The Gig Economy Myth That Won’t Die
As California’s legislative season kicks into high gear, one of the big debates heating up in Sacramento is how to categorize workers in the so-called gigeconomy. Last year, the California Supreme Court made waves by changing the test for determining whether workers should be treated as employees or independent contractors, and now state lawmakers are deciding whether to codify this decision into state law. Unfortunately, much of the debate around the issue is based on the false notion that gig-economy work is on the rise nationwide. Before diving head-first into any legislative action, state lawmakers need to get their facts straight.
The California Supreme Court’s Dynamex v. Superior Court of Los Angeles decision altered decades of labor law by holding that workers were presumed to be employees of a firm — and thus entitled to the full suite of benefits normally attached to employees — unless the firm could demonstrate otherwise. To do so, the court laid out what has become known as the “ABC Test,” which requires firms to show the following to prove that a worker is an independent contractor: A) The worker is outside the firm’s control while performing their job; B) the worker is performing a task that is outside the firm’s normal scope of business; and C) the worker has made a definitive decision to go into business for themselves.
This is a rigorous standard to meet and one that could upend many work relationships for contingent and contract workers — especially for firms operating in the gig economy that use online platforms to connect workers and customers. While the exact reach of the court’s decision is unclear, codifying the ABC Test into state law would ensure that many more gig-economy workers are reclassified as employees.
The purported reasons for doing so are based on two related but flawed assumptions. First, many policymakers believe that independent contractor arrangements are inherently inferior to traditional employer-employee relationships, despite evidence that many workers prefer the flexibility of contracting. Second, they also believe that the gig economy has brought about an inexorable increase in the number of nontraditional work arrangements, meaning that more workers are being inappropriately treated as contractors instead of employees.
To underscore these fears, politicians often invoke images of down-and-out workers who have no choice but to work a bevy of part-time gig-economyjobs to make ends meet, all while being denied important worker protections like hourly wage guarantees and health-care benefits. For example, California Assemblywoman Lorena Gonzalez Fletcher, D-San Diego, recently stated: “Individuals are not able to make it on three side hustles. That shouldn’t be the norm. That shouldn’t be accepted.”
The problem with Gonzalez Fletcher’s comments is that they are completely at odds with empirical evidence about the modern workforce, which shows that contingent and part-time work numbers are actually declining.
In fact, data from the U.S. Bureau of Labor Statistics consistently demonstrates that the assumption of a much-ballyhooed rise in contingent and part-time work is fundamentally wrong. Instead, part-time work arrangement numbers are largely in line with historical averages, as is the number of workers who are classified as self-employed (which often includes independent contractors).
Perhaps most damning of all to the gig-economy-is-rising narrative is the recent recantation by two economists of a previous study that purported to show an increase in gig work. Back in 2015, Alan Krueger and Lawrence Katz released a report suggesting that gig economy workers were increasing in number and crowding out traditional work relationships. The study received significant publicity but was dealt a substantial blow when the BLS released its own report last year showing that the number of contract and contingent workers had actually decreased since 2005. Krueger and Katz have now admitted that their 2015 findings were flawed.
As so often happens, the growing body of evidence refuting the notion that the gig economy is swallowing traditional employer-employee relationships seems to have received much less attention than Katz’s and Krueger’s initial flawed findings. Yet politicians like Gonzalez Fletcher are still using these outdated — and false — talking points to peddle a narrative that lacks a basis in reality.
Ultimately, there’s an important debate to be had about how modern technology has created new types of work relationships. There’s even good reason to believe that a “third-way” statusfor certain gig-economy workers — which would create a new category of worker along with a flexible benefits package — might be the best way to resolve the current debate. But in order to have an informed debate on how to best move forward, politicians need to at least make sure they have their facts right.