioned above, California regulators recently ruled25 that Uber drivers should be classified as employees, not independent contractors. If that ruling stands, Uber will be required to incur the administrative costs necessary to collect these employment-related taxes, as well as pay the Federal Unemployment tax (FUTA) and cover half of their employees’ social security and Medicare taxes26 . The sharp disparity between the way contractors and employees are regulated has led some27 to question whether a third worker classification should be enacted that covers workers who fall somewhere between independent contractors treated as self-employed businesspeople and traditional employees that are generally entitled to certain benefits and worker protections.

Independent Workers are Happier and Healthier

MBO Partners, 2017 “The State of Independence in America: Rising Confidence Amid a Maturing Market” https://www.mbopartners.com/uploads/files/state-of-independence-reports/StateofIndependence-2017-Final.pdf Even though independent work has its challenges, the ability to have greater control and flexibility far outweighs the hurdles of working solo. Among all independents, 77 percent say they are happier working on their own than in a traditional job. Fully 84 percent of Full Time Independents agreed with this statement, while 66 percent of Part Time Independents did. The level of happiness was relatively stable across the major demographic groups. A solid majority—64 percent of all independents and 70 percent of Full Time Independents—said working on their own is better for their health.

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AT: Independent Workers Feel Insecure

MBO Partners, 2017 “The State of Independence in America: Rising Confidence Amid a Maturing Market” https://www.mbopartners.com/uploads/files/state-of-independence-reports/StateofIndependence-2017-Final.pdf Independents are generally secure in their work as well. This year, almost half (48 percent of Full Time Independents) said they feel more secure working independently than at payroll jobs. This is up from 33 percent in 2011.

Independent Workers’ Confidence & Earnings Growing

MBO Partners, 2017 “The State of Independence in America: Rising Confidence Amid a Maturing Market” https://www.mbopartners.com/uploads/files/state-of-independence-reports/StateofIndependence-2017-Final.pdf Confidence is particularly high among the growing number of High Earning Independents. Once a small minority, they have grown consistently in absolute and relative numbers, and now constitute a solid core. The number of High Earning Independents (those making more than $100,000 annually) has grown in every year of the study. In 2017, this group rose five percent to 3.2 million. That is up 64 percent from 1.95 million in 2011, representing a compound annual growth rate of 6.45 percent. Since the number of High Earning Independents has risen steadily in the last two years, a period in which the overall number of Full Time Independents has fallen modestly, High Earners now constitute a noticeably higher chunk of this cohort. In 2017, 19.8 percent of Full Time Independents earned more than $100,000, up from 17.9 percent in 2016— and up from only 12.5 percent in 2011. The data suggests that more people have a greater sense of confidence in the ability of independent work to deliver what they want from the economy, and from their jobs.

Traditional Wages Haven’t Grown

MBO Partners, 2017 “The State of Independence in America: Rising Confidence Amid a Maturing Market” https://www.mbopartners.com/uploads/files/state-of-independence-reports/StateofIndependence-2017-Final.pdf While payroll jobs are comparatively abundant and there are currently 6 million open positions, the tightness hasn’t translated into impressive across-the-board progress for wages. Pay gains have been slow to materialize for the typical worker and job insecurity remains high. Between 2007 and 2015, median household income in the U.S. rose just 12 percent—a tepid 1.43 percent annual rate. In short, this means that there are a lot of Americans who are eager to supplement income from their main jobs.

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Independent Workers Prefer Choice & Flexibility

MBO Partners, 2017 “The State of Independence in America: Rising Confidence Amid a Maturing Market” https://www.mbopartners.com/uploads/files/state-of-independence-reports/StateofIndependence-2017-Final.pdf It also turns out that independents want different things from their work from those with traditional jobs. Independents simply have always desired to work on their own. Seventy-five percent of independent workers said they always wanted to be their own boss, compared with 45 percent of those with traditional jobs; 64 percent of independents said they don’t like answering to a boss, while only 37 percent of those with traditional jobs agreed. Independents also placed a higher priority on flexibility over making the most money than people with traditional jobs (74 percent to 44 percent). Only 19 percent of independents said they would prefer a permanent job than work on their own, while 61 percent of those with traditional jobs agreed.

Digital Platforms – Small but Mighty

McKinsey & Company October 2016 - Independent Work: Choice, Necessity and the Gig Economy – Executive Summary https://www.mckinsey.com/global-themes/employment-and-growth/independent-work-choice-necessity-and-the-gigeconomy While only 15 percent of independent earners use them today, digital platforms such as Upwork, Uber, Airbnb, or Etsy have been growing rapidly. These types of online marketplaces could eventually have a transformative impact by efficiently matching a larger pool of workers with consumers of their services.

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Digital Platforms – Many benefits

McKinsey & Company October 2016 - Independent Work: Choice, Necessity and the Gig Economy – Executive Summary https://www.mckinsey.com/global-themes/employment-and-growth/independent-work-choice-necessity-and-the-gigeconomy As digital platforms expand, they could have a transformative effect when applied to the labor market. Decades ago, Ronald Coase noted that companies gather many functions within one organization because it was too cumbersome and costly to coordinate all transactions through an external marketplace. But the Internet is dramatically reducing those costs, making it possible to conduct more transactions beyond the boundaries of a firm. Digital platforms that create marketplaces for labor services further amplify that benefit. Markets for independent work could be transformed in several ways: •

•

•

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Larger scale. Digital matching platforms establish huge webs of connected users and create transparent markets in which buyers and sellers find each other with a few clicks. For activities that do not require in-person services, the potential scale of the market is global, given the ubiquity of connected and smart digital devices. Faster and better matches from real-time information. Digital platforms accelerate matching. Efficient search algorithms can match to the specifics of the task, good, or asset being offered or sought. They may be combined with real-time information that allows for more seamless and efficient coordination between the two transacting parties, even down to time and location. Richer information signals and ancillary services. Digital platforms enable workers and clients to share profile data and endorsements; often the platform itself collects data that help provide credibility for both independent workers and their customers, before and after the transaction. Buyers and sellers can build trust immediately because ratings and reviews are aggregated from past interactions. They further remove risk by instituting a payment infrastructure and a protocol that has to be followed as a condition of participation. Near-zero marginal costs. The cost of adding more participants is negligible for the platforms themselves, and the barriers to entry for new workers to join can be similarly low. Individuals can easily create a profile and start looking for assignments right away on a platform such as Freelancer.com. Independent artisans can set up shop for free on Etsy and post listings for 20 cents each.

Digital Platforms – Create Markets & Demand

McKinsey & Company October 2016 - Independent Work: Choice, Necessity and the Gig Economy – Executive Summary https://www.mckinsey.com/global-themes/employment-and-growth/independent-work-choice-necessity-and-the-gigeconomy Digital technologies have made it possible for new players to enter ecosystems of independent work and provide better matching mechanisms, in some cases creating new demand and making new types of independent earning activities possible. The real question underlying the growth of digital platforms for independent work is not how the numbers could grow. It is whether digital platforms could begin to challenge established notions of how companies are organized. Technology makes it conceivable that the old model of a corporation with employees in an elaborate hierarchy of specialized functions could one day give way to leaner core organizations that rely on a loose network of external providers for many activities. Just as working models changed in the wake of the Industrial Revolution, the nature of work may be evolving again as the digital revolution takes hold.

