Brief # 115 Economic Policy

Is Change on the Horizon for Gig Workers?

By Lily Lady Cook

May 8, 2021

Summary: U.S. Secretary of Labor Marty Walsh told Reuters in an exclusive interview at the end of April that he supports reclassifying certain gig workers as employees. In 2017, approximately 34% of the workforce in the US were independent contractors, and even more supplement their income with freelance work. These types of jobs can allow for greater flexibility and independence with regards to hours and variety of work. Yet the tradeoffs can be disproportionate: there’s often less job security, no employee-provided health or retirement benefits, and more expensive taxes.

With the rise of apps such as Uber and Lyft, many more Americans work full-time in the gig economy. The gig worker is a crucial asset for the CEOs of Silicon Valley, many of whom have a vested interest in maintaining the status quo. In fact, Uber’s 2019 IPO prospectus to the Securities and Exchange Commission—available to peruse in its entirety here—states in no uncertain terms that if “we are required to classify Drivers as employees….we would incur significant additional expenses” such as “minimum wage, overtime, and meal and rest period requirements….employee benefits, social security contributions, taxes, and penalties,” all of which would contribute to an “adverse effect” to “our business and financial condition.”

Secretary of Labor Walsh’s comments had an immediate effect on shares in Uber, Lyft, Doordash and Grubhub. After Walsh’s interview was made public, Uber shares took a 6% hit, and Lyft was down close to 10%. It remains to be seen whether these comments will instigate new legislation at the federal or state level.

Analysis: The vast swaths of unemployed gig workers at the onset of the pandemic highlighted the insufficiency of American fiscal safety nets. While Congress’s decision to extend unemployment benefit eligibility to many freelancers was a necessary measure, provisions from private companies are still imperative. The current model of expanded Pandemic Unemployment Assistance will not last forever, and infrastructure to support gig workers in the longer term should be set in motion before the next crisis.

New legislation to reclassify gig workers as employees will not be an easy battle. Last fall, Proposition 22 overturned a previous bill and resulted in looser mandates for employee classification in California. Among the authors of Prop 22 were the California-based Uber, Lyft, and DoorDash, which cost an estimated $200 million in lobbying. This appears to be a big expense at first glance, but it is nothing compared to what analysts estimated it would cost per year for Uber and Lyft to make their drivers employees.

Still, there’s reason to think that Walsh’s comments are more than just empty rhetoric, and that even industry titans might soon be forced to make adjustments. On May 5th, the Biden administration blocked a Trump-era rule from January that eased companies’ ability to classify their workers as independent contractors. If more actions like these accumulate, the state of labor relations in America could shift in favor of more benefits for gig workers.

Engagement Resources: An extensive list of resources for gig workers experiencing hardship because of COVID-19. Donations can be made to assist with food, rent, utility and medical expenses. A petition to ask California politicians and labor agencies to increase benefits for gig workers, including paid time off for those with COVID-19.

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