Undercover Economist

An economist’s dreams of a fairer gig economy

We should decide what the state should provide and how generously, writes Tim Harford

It has never been easier to find little jobs for little payments. If you are being paid through Amazon’s Mechanical Turk to tag people’s photos or being hired to put up shelves via TaskRabbit, who needs a real job? For enthusiasts, these micro-jobs mean sticking two fingers up to the Man and rejecting wage-slavery in favour of freedom. For pessimists, they are precarious ways to earn a living that offer no pension or health insurance. Welcome to the “gig economy”, a phrase that evokes both the romantic ideals and the grinding poverty of life as a journeyman musician.

The app-based gig economy is still small. Perhaps one in 200 American workers rely on it for their main source of income; nobody is really sure. Yet it seems likely to grow, and, as it grows, so will a question: does the way we link social protections to jobs make sense?

Details vary but most advanced countries have a list of goodies that must be provided by employers rather than the government or the individual. In the UK a full-time worker is entitled to 28 days of paid leave. In the US the default provider of health insurance is your employer. In many countries, employees cannot be sacked without long notice periods and a decent pension is the preserve of people with a decent job. As for freelancers, they may enjoy flexibility and independence and sometimes even a good living — but as far as social protections go, they are on their own.

It is easy to understand the politics of this: pensions, healthcare and paid holidays are expensive, and asking employers to pick up the bill obscures their true cost. But the emergence of companies such as Uber is changing the calculus. Are Uber drivers employees or not?

Uber maintains that they are not. That seems defensible: a driver can switch the app on or off at any time, or work for a competitor such as Lyft on a whim. Few employees who acted in this way would be employed for very long.

Then again, does a driver who puts in 60 or 70 hours a week providing Uber-assigned rides according to Uber-determined rules and rates not deserve some sort of security? Some authorities think so: the company has lost a number of rulings in California as judges and arbitrators have found that, in certain cases, Uber drivers are employees.

Such judgments are likely to vary from case to case and place to place, and the uncertainty helps nobody bar the lawyers. Alan Krueger, former chairman of President Barack Obama’s Council of Economic Advisers, draws a parallel with the emergence of the workers’ compensation system a century ago. Sensible rules were agreed, he says, once lawsuits over industrial accidents became expensive and unpredictable.

But what should the new rules be? Mr Krueger’s approach is to adapt the status quo by extending some employment benefits to gig economy workers. He and his co-author, Seth Harris, recently proposed a third category of “independent workers”, neither pure freelancers nor pure employees. They receive “all the benefits that employees get”, Mr Krueger told me, “except for the ones that don’t make sense”.

As the global economy heals, a brave new world is emerging for workers in which more temporary jobs are being created — especially for the young

For example, if Uber drivers enjoyed the status of independent workers, they could form or join a union, and be protected under anti-discrimination laws. Uber, for its part, might offer pensions, health insurance and other products that its drivers could find attractive without fear this would lead the courts to rule that it was an employer. But independent workers would not receive paid holiday or protection from dismissal.

The Harris-Krueger proposal is based on the idea that the current package of employment rights in the US is attractive, and that America would be a better place if it was available as widely as possible. In the eurozone, where double-digit unemployment seems to be customary, it is hard to see how most protections could be applied to independent workers — and harder still to see why that would be a progressive step.

So here is a far more radical approach: we should end the policy of trying to offload the welfare state to corporations. It is a policy that hides the costs of these benefits, and ensures that they are unevenly distributed. Instead we should take a hard look at that list of goodies: healthcare, pensions, income for people who are not working. Then we should decide what the state should provide and how generously. To my mind, there is a strong argument that the state should provide all of these things, to everyone, at a very basic level. What the state will not provide, individuals must pay for themselves — or seek employers who provide these benefits as an attraction rather than a legal obligation. Call it libertarianism with a safety net.

No doubt this is just an economists’ pipe dream. Even the far tamer Harris- Krueger ideas seem unlikely to gain political traction any time soon. That is a shame. While traditional jobs suit most of us, the gig economy is perfect for some people and some circumstances. It would be a shame if our welfare state and labour laws failed to catch up.

Written for and first published at ft.com.