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Digital Platforms Expanding to New Fields

MBO Partners, 2017 “The State of Independence in America: Rising Confidence Amid a Maturing Market” https://www.mbopartners.com/uploads/files/state-of-independence-reports/StateofIndependence-2017-Final.pdf The rise of online talent marketplaces that enable a wider array of independents to work has been an important economic phenomenon in recent years. Platforms have emerged that afford more opportunities to match supply and demand of labor in computer programming, personal services, accounting, and transportation. Pioneers like Uber, Lyft, and TaskRabbit continue to attract venture capital, users, and customers. But they are not the only industry players, and they largely represent only the lower end of the market, in which workers pursue commodity work and are differentiated not by skill, but by the platform itself. Groups like Catalant and Toptal cater to the higher-end market for skilled labor, in which businesses engage directly with specific individuals whom they connect with through an online marketplace. Traditional companies like The Washington Post and PwC have set up their own proprietary talent clouds, aimed at enabling them to match and work with independent workers more effectively. MBO Partners’ own MBO ConnectTM is another such platform for businesses to form a preferred talent network and to engage and re-engage top independent talent. Our survey shows a steady, impressive rise in the number of independents using these platforms—and a high propensity of those who say they plan to use them to actually utilize them. In 2012, only 3 percent of Full Time Independents said they had used an online marketplace in the past 12 months, and only four percent said they would in the next 12 months. The proportions answering in the affirmative to these questions has risen steadily each year. In 2017, 20 percent said they had done so in the past year, and 25 percent said they intended to do so in the next 12 months.

Independent Work Creates Markets & Increases Productivity

McKinsey & Company October 2016 - Independent Work: Choice, Necessity and the Gig Economy – Executive Summary https://www.mckinsey.com/global-themes/employment-and-growth/independent-work-choice-necessity-and-the-gigeconomy On the other side of the transaction, there is reason to believe that demand could grow for the services provided by independent workers. Digital platforms are expanding marketplaces for many types of consumer and household services, including driving, cleaning, and grocery shopping. Indeed many innovators are experimenting with providing matching platforms for a growing array of such services as defined by the consumers and households themselves or the tasks that workers are willing to take on. We asked survey respondents about their willingness to pay someone else to do certain household chores and combined their responses with government data on household time use. We estimate that 6.2 billion hours of additional household work per year in the United States and 8.5 billion in Europe could potentially be done by independent workers, creating millions of new opportunities for independent workers. For companies, too, there is room for further growth in using independent workers. We analyzed more than 150 occupational categories to assess which types of work could most easily be performed independently and found ample opportunity for growth in corporate demand.

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AT: Independent Work is Risky

MBO Partners, 2017 “The State of Independence in America: Rising Confidence Amid a Maturing Market” https://www.mbopartners.com/uploads/files/state-of-independence-reports/StateofIndependence-2017-Final.pdf By contrast, Full Time Independents were much more confident. Only 26 percent said becoming independent was very risky and 19 percent said it was not at all risky. The perception of risk falls even further with tenure. Among those who have been working as an independent for more than a year, 37 percent said it was not at all risky and only 17 percent said it was very risky. This finding was relatively consistent across age groups and Part Time and Full Time Independents.

Independent Work Helps Startups

McKinsey & Company October 2016 - Independent Work: Choice, Necessity and the Gig Economy – Executive Summary https://www.mckinsey.com/global-themes/employment-and-growth/independent-work-choice-necessity-and-the-gigeconomy In addition to the effects on individual satisfaction expressed in our survey, independent work can have broader benefits. Digital business models have lowered transaction costs for consumers, delivering better-quality products and services and putting new conveniences at their fingertips. Companies and organizations benefit from scalability: they can keep core operations focused on what they do best and call in independent service providers exactly when they need them. This flexibility can allow organizations to add entirely new capabilities—for example, calling in writers and designers to create a one-time marketing project when the core team lacks publishing expertise. The availability of independent workers is particularly valuable to startups that cannot afford full-time employees for certain functions such as accounting, legal advice, or web design.

Independent Work Increases Labor Force Participation

McKinsey & Company October 2016 - Independent Work: Choice, Necessity and the Gig Economy – Executive Summary https://www.mckinsey.com/global-themes/employment-and-growth/independent-work-choice-necessity-and-the-gigeconomy Independent work also has the potential to create macroeconomic benefits. First, it may increase labor force participation and the number of hours worked in the economy. The flexible opportunities associated with independent work are well suited for the 100 million inactive adults in the United States and the EU-15 who say they would like to start earning or work more. For the unemployed, independent work may provide a critical bridge to keep earning income while they search for new jobs. Second, there are avenues for potentially increasing productivity. Independent work enables people to specialize in doing what they do best and what makes them feel engaged. Engagement typically has the effect of increasing productivity, although this effect must be balanced against the fact that many independent workers have to spend time on administrative and marketing tasks. Capital productivity may be increased as well, as currently underutilized assets (such as cars and spare rooms) are put to work. Online marketplaces allow niche products and services to connect with consumers, potentially stimulating long-tail demand. New and innovative types of digitally enabled services could boost consumption.

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Benefits Gaps Offer Space for Innovation: Co-Working and Micro-credentialing

McKinsey & Company October 2016 - Independent Work: Choice, Necessity and the Gig Economy – Executive Summary https://www.mckinsey.com/global-themes/employment-and-growth/independent-work-choice-necessity-and-the-gigeconomy These players have a clear opportunity to step into this space and to create other types of new products, services, and solutions tailored to independent workers. These could include, for example, financial solutions for smoothing out income between assignments or offering shared office space that can be booked in increments. Educators and industry groups could build widely recognized credentials and develop flexible courses and training programs to enable independent workers to advance their careers.

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Digital Platforms - Disruption

Rudy Tellis Jr., June 2016 Digital matching firms: A new definition in the “sharing economy” space, US Department of Commerce Economics and Statistics Administration, ESA issue brief number 01-16 Disruption and Convergence As with the introduction of e-commerce in the 1990s, Internet-based technologies in the form of digital matching apps have the potential to disrupt existing markets. The growth of the digital matching firms appears to have begun to cause some disruption in traditional industries such as transportation services and lodging, with the potential to do so in a variety of other industries. Airbnb and other lodging-centric digital matching firms may have already had an effect on hotel revenues in some areas. According to a Boston University study titled “The Rise of the Sharing Economy: Estimating the Impact of Airbnb on the Hotel Industry,” each additional 10 percent increase in the size of Airbnb listings in Texas resulted in a 0.37 percent decrease in monthly hotel revenues. There is also some evidence that digital matching firms may have had an effect on the supply of long-term rentals in some areas, as some landlords in major cities, such as New York City, have chosen to operate homes as short-term rentals via Airbnb rather than lease them in a more traditional manner, decreasing the supply and potentially raising the price of rental properties within that market. To combat what they consider ad-hoc hotels, regulators in New York City have since proposed heavy penalties for property owners who violate the city’s ban on short-term rentals.14 In the transportation industry, the rise of firms such as Lyft and Uber likely have negatively affected the value of taxi medallions in New York City, as the price fell to roughly $805,000 in early 2015, down 23 percent from 2013’s peak of $1.05 million; corporate medallions, which may be owned in fleets, were down 28 percent from their peak.15 Taxi industry revenue has fallen considerably in a number of cities as well; in Seattle, taxi revenues dipped 28 percent in two years.16 At the same time, in an effort to compete with digital matching firms, traditional industries are beginning to incorporate digital matching technology into their services, in a process known as convergence, lowering their own costs and improving the consumer experience. For example, the Curb app for taxi services works much like Uber, connecting consumers with taxi drivers representing 90 taxi companies in 60 cities and allowing consumers to pay for rides via the app. Along with incorporating technologies from digital matching firms into their business models, some regulatory hurdles are being modified to help make traditional firms more competitive with digital matching firms. For example, the New York City Taxi Commission has removed geography questions from the taxi license test in response to a decline in the number of driver applicants, while also acknowledging that reliable GPS technology has made rote knowledge of the New York City area less important for driver success and customer satisfaction.17

