Conventional Unemployment Insurance Does Not Work in the Gig Economy
The facts are pretty simple: unemployment insurance (UI), as we know it, is a terrible fit for those working for on-demand platforms. Such people should have a better safety net than they do now but existing UI isn’t the answer. People working for an app based on on-demand service aren’t like conventional employees of a typical firm, but they aren’t just like independent businesspeople either. Unlike conventional employees, they are typically “hired” if they meet certain basic qualifications, can work for anyone they want to (including direct competitors), and have total control over their own hours and places of work. The great majority of them, again unlike most employees of a typical firm, aren’t really looking for any sort of career driving (or doing some other task) for the platform in question: Most don’t stick with it. On the other hand, the need for consistent branding, standards and pricing means that almost all such platforms have a much closer relationship and more control than someone contracting with a fully independent business owner.
In this somewhere in-between status, “unemployment” is a fuzzy concept to say the least: unless the platforms shut down altogether, people who stay within the rules always (at least in theory) have work available to them. While the platforms can deactivate (essentially fire) people who fail to meet standards of behavior or consumer satisfaction, many who fail on satisfaction scores do so too quickly to qualify for benefits under any unemployment system. In addition, those who are deactivated for behavior are often guilty of the types of gross misconduct that will make them ineligible for unemployment in the first place. The real problems that need to be solved aren’t the involuntary unemployment that UI is mostly intended to cover—since so few will experience it in the sense that most people think of it—but rather, income declines resulting from external factors (such as the pandemic), or the need/desire to take leave for leisure, health or family matters.
This is why thinkers and activists from the left and right have long argued for new, more flexible benefits systems to help workers for platforms like these. Uber itself has made a specific proposal for modest, highly flexible benefits that’s very similar to one I advanced in 2016. Even the maker-oriented platform Etsy has put in its own two cents. From the left, Nick Hanauer and David Rolf have advanced a somewhat less flexible, far more expensive and significantly more comprehensive proposal. Also, mostly from the left, proposals for government “wage insurance” have gained popularity.
And this is where the insurance industry plays a vital role. The diversity of proposals shows that nobody is really sure what to do—despite the consensus that society should do something. While, contrary to some media reports, contingent—”gig”—work is generally on the decline according to the Bureau of Labor Statistics, platforms such as Doordash and Lyft do represent something novel that existing benefits systems address poorly. Even if they are covered by current UI statutes, they shouldn’t be because the system simply doesn’t fit today’s circumstances and needs.
Before we jump too far into any particular solution, insurance underwriters and brokers need to look carefully at which risks private capital can back, and which it can’t. Some existing products like credit life/disability insurance can probably meet some needs with different marketing and benefit structures while some other needs may well require essentially novel products that use regulations and capital structures originally intended for another line. (This is actually common already in at least one category: most consumer pet insurance is regulated and underwritten as inland marine.) At least some of the risks, some of the time, can almost certainly be backed with private capital, and even a government-run or mandated program would probably do well to investigate the possibility of re-insuring some of its risk.
The possibilities in the market are endless and the poor fit of existing unemployment insurance for today’s realities offers a golden opportunity to innovate, transfer risk and create value.
Image credit: Kantver