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The Gig Is Up

Irwin M. Stelzer

On Friday, the government reported that the economy added 215,000 jobs last month, and that the unemployment rate remained a low 5 percent. That could support a decision by the Federal Reserve Board to raise its key interest rate in September. But the absence of inflation and of a significant increase in hourly wages, and the continued low labor-force participation rate can be taken by chairwoman Janet Yellen and her colleagues as reason to delay their planned 0.25 percent increase until early 2016, giving the Bank of England an opportunity to beat the Fed in the race to rate normality. All of which tells us very little about the fundamental forces determining the future shape of the U.S. labor market.

It is beyond doubt that rising income inequality will be a key issue in the 2016 congressional and presidential elections. That concern has already led to two major government interventions that are changing the U.S. labor market, most likely permanently. One is a successful move to raise the legal minimum wage. Many state and local governments are adopting a legal minimum of $15 per hour, well above the federal minimum of $7.25, unchanged since 2009. Whether these increases, most recently adopted in New York State but applied only to fast-food workers, will destroy jobs by making the unskilled too costly to hire, or increase jobs by adding to workers’ purchasing power, is the subject of a decidedly uncalm debate. Workers who do not lose jobs and who will benefit include the poor and the not-poor, the latter because many fast-food workers live at home with their relatively affluent families. And some of the poor, fearing that higher incomes will cause the loss of entitlements, are said to be cutting back on the hours they work, collecting the new higher minimum for those fewer hours, and retaining entitlements.

The second government intervention came when President Obama made an additional 4.7 million lower-paid and middle class workers – anyone earning less than $50,440 per year — eligible for time-and-a-half pay for hours worked in excess of forty per week, even if the worker carries the job title of “manager” or “executive”. Some firms, to make certain they are not in violation of the new requirement, are urging workers to keep records of time worked at home, for which they will be eligible for overtime pay. Less affluent or less generous firms are telling their staff to confine their work weeks to forty hours.

One thing is certain: separating the effect of this rule and of the new legal minima on wages from the upward pressure produced by tightening labor markets, will indeed create jobs — for graduate students plugging new data into their professors’ econometric models.

Failure of wages at the low- and middle-ends of the spectrum to rise more rapidly is not the only labor-market development that has some politicians and trade union leaders upset. Even more troubling to them is the emergence of what they call “the Gig Economy.” Uber is only one of the many companies that, according to Hillary Clinton, “is raising hard questions about workplace protections and what a good job will look like in the future.” It will certainly look like a job that does not require membership in a trade union, and one that allows the worker/entrepreneur to determine his or her own schedule, set an earnings target, and own the means of production. But since this worker is not an employee, but an independent contractor, minimum wage and other such “protections” will not apply. Uber directly employs 4,000 staff, covered by these protections, but also provides at least part of their livelihood to 160,000 uncovered, independent contractors in the U.S., making “gig” jobs a potential threat to those who believe that the government, rather than free negotiation between independent contractors and the builders of a car-hailing app, should set the terms of employment. The labor commissioner of the State of California, one of the most liberal in the nation – hence the term Left Coast – has ruled that these drivers are indeed employees of Uber, rather than independent contractors. That opinion is being appealed.

Uber is not the only company transforming America’s job market into a Gig Economy. Tens of millions of Americans worked as independent contractors long before Uber disrupted the existing urban transportation system and the lives of taxi drivers who had a virtual monopoly of the car-hail business, charging high but regulated rates and benefiting from government limitations on the supply of cabs. Just watch the traffic entering a Western town early any morning and you will see small trucks with plumbers, carpenters and other skilled and unskilled workers, often bearing logos of their tiny firms – independent contractors all — heading to work sites and charging rates that vary with the level of activity in the housing sector.

The government’s number gatherers say that only 6.5% of all workers are Gig workers — self-employed or unincorporated. And add that that figure is declining. My guess is this seriously underestimates the number of such workers. And in the day of Uber, Lyft, HandyBook (instant booking of cleaners and handymen), TryCaviar (home delivery from your favorite restaurant) and others the role of Gig workers in the labor force is more likely rising than falling . “Who do you believe, me or your own eyes?,” famously asked Chico Marx. Asked the same question by the U.S. Labor Department data crunchers, I would answer, “My own eyes.”

The Gig Economy is also making its appearance in Europe, where security has generally been preferred to the flexibility reformers claim will stimulate economic growth. Some 52% of young eurozone workers are now on temporary contracts, the highest proportion on record. In Germany, some six million so-called “minijobbers” can be called in to supplement a regular work force when the need arises. These workers, many of them retirees and students, can earn up to €450 per month free of tax and social security contributions, reports the Financial Times. They have provided needed flexibility to the highly regulated German economy, and the concept has been exported to Spain, which the FT reports now has its own los minijobs. In Britain, increased use of zero-hour contracts is causing as much discussion as its equivalent, the Gig Economy, is causing here in America. “The Company is under no obligation to provide work to you at any time and you are under no obligation to accept any work offered by the Company at any time,” provides Britain’s zero-hour contract, setting terms not very different from those in effect here for Uber and other firms’ independent contractors. Good news in the U.S. and the U.K. for employers who want the flexibility to gear their costs to the state of their business, and for workers who want to control their “work:life balance”, especially women and those holding multiple jobs. Bad news for risk-averse workers who prefer certainty to flexibility.

The political battle lines here have Republicans largely on the side of innovators and flexibility, Democrats on the side of trade unions and more traditional worker-management relations. In the long run the result of this battle will have a much more profound effect than whether and when the Fed decides to begin inching interest rates above zero.

Which brings me, finally to two other increasing injections of flexibility into our economy: rental housing and pop-up stores. The first upsets conservatives who believe that home ownership leads to a property-owning, more stable society, with homeowners active in their communities’ schools and social service organizations. But the preference of young people for renting over owning – or it might be their inability to raise the down-payment demanded of lenders, chastened by their experience with no-money-down mortgages during the recent financial upheaval – also means that young workers will not be prevented from moving where jobs aren’t to where jobs are by an inability to sell their homes. That is surely a plus for the economy.

So, too, are pop-up shops, stores rented by retailers for a short period of time, perhaps to show a new line of skis during the winter season, or merchandise during the peak season in a resort town. These pop-ups provide competition for established retailers such as department stores, and allow thinly capitalized entrepreneurs to risk that capital in an effort to establish themselves. Surely a plus for the economy as a whole.

If these trends continue and spread to other sectors, we might just reverse or at least mitigate the effects of years of mounting risk-aversion, increase worker and management choices, and increase the incentive to increase productivity, recently on the decline.

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