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Framing the Benefits of Digital Platforms

Rudy Tellis Jr., June 2016 Digital matching firms: A new definition in the “sharing economy” space, US Department of Commerce Economics and Statistics Administration, ESA issue brief number 01-16 With the potentially rapid growth of digital matching firms, an important question is whether or not they benefit consumers, workers, and the overall economy. Given the developing nature of the sector, there is insufficient data to make any definitive judgments. However, given its inherent characteristics, digital matching firm technology has the potential to provide a number of benefits. This section explores the benefits often associated with the digital matching platforms.

Digital Platform Benefits – Transaction Costs

Rudy Tellis Jr., June 2016 Digital matching firms: A new definition in the “sharing economy” space, US Department of Commerce Economics and Statistics Administration, ESA issue brief number 01-16 Provides Lower Prices for Consumers Due to Reduced Transaction and Overhead Costs for the Service Provider: Transaction costs are the time, money, skill, and effort needed to facilitate a market transaction. Every day, consumers demand goods and services that could be provided by professionals and non-professionals in their communities. These market exchanges are often facilitated through firms, brokers, and sometimes government agencies. Digital matching platforms potentially reduce the costs of coordinating these transactions by connecting consumers with service providers directly and often in real-time, ostensibly cutting out the traditional firm and middlemen that would otherwise be needed to link them. There is some evidence that these lower costs for the service provider has resulted in lower prices for consumers. For example, a Business Insider article reported that in 2014, an Uber ride was less expensive than a taxi in all but two of the 21 large cities studied, so long as surge pricing wasn’t activated. 18 In addition, the previously discussed PwC survey found that, of those polled, 56 percent cited “better pricing” as the reason for their preference for “automotive sharing economy models.” The Piper Jaffray report, which was also previously discussed, found that private accommodations available through digital platforms, such as Airbnb, are generally less expensive than hotels in cities throughout the world (see table).

Digital Platform Benefits – Flexibility

Rudy Tellis Jr., June 2016 Digital matching firms: A new definition in the “sharing economy” space, US Department of Commerce Economics and Statistics Administration, ESA issue brief number 01-16 Provides Flexible Employment Schedules and Additional Income for Workers: People who need extra income and/or can’t work traditional hours are often able to provide services via digital matching firms. Low barriers of entry and the utilization of ubiquitous, common capital assets, such as cars, bicycles, and extra bedrooms allow individuals to work during their “off” hours or while they’re otherwise unemployed19 . For example, in a survey commissioned by Uber, 80 percent of their “driverpartners” were working full or part-time jobs just before they started driving on the Uber platform, and two-thirds of that group reported having a full-time job. In addition, of those surveyed, more than half had never previously worked as a driver, whether it be for a taxi, limo, or other for-hire transportation company, suggesting that the Uber platform provided an introduction into a new line of full or part-time work for the majority of its service providers.20

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Digital Platform Benefits – Consumption Impacts

Rudy Tellis Jr., June 2016 Digital matching firms: A new definition in the “sharing economy” space, US Department of Commerce Economics and Statistics Administration, ESA issue brief number 01-16 Potentially Stimulates New Consumption: By providing consumers access to services that were previously either unavailable or less convenient, digital matching firms may be able to access untapped markets and increase overall consumption. However, it’s possible that total consumption in the economy could actually decrease as consumers shift away from the more traditional economy. For example, if urban consumers begin using digital matching apps for their transportation needs to a large enough degree, they may hold off on purchasing a car, which could potentially decrease overall consumption in the economy. Reliable data examining the stimulative effect of digital matching firms is currently sparse.

Digital Platform Benefits – Customer Experience

Rudy Tellis Jr., June 2016 Digital matching firms: A new definition in the “sharing economy” space, US Department of Commerce Economics and Statistics Administration, ESA issue brief number 01-16 Improves the Consumer Experience: The innovations introduced by digital matching firms could considerably lessen the inconvenient aspects of service transactions, increasing consumer welfare. For example, both Lyft and Uber allow consumers to pay for their services via their respective apps, removing the post-ride in-person transaction that is often required when they use traditional taxi services. The apps also utilize GPS technology to allow consumers to track their driver so that they know in real-time when he or she will arrive.

Digital Platform Ratings Systems Increase Trust

Rudy Tellis Jr., June 2016 Digital matching firms: A new definition in the “sharing economy” space, US Department of Commerce Economics and Statistics Administration, ESA issue brief number 01-16 Digital matching firms, via rating systems within their platforms, have provided the consumer an efficient mechanism through which they are willing to trust complete strangers to provide goods and services. Relying on crowdsourced information to establish trust between a consumer and a company is not new, as people have long used relatives, friends, co-workers, and neighbors to choose a company or specific service provider. However, robust public ratings systems may be a more efficient guidepost when deciding whether or not, for example, they will stay in a spare bedroom or have a stranger clean their house, mount their TV, or cook their food. Further, many digital matching firms are able and willing to ban service providers who fall below ratings thresholds, acting as an incentive for better service.

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Traditional Employment Is No Longer the Norm

McKinsey & Company October 2016 - Independent Work: Choice, Necessity and the Gig Economy – Executive Summary https://www.mckinsey.com/global-themes/employment-and-growth/independent-work-choice-necessity-and-the-gigeconomy Lifetime employment at one company is largely a relic of the past, putting the onus on individuals to map out their own career trajectories, looking for their own business opportunities and taking charge of developing their own skills along the way. Independent and traditional workers alike would be well served by developing differentiated skills and services to avoid becoming part of a low-wage generalist pool. In addition, each independent worker has to operate like a self-contained small business. This demands administrative skill and foresight to prepare for peaks and valleys in earnings, to perform all tax and legal compliance, and to manage their own retirement savings.

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Tax Reform good for Independent Contractors

National Review 1/5/2018 “The GOP’s Tax Reform is Great for Gig-Economy Workers” https://www.nationalreview.com/2018/01/tax-reform-helps-gig-economy-workers/ I’ve cautiously suggested to some of my freelancer friends that the tax bill may not be all that bad for their personal finances. I’ve walked them through simple back-of-the-envelope calculations to show them that, despite what they’ve heard from NPR and the New York Times, the law will actually shake out quite well for them. A single freelance photographer in Seattle making $60,000 a year, for example, will save roughly $4,000 next year (per these calculators). A married couple with one child and an interior-design business making $90,000 a year will save roughly $4,500. For working artists, $300 or $400 a month in additional income is no trivial matter. It’s four weeks of grocery bills, the rent for a studio space, or an after-school program for the kids. Whether they intended to or not, congressional Republicans have begun the critical work of adapting our legal and tax system to the “gig economy.” As more and more Americans work as freelancers, contractors, and sole proprietors, we’ll need to develop new rules that allow for maximum simplicity, flexibility, and opportunity for this quickly changing work force. The pass-through deduction and doubled standard deduction are a good start, but more work needs to be done to increase the portability of health insurance, retirement savings accounts, and individual insurance plans.

Tax Reform good for Independent Contractors

New York Times 12/22/2017 “If You Want to Know How the New Tax Code Affects You, Read This First” https://www.nytimes.com/interactive/2017/12/22/business/taxbillroundup.html If you own a small business, a pass-through provision will allow you to start deducting 20 percent of your qualified business income from a partnership, S corporation and sole proprietorship, starting next year. There are limits, including a phaseout for the deduction that begins at $157,500 of individual income and $315,000 of income for couples filing jointly. … and that could be a big deal for the gig economy. The provision will also allow independent contractors, like Uber drivers, to use the same deduction. Many people worry that this could accelerate the trend toward contract positions at the expense of full-time employment.

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Arguments for Traditional Employment Framing the Challenges of Digital Platforms

Rudy Tellis Jr., June 2016 Digital matching firms: A new definition in the “sharing economy” space, US Department of Commerce Economics and Statistics Administration, ESA issue brief number 01-16 Digital matching firms and their technologies have the potential to provide a number of benefits, but there are possible downsides to the emergence of these firms, most notably to service providers themselves. Partly because service providers are typically not classified as employees of the firm, risks are often shifted from the digital matching firm (that provides the platform) to the service provider (often an individual). There are also potential concerns about customer privacy and access to these services that need to be considered when evaluating the overall costs and benefits of these new services.

Digital Platforms Increase Income Instability

Rudy Tellis Jr., June 2016 Digital matching firms: A new definition in the “sharing economy” space, US Department of Commerce Economics and Statistics Administration, ESA issue brief number 01-16 Potential Income Instability: Service providers in the digital matching economy are fully reliant on the digital matching platform’s ability to connect them with consumers, and they are not guaranteed to be matched. Thus, service providers in the digital matching economy are often unsure at any given time whether or not their services will be in demand. Also, in the case of digital matching firms that set rates themselves, service providers are unsure of the price until they begin providing those services, and the prices may change at any time.

Digital Platforms Lack Benefits & Other Protections

Rudy Tellis Jr., June 2016 Digital matching firms: A new definition in the “sharing economy” space, US Department of Commerce Economics and Statistics Administration, ESA issue brief number 01-16 Since many digital matching firm service providers are classified as independent contractors, they are not eligible to receive many benefits, such as a minimum wage, overtime pay, health and life insurance benefits, collective bargaining rights, retirement and savings plans, protections from discrimination, and sick leave. Workers who sign up for their own benefits must additionally devote their own unpaid time to what is normally provided by human resource departments. In addition, service providers are often not compensated if, for instance, a client is running late or reneges on a service request.

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Digital Platforms Don’t Provide Capital

Rudy Tellis Jr., June 2016 Digital matching firms: A new definition in the “sharing economy” space, US Department of Commerce Economics and Statistics Administration, ESA issue brief number 01-16 Digital matching firms rely on service providers to use and maintain their own capital assets. If, for example, a service provider’s car breaks down or their tool malfunctions, he or she must cover replacement and repair costs. Further, when providing services through car transportation platforms such as Uber, service providers are responsible for fuel costs, depreciation, and insurance coverage. 21

Digital Platforms No Training Incentives

Rudy Tellis Jr., June 2016 Digital matching firms: A new definition in the “sharing economy” space, US Department of Commerce Economics and Statistics Administration, ESA issue brief number 01-16 A digital matching company lacks the incentive to train its service providers lest they be classified as employees. For that reason, service providers either must already possess the knowledge and experience to provide a service or are forced to train themselves. Thus, for example, laborers providing handyman services via platforms such as Taskrabbit, must either already know how reliably to mount a TV, or teach themselves to do so.

Digital Platforms Are Potential Security Risks

Rudy Tellis Jr., June 2016 Digital matching firms: A new definition in the “sharing economy” space, US Department of Commerce Economics and Statistics Administration, ESA issue brief number 01-16 Digital matching firms by their very nature collect and have access to a substantial amount of consumer and service provider information, whether it be a consumer’s credit card information, home address, location, or travel history. As with all firms that conduct business via the digital economy, the safe handling and legal usage of such data by digital matching firms must be considered.

Digital Platforms – Security and Compliance

Rudy Tellis Jr., June 2016 Digital matching firms: A new definition in the “sharing economy” space, US Department of Commerce Economics and Statistics Administration, ESA issue brief number 01-16 Traditional firms must often pass rigorous regulatory checks, such as health and safety inspections in hotels and in restaurants, to ensure that their services are safe for consumers. Service providers in certain traditional industries are also often subject to additional screening and certification requirements, such as ensuring the contractors they employ are licensed to conduct handyman services or have taxi licenses for their cabs. Digital matching firms may not meet these same consumer safety requirements. Airbnb and other lodging-specific digital matching firm service providers, for instance, are not subject to the health and sanitation inspections common among hotels and bed and breakfast facilities. Providers of handyman services through digital matching platforms may not have the required contractors’ licenses to do specific requested tasks. Firms such as Taskrabbit hedge against such issues by providing insurance coverage in the event of an accident, but their service providers potentially remain unlicensed. Traditional service providers must also comply with federal, state and local environmental regulations to which digital matching service providers may not be subject. Hotels, for example, must adhere to a number of basic federal requirements under the Clean Air Act, Clean Water Act, and the Resource Conservation & Recovery Act and Toxic Substances Control Act, among others.

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Digital Platforms Require a Smartphone = Digital Divide

Rudy Tellis Jr., June 2016 Digital matching firms: A new definition in the “sharing economy” space, US Department of Commerce Economics and Statistics Administration, ESA issue brief number 01-16 In order to utilize digital matching platforms as either a consumer or a service provider, one must at least have access to the Internet, and also, in many cases, a smartphone. According to the Pew Research Center22 , about two-thirds of American adults now own a smartphone, up from 35 percent in 2011. Although smartphone access has grown considerably, one-third of U.S. adults are effectively unable to utilize many digital matching applications without assistance, and many of those without smartphones are those with lower levels of educational attainment and those on the lower end of the socioeconomic spectrum. For instance, only 50 percent of Americans making less than $30,000/year own a smartphone, compared with 84 percent smartphone ownership among those making $75,000/year or more. Only 52 percent of Americans with a high school degree or less own a smartphone compared with 78 percent ownership among those with college degrees.

Digital Platforms – Access to People with Disabilities

Rudy Tellis Jr., June 2016 Digital matching firms: A new definition in the “sharing economy” space, US Department of Commerce Economics and Statistics Administration, ESA issue brief number 01-16 A large number of businesses in the United States are included in the 12 categories that are considered “public accommodations” and are therefore covered by the American with Disabilities Act (ADA), including restaurants, hotels, movie theaters, schools, day care facilities, recreation facilities, taxi services and doctors’ offices. For instance, taxis services are required to ensure that a certain percentage of their fleets are equipped to transport passengers with disabilities; in the District of Columbia, each taxi and sedan company with 20 or more vehicles must dedicate a portion of its fleet to wheelchair accessible vehicles.31 Hotels and even bed and breakfast facilities must comply with ADA regulations regarding architectural barriers. Digital matching firms that provide transportation services may not be equipped to provide service to the disabled, and it is unclear whether or not they are required to do so under the ADA or related statutes and regulations. Also not clear is whether authorities require most rooms and houses listed on websites of lodging-specific digital matching firms to be ADA compliant.

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Independent Workers – Limited Access to Benefits & Security

McKinsey & Company October 2016 - Independent Work: Choice, Necessity and the Gig Economy – Executive Summary https://www.mckinsey.com/global-themes/employment-and-growth/independent-work-choice-necessity-and-the-gigeconomy One area of concern for independent workers is their limited access to income security protections, such as unemployment insurance, workers’ compensation, and disability insurance. Minimum wage and antidiscrimination laws may not apply to them, and retirement security is a concern. The delivery of benefits is a key question. One option for bridging some of the gaps involves allowing independent workers to form pools in order to create their own marketplaces and benefits, a system that already works in the construction industry and in Hollywood. But any proposal will have to tackle multiple angles, starting with who would pay for such benefits and how they would be earned and tracked for workers with multiple clients and employers. Other potential hurdles include reduced access to credit, the risk of not being paid for work that is already performed, and complex tax filing, licensing, and regulatory compliance requirements.

Independent Contractors Risk Turnover & Cohesion at Companies

McKinsey & Company October 2016 - Independent Work: Choice, Necessity and the Gig Economy – Executive Summary https://www.mckinsey.com/global-themes/employment-and-growth/independent-work-choice-necessity-and-the-gigeconomy For companies and other organizations, hiring independent workers requires careful consideration. If properly managed, this shift can allow companies to become more agile, efficient, and productive; it can also allow them to add new capabilities and undertake projects that would not otherwise be feasible. But companies cannot make this change lightly. They need to consider the trade-offs, including the possibility of greater churn. It can be unwieldy to manage someone’s work externally and riskier to entrust the worker with confidential or high-profile projects. Project teams need to be designed with the right mix of internal and external talent—and business leaders also have a responsibility to ensure that external contractors are treated fairly and ethically.

Traditional Workers Don’t have the Risk Profile for Independent Work

MBO Partners, 2017 “The State of Independence in America: Rising Confidence Amid a Maturing Market” https://www.mbopartners.com/uploads/files/state-of-independence-reports/StateofIndependence-2017-Final.pdf People with payroll jobs tend to offer steady concerns about the disadvantages of working independently. And their attitudes haven’t really changed much over time even as independent work has become easier, more common, and (for many) more lucrative. In 2017, 62 percent of those with traditional jobs cited the lack of predictable income as a disadvantage of independent work, while 51 percent cited the fact that it was less secure than permanent employment, and 43 percent said they feared they wouldn’t earn as much. Among those with traditional jobs, 65 percent said becoming independent or starting your own business seemed very risky while only five percent said it wasn’t at all risky.

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Independent Workers are concerned about health benefits going forward

MBO Partners, 2017 “The State of Independence in America: Rising Confidence Amid a Maturing Market” https://www.mbopartners.com/uploads/files/state-of-independence-reports/StateofIndependence-2017-Final.pdf However, independent workers are not blind to the risks and challenges they face. The leading challenge identified by Full Time Independents was not having enough predictable income (50 percent). Other top challenges included planning for retirement (33 percent), worry about the next job (32 percent), and a lack of job security (31 percent). These measures have all come down sharply since 2011, as the Independent ecosystem has matured and independents have gained more confidence. There was, however, one outlier which can likely be traced to politics and the potential for policy change. In 2017, concern about benefits (chiefly healthcare), jumped significantly, with 40 percent reporting some level of concern. In 2016, only 33 percent expressed concern. This increase is probably due to rising concerns about the repeal of the Affordable Care Act and rising questions over the future of the federal and states exchanges through which many independent workers buy their health insurance.

Multiple reasons Independent Workers will increase

MBO Partners, 2017 “The State of Independence in America: Rising Confidence Amid a Maturing Market” https://www.mbopartners.com/uploads/files/state-of-independence-reports/StateofIndependence-2017-Final.pdf Demographic shifts are also likely to continue to propel people into the Independent workforce. As they continue to age and retire, more Baby Boomers will seek to remain engaged through Part Time or Full Time Independent work. And Millennials, who see the value of independence at generally higher rates than their elders, will continue to comprise a larger share of the overall workforce. At the same time, companies intent on maintaining agile and flexible workforces are becoming more comfortable engaging with independent workers. The growth will be abetted by the evolving and expanding support infrastructure of products, services, and programs that makes it easier, cheaper, and less risky to become independent. MBO Partners is a component of this infrastructure, designed to support the lives and businesses of Full Time Independents. In addition, we are seeing a growing industry of new Internet based tools supporting all segments of the independent workforce market. Finally, the simple accumulation of lived experience and performance is adding momentum to the independent movement. Over time, the very structure of work in America as changing. The barriers separating traditional and independent work continue to erode. For an increasing number of Americans, it’s not simply a matter of having a payroll job or working independently; many do both, or are comfortable with switching as circumstances dictate. As companies continue to place a premium on skills, flexibility, and performance, confident independents will find that they have more options.

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Labor – Digital Platforms can and should Innovate While Protecting Workers

Block, Sharon I JD, 9/2017. Executive Director of the Labor and Worklife Program at Harvard Law School Testimony before the House Education and Workforce Committee The Sharing Economy: Creating Opportunities for Innovation and Flexibility. The key question that this hearing is designed to address is whether the innovation and flexibility that marks the online platform economy is consistent with our historical structure of labor and employment laws that we enacted to ensure a basic level of economic security for American workers. Judge Vince Chhabria1 , in a case brought by Lyft drivers asserting that they were employees misclassified as independent contractors, described the dilemma this way: “The jury . . . will be handed a square peg and asked to choose between two round holes.” In an address this spring to the Consumer Technology Association’s New American Jobs Summit, Chair Foxx similarly adopted the square peg/round hole analogy and concluded that, “self-employed individuals who rely on the sharing economy for work don’t fit neatly into obsolete job categories defined in another era.”2 I believe that the square peg/round hole analogy sells short the framers of our basic labor and employment laws. They handed down to us statutes that did not define their scope in reference to the particulars of the jobs that were familiar to them at the time, but rather in accordance with the timeless principle that the norm for workers in our nation should be the ability to earn a fair wage, be safe on the job, save for retirement and avoid destitution during periods of unemployment. Although there are always new challenges arising from technologic and business innovation, I see nothing inconsistent between that principle and the dynamism that has always marked the American economy. Employers have found ways to innovate their way through many phases of the American economy from the recovery from the Great Depression through to the information age within the confines of this principle. The Digital Age of the American economy need not be any different. Online platform companies have a choice: they can be innovative and flexible while creating good jobs or while destroying good jobs. My testimony will focus on demonstrating that there is nothing inherent in their drive for innovation or flexibility that precludes them from making the right choice – the choice to create good jobs.

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Even “Disruptive” Industries can have Traditional Employees

Block, Sharon I JD, 9/2017. Executive Director of the Labor and Worklife Program at Harvard Law School Testimony before the House Education and Workforce Committee The Sharing Economy: Creating Opportunities for Innovation and Flexibility. Much of the debate over the online platform economy, however, is dominated by words like “disruptive,” “innovative,” and “new.”4 If, in fact, online platform companies are service providers and not just intermediaries between individuals providing services and individuals needing services, however, the business model in terms of worker classification looks rather conventional. My former colleagues David Weil and Tanya Goldman have differentiated between platforms that create virtual markets and those that provide branded services. Much of the litigation over employee status has been against the online platforms that provide branded services, such as Uber and Handy.5 In those examples, the platform company endeavors to deliver a consistent experience for customers – looking at Uber’s website it is clear that they want the public to associate Uber with a ride that is always fast, reliable, safe, and ubiquitous.6 While the outcomes of employee status cases are dependent on the particular facts and circumstances, business models premised on the need to provide a consistent branded service tend to require a level of integration and control of the workers involved that is indicative of employee status7 . For example, in order to appeal to a particular segment of the market that the platform company has decided is most profitable to serve, branded service platforms typically set the price at which workers offer the service to the customer. Similarly, in order to ensure consistent quality of service, branded service platforms typically dictate many aspects of the way in which workers provide the service. Moreover, thus far, most of the branded service platforms provide services that do not require a degree of worker skill or specialization, such as driving, cleaning or delivering groceries.

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Online Platform Workers should be classified as traditional employees

Block, Sharon I JD, 9/2017. Executive Director of the Labor and Worklife Program at Harvard Law School Testimony before the House Education and Workforce Committee The Sharing Economy: Creating Opportunities for Innovation and Flexibility. Moreover, under the FLSA8 and the NLRA,9 the opportunity for entrepreneurial gain or loss is a key indicator of employee or independent contractor status. Looking at Uber as emblematic of the branded service platform model, the entrepreneurial opportunity appears very constrained. Although Uber tends to be rather secretive about how its platform works, recent reports have revealed the following rules10 that apply to drivers’ behavior: • Drivers must accept at least 80% of assigned rides or they may be deactivated • Drivers have only about 15 seconds to decide whether to accept an assigned ride. • Drivers may be required to explain any deviations from GPS suggested routes. • Drivers do not know their passengers’ destination when they decide whether or not to accept a ride. • Uber sets the price charged to the customer for the ride and may change it at any time without prior notice to drivers. When you put all of these rules together, it is hard to see how Uber drivers have the opportunity to exercise entrepreneurial initiative. These rules preclude them from using their business acumen to decide whether a ride provides an optimal opportunity for profit, as they have to make an almost instant decision whether to accept it or not and do not know how much they will be paid for the ride, how long it will take or where it will lead them when they make the decision. Moreover, they cannot use their own business goodwill to make their “businesses” more profitable as they lack the authority to set their own prices. Setting prices is a fundamental feature of business decision making. Instead, they have the ability to make more money by working more hours, not through the exercise of entrepreneurial or management skill. But that is no different than employees in many settings who have the option to add additional hours to their work week. Having the option to add hours does not transform an employee into an entrepreneur.

There is not a proven connection between Online Platforms and Innovation

Block, Sharon I JD, 9/2017. Executive Director of the Labor and Worklife Program at Harvard Law School Testimony before the House Education and Workforce Committee The Sharing Economy: Creating Opportunities for Innovation and Flexibility. The best evidence that employee status is not an obstacle to innovation are the examples of online platform companies that have made the choice not to fight application of the current definition of employee status and, instead, have embraced providing their workers with the security and stability that comes with employee status. I have had the privilege to spend time with several CEOs of online platform companies that have made this choice and have enjoyed watching their business flourish.19 For example, Dan Teran, CEO of Managed by Q, an online platform company that provides office cleaning services on-demand, has classified all of his workers as employees and provides a wide array of benefits, including profit sharing, in addition to paying minimum wage and overtime, making workers compensation contributions on their behalf and meeting Social Security and Medicare contribution requirements. Dan is frequently recognized as a highly successful entrepreneur in the online platform economy.20

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More Independent Contracts is a way for companies to shift risk

Block, Sharon I JD, 9/2017. Executive Director of the Labor and Worklife Program at Harvard Law School Testimony before the House Education and Workforce Committee The Sharing Economy: Creating Opportunities for Innovation and Flexibility. Continued risk shift: One way of thinking about what happens when a worker is classified as an independent contractor instead of an employee is that much of the risk attendant to acting in the economy shifts from the employer or the government to the individual. The Yale political scientist Jacob Hacker described this phenomenon in his book, “The Great Risk Shift: The New Economic Insecurity and the Decline of the American Dream.”28 When workers become independent contractors, they become responsible for negotiating on their own for family sustaining wages, providing a safe workplace, saving for a secure retirement, and sustaining themselves through periods of unemployment. Our basic labor and employment laws were premised in part on the idea that individuals were not best suited to carry so much risk. Any change in the law that further facilitates that risk shift without an assessment of whether those to whom it is being shifted can bear it, risks great damage not just to the individuals involved but to the economy as a whole.

Employers benefit and workers are hurt

Prudential, 6/2017. Gig Workers in America: Profiles, Mindsets and Financial Wellness. The gig model is cost efficient for employers because it converts many fixed costs to variable, reduces benefits costs, and allows for resource flexibility. For workers, gig work provides flexibility and the opportunity to be their own boss. However, the gig model is fundamentally changing the employer-employee relationship. Consequences for gig workers include an unpredictable work stream, a lack of access to benefits, and average pay that is lower than traditional full-time employees.

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Gig workers face serious negative financial consequences

Prudential, 6/2017. Gig Workers in America: Profiles, Mindsets and Financial Wellness. While the gig model provides more flexibility for many employers and workers, it also has negative consequences for the workers’ pay, benefits, and job security, and, thus, their financial wellness. Financial wellness is the ability of individuals to achieve the foundational elements of financial security: managing day-to-day finances, achieving important financial goals, and protecting against major financial risks.2 Managing day-to-day finances. The nature of gig work is such that its workers often live with less stability of income and “job security,” have to self-fund their benefits and retirement savings, and pay self-employment taxes. According to the survey, on average, Gig Only workers earn $36,500 per year versus $62,700 for Full-Time employees.3 This is not surprising, given that Gig Only workers work fewer hours (median 25 hours) per week than Full-Time employees (40 hours). Gig Plus workers, on average, work slightly more hours (44 hours) and earn almost as much ($55,800), on average, as Full-Time employees. These factors may make it particularly challenging for Gig Only workers to manage their day-today finances. Achieving important financial goals. Lack of access to a systematic savings program for gig workers makes saving for retirement challenging. Moreover, Gig Only workers without access to employer-sponsored retirement plans would not be able to reap the benefit of employer-sponsored matching contributions. Significantly fewer Gig Only workers have assets in an employer-sponsored retirement plan (16%) than their Full-Time counterparts (52%). Twenty-five percent of Gig Plus workers have assets in an employer sponsored retirement plan, possibly from their traditional, non-gig work. Retirement assets for all segments may also be attributable to a spouse, a plan sponsored by a previous employer, or an affiliation with a professional association. Protecting against major financial risks. Over half (54%) of Gig Only workers do not have access to employer-based benefits, leaving them vulnerable to the key financial risks of premature death in the family, disability, or critical illness. In fact, Gig Only workers have less than half the access to employer-based coverage than that of Full-Time employees in terms of health insurance (40% vs. 82%), life insurance (20% vs. 59%), dental insurance (25% vs. 66%), and short-term disability (5% vs. 42%). For all three segments of workers, access to benefits may also be attributable to a spouse or an affiliation with a professional association. Incidentally, younger Gig Only workers (age 18-35) are less likely to have access to benefits (70% have no access) than older Gig Only workers over age 55 (44%). The percentage of Gig Plus workers who have access to coverage falls between that of Gig Only workers and Full-Time employees, likely as a result of coverage accessed through their traditional employers.

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Gig-only workers are less satisfied than traditional employees

Prudential, 6/2017. Gig Workers in America: Profiles, Mindsets and Financial Wellness. Gig Only workers are less satisfied with their current work situation than Full-Time employees (44% vs. 55%), and are also less likely to have a firm career direction (64% vs. 78%). Gig Plus workers are decidedly more satisfied with their gig work than their traditional job. In fact, 86% say they have a firm career direction. They see their traditional employment as more of a stable necessity and their gig work as a choice for their career. However, 50% of Gig Only workers and 51% of Gig Plus workers feel financially secure or stable vs. 59% for Full-Time employees. Full-Time employees view timeliness and consistency of pay as the clear advantages of traditional employment, and lack of earning potential as the main disadvantage (even though Full-Time employees earn significantly more than Gig Only workers). Gig Only workers say the top advantages of gig work are control, a sense of pride and fulfillment, use of professional skills, and flexibility of hours. The lack of benefits is the most commonly reported disadvantage for Gig Only workers, followed by the lack of consistency of earnings and predictability of demand for work. Overall, Gig Only workers are less likely to say they are interested in switching to traditional work than Full-Time employees are in switching to gig work. When asked whether they would be inclined to switch work models, nearly one third (32%) of Full-Time employees expressed a strong interest in moving to gig work, whereas 19% of Gig Only workers expressed a strong interest in moving to traditional work.4 Fear of failure and lack of benefits are the primary deterrents for Full-Time employees to consider switching to gig work. In addition, Full-Time employees indicate that the gig model would have to evolve to generate consistent pay and benefits to incentivize them to switch. Gig Only workers say flexibility would be the key factor in switching models.

We need to raise labor standards

Block, Sharon I JD, 9/2017. Executive Director of the Labor and Worklife Program at Harvard Law School Testimony before the House Education and Workforce Committee The Sharing Economy: Creating Opportunities for Innovation and Flexibility. In my opinion, the most urgent challenge facing our economy is how to raise labor standards. In last week’s release of the August jobs report, we once again saw sluggish wage growth.30 The recent lackluster increase in Americans’ income is a part of a decades-long pattern of wage stagnation31 and increasing income inequality.32 In the absence of any evidence that addressing the concerns of the online platform economy will raise wages or reduce income inequality, our national attention is better spent on policies that will: raising the minimum wage, increasing the overtime threshold and encouraging full employment.

There is already a shortage of crowdwork

Berg, 2016 Janine, Senior Economist – Labour Market Specialist “Income security in the on-demand economy: Findings and policy lessons from a survey of crowdworkers” International Labour Office. Insufficient work or underemployment. Another important concern among crowdworkers was insufficient work, with 90 per cent reporting that they would like to be doing more crowdwork than they are currently doing now (Crowdflower, 96 per cent; AMTUS, 85 per cent; AMT-India, 97 per cent). When asked why they are currently not doing more crowdwork, 60 per cent of Crowdflower respondents answered that ‘there isn’t enough available work’, as did 38 per cent of American AMT workers and 36 per cent of Indian AMT workers. Insufficient pay (‘pay isn’t good enough’) was the reason for 14 per cent of Crowdflower workers, 33 per cent of American AMT workers and 24 per cent of Indian AMT workers. Moreover, 71 per cent of Crowdflower workers, 61 per cent of American AMT workers and 64 per cent of Indian AMT workers also indicated that they would like to do more work that isn’t crowdwork. But like crowdwork, the majority report they are not doing more because of a lack of available jobs. Indeed, 46 per cent of Crowdflower workers, 23 per cent of American AMT workers and 46 per cent of Indian AMT workers actively searched for other work besides crowdwork during the past four weeks. It is thus clear that underemployment is a severe problem for many crowdworkers around the world (See Figure 7).

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AT: Flexibility

Block, Sharon I JD, 9/2017. Executive Director of the Labor and Worklife Program at Harvard Law School Testimony before the House Education and Workforce Committee The Sharing Economy: Creating Opportunities for Innovation and Flexibility. As the title of this hearing suggests, there is a perception that: (1) workers in the online platform economy value flexibility in their work arrangements over all other attributes of work; (2) that online platform business model provides the desired flexibility; and (3) that employee status impedes achieving the desired level of flexibility. I think that there are flaws in all three of these assumptions. There is a little doubt that a segment of online platform workers – perhaps a large segment – value the flexibility that platform work offers. In an article in the Harvard Business Review, Alex Rosenblat, a sociologist conducting an in depth ethnography of Uber drivers, found that for part-time ride hail drivers, who use their online platform work to supplement their primary source of income, the flexibility to work when and as much as they want is important.21 In addition, a study done by Uber’s Head of Economic Research Jonathan Hall and Princeton economist Alan Krueger found that 85 percent of survey respondents agreed that flexibility was a major motivator for driving for Uber22 . Thus, many online platform companies justify their use of the independent contractor status as a means of facilitating workers’ desired flexibility. There also should be little doubt that flexibility – even radical flexibility -- is not inconsistent with employee status. For example, to decide which days to work is not an uncommon attribute of workers who engaged by temp agencies and who are undisputedly employees. As my colleague Professor Ben Sachs noted: The bottom line is that workers can choose when and how much to work, and can even work without immediate supervision, and still be employees within the meaning of the law. Despite the trope, a legal determination that workers are employees does not require the loss of this kind of flexibility.23 In their excellent report on this topic, the National Employment Law Project noted cases involving a wide array of workers who both enjoyed the flexibility to accept or decline work and set their schedules, but who were nonetheless determined by courts to be employees, including cake decorators, home researchers, nurses, couriers and restaurant workers.24 What is in doubt is how real the promise of flexibility is for online platform workers. They clearly have the flexibility to work when they want to work. Generally, the online platform companies do not impose or assign work schedules on their workers. The platforms do, however, create strong incentives to influence when, where and for how long workers provide services. For example, Uber offers minimum guaranteed income only to drivers who stay on the app for fifty minutes out of every hour and engages in surge pricing to lure more drivers onto the app during peak hours and in high demand areas.25 In an interview with NPR’s Aarthi Shahani, Uber driver David McKee told Shahani, “No, you don’t feel like your own boss at all. The only thing you control is the time when you sign on and sign off. Other than that, Uber controls everything.” As discussed above, this kind of narrow flexibility can certainly be accommodated within the definition of employee status. What also is in doubt, however, is how workers balance a desire for flexibility with the burden of low pay and lack of protections and benefits that accompany independent contractor status. Of course, in a world where all else is equal, people like flexibility. There is recent data suggesting that many online platform workers don’t want the kind of flexibility that the online platform world offers when they can only get it by giving up basic employment protections. The high turnover rates among online platform workers suggests that many workers are not satisfied working for these platform companies. Research by the JP Morgan Chase Institute found that “one in six online platform workers is new in any given month and more than half of participants quit within a year.”26 Moreover, these researchers found that as the national unemployment rate has declined, indicating an increase in opportunities in other parts of the economy, participation in the online platform sector has decreased. Finally, an earlier JP Morgan Chase Institute study showed that turnover was lower among participants who have the highest levels of income volatility – the young and the poor.27 Taken together, these data paint a picture of many workers willing to abandon the flexibility of online platform work if they can find other employment.

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We should innovate with full labor standards and full employment

Block, Sharon I JD, 9/2017. Executive Director of the Labor and Worklife Program at Harvard Law School Testimony before the House Education and Workforce Committee The Sharing Economy: Creating Opportunities for Innovation and Flexibility. The online platform sector is an exciting and vibrant part of our economy. It provides income and convenience for millions of American workers and consumers. It is an admirable goal of the Committee to seek ways to foster its positive attributes – flexibility, innovative spirit, efficiency and convenience. I believe that the choice between those positive attributes and maintaining decent labor standards is a false choice. We should all share the goal of growing the American economy in ways that create a better future for everyone involved in this sector – platform owners, consumers, and workers. The innovation that Americans should be most proud of is our nation’s long history of adapting to change – including technological change – in ways that have produced the most enduring and prosperous middle class in history.

Pay is relatively low and 25% of hours are unpaid labor in the gig economy

Berg, 2016 Janine, Senior Economist – Labour Market Specialist “Income security in the on-demand economy: Findings and policy lessons from a survey of crowdworkers” International Labour Office. Low pay was a recurring theme amongst survey respondents, including from respondents outside of the U.S. The survey asked respondents how much they made during a typical week performing crowdwork and how time, during the same typical week, they spent working on actual tasks that were paid for and how much time was spent on unpaid work, such as looking for tasks, taking qualification tests, and researching requesters. To arrive at average hourly wages, workers’ earnings were divided by total hours (paid and unpaid) worked. In a typical week, workers averaged 28.4 hours of work, of which 21.8 hours were for ‘paid work’ and 6.6 hours were for ‘unpaid’ work.13 This means that nearly a quarter (23.2 per cent) of the time working was spent doing unpaid tasks, or put differently, for every hour of paid work, workers’ spent 18 minutes searching and doing unpaid preparatory work. Depending on the platform and the country of the worker, workers earned on average between $1 and $5.5 per hour. American AMT workers earned the most, with average earnings of $5.55 per hour and half of the workers earning either below or above $4.65 per hour (the median). 14 Indian AMT workers had average earnings of $3.17 and median hourly earnings of $1.65, and Crowdflower workers earned on average $1.77 an hour, with median earnings at just under $1 per hour (See Table 2). The lower earnings of Crowdflower respondents is likely due to the lower pay of the tasks posted on the platform.15 These figures are gross earnings and do not reflect any taxes that may be paid.16 Ten percent of AMT workers, both in the U.S. and India, report relatively high earnings, in excess of $10 per hour on the AMT platform, though most workers’ earnings concentrate around their respective means (See Figure 6).

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Independent Contractors have no safety net

BusinessWire 6/30/2017 “Gig Economy may threaten financial wellness of contract workers, Prudential survey shows” https://www.businesswire.com/news/home/20170830005798/en/Gig-economy-threaten-financial-wellness-contractworkers The gig economy — the increasingly popular employment model where people work as independent contractors rather than employees of companies — has a destabilizing effect on personal financial security, a Prudential Financial, Inc. (NYSE: PRU) survey shows. Gig Workers in America: Profiles, Mindsets and Financial Wellness, released today, reveals that the majority of respondents who work solely as temporary or contract workers don’t have access to employer-sponsored retirement or insurance plans, and report making only 58 percent as much as those who hold traditional full-time jobs, on average. The gig economy model is being adopted by both emerging companies and established firms to outsource some non-core functions. It may result in unintended economic consequences, as people turn to contract work without the protections of key benefits such as employer-sponsored savings and insurance plans. Gig workers made up 16 percent of the U.S. workforce in 2015, up from 10 percent in 2005, according to a study by economists Lawrence Katz and Alan Krueger. “While the gig model is cost-efficient for employers, reduces their benefits costs and gives workers flexibility, these workers may in turn suffer from income volatility and lack of access to a benefits safety net,” said Andy Sullivan, president of Group Insurance, Prudential. “The money made by gig work may contribute to reducing the national income gap, but the decline in employer-sponsored savings and insurance plans is doing little to address the wealth gap. Without benefit protections, many gig workers are left financially vulnerable.” Several themes emerged regarding three categories of workers: gig only, people who did contract work exclusively; gig plus, individuals who did contract work and held a traditional full- or part-time job; and full-time, or those with traditional full-time jobs. The study showed that gig work is not an exclusively urban trend, rather it is equally spread among cities, suburbs and rural areas, thus increasing available income in some areas where there had been few opportunities. Gig workers are also more likely to be in the service and manual labor sector. The most common job categories for gig-only workers are construction, installation and repair, personal care and sales. The most common work for gig-plus workers is computer and information technology, sales and personal care. The study showed the scope of the employer-sponsored benefits shortfall among contract workers: •

Only 7 percent of gig-only and 21 percent of gig-plus workers have long-term disability insurance.

•

Only 20 percent of gig-only and 37 percent of gig-plus workers have life insurance.

•

Sixteen percent of gig-only and 25 percent of gig-plus workers have assets in an employer-sponsored retirement plan, compared to 52 percent for their full-time counterparts, according to the research. “While working independently has its rewards, the uncertainty of gig income makes it difficult for people to prepare for emergencies or save and invest toward achieving important financial goals,” said Sullivan. The Gig Worker On-Demand Economy survey was conducted online by Harris Poll on behalf of Prudential from Jan. 5 to Feb. 18, 2017, among a representative U.S. sample of 1,491 workers. Gig work was defined as providing a service or labor and excluded renting assets (e.g., Airbnb) or sell goods they produce (e.g., Etsy).

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