The pandemic has accelerated one of the biggest changes in our labor market since the industrial evolution: independent work. Now we need policy makers to embrace it.
The Great Resignation is turning into the biggest economic puzzle of our time. Quits are up and hires are down, and employers from investment banks to McDonald's Corp. are complaining they can’t find workers. Where have people gone? It could be they are trying something new: life as an independent contractor or gig worker.
That may explain the latest confusing jobs numbers. Last month a survey of households suggested employment is up 0.7%, but a survey of existing establishments reported new hires are only up 0.1%. At least some of the difference could be more people starting a new businesses; they would be excluded from the establishment survey, but count as employed in the household survey. There are many appealing aspects to going it alone, and the economy is adapting to make gig and contract work possible for people of all income and skill levels. Big shocks like a pandemic tend to accelerate existing economic trends, and more independent work could prove to be that big change.
But there's a good chance this is a trend that won't stick. The economy is structured in a way that makes independent work riskier than it needs to be, and that may undermine one of the biggest advances in our economy since the industrial revolution.
Economies constantly evolve. But the amount of change has been remarkable in the last 500 years. First, the agricultural revolution meant fewer people needed to farm and freed them to move to cities; then the industrial revolution created the factory system that fundamentally changed the nature of work. Before that, in Europe and early America, people were mostly either farmers or small-scale artisans. They worked at or near homes, set their own hours and had a lot of autonomy. But the factory system required many people to go to a single place, for a set number of hours, and do what their bosses told them while they were there.
According to economic historian Joel Moykr, at first this was a very hard transition. The idea that you had to be somewhere all day and bossed around by someone you were not related to felt demeaning. Factories initially had to hire more women and children because they were more compliant. It took more than a century of social conditioning (which was a big reason for universal schooling), to get people (especially men) on board with what we now consider a standard employment relationship. That relationship has served us well. Industrialization brought unprecedented prosperity and security.
Even before the pandemic, the factory model was beginning to feel out of date. Routine work could be done by machines and the economy moved to more service jobs that did not require the same kind of supervision. More recently, technology made gig or contact work a viable option because it was possible to find customers for your services (of all skill levels), through platforms like Upwork, TaskRabbit, or Uber. Even small-scale artisans could find customers on platforms like Etsy. Yet gig work did not really take off. Most of it was done to supplement a regular job.
Now the pandemic may have shaken up the status quo the way most big economic shocks do. It forced many people to return to the way humans traditionally worked — at home, able to set their own hours, and spending more time with their families. This may explain why the number of business applications surged during the height of the pandemic and still remains elevated.
Most of these applications are for businesses that don’t intend to hire people. Self-employment rates are also creeping up. It's not clear yet if small-scale entrepreneurship is why people are quitting their jobs. But at the very least it does seem that many people are exploring it, and odds are some will like it. This is how humans worked for most of history, it offers more flexibility with child-care or just scheduling your own day.
But the question now is, will it last? These kinds of arrangements have their benefits, but also more risk. Income will not be as steady, though it may be higher. You are responsible for paying your own taxes, won’t have access to employer health insurance, and will have fewer employer protections, including minimum wages and overtime pay. Much of that higher risk results from the fact that our economy is structured for people who have salaried jobs. President Joe Biden's Build Back Better plan doubles down on this with requirements to hire union workers, and the administration aims to make it harder for gig platforms to hire people as contractors. Self-employment has many downsides in our modern economy, which means some people will probably go back to regular work or continue independent work as a side-hustle.
It doesn't need to be that way. Our institutions favor salaried employment and they must adapt to the new economy. Rather than try to turn back the clock and keep workers trapped in an industrial version of work, regulations can offer a way for contractors to get quality health and disability insurance independent from an employer. The Affordable Care Act attempted to do this, but the marketplace plans are expensive and tend to offer narrow networks compared to employer plans. One idea is for gig worker platforms to offer insurance to contractors. Many don’t right now, because doing so may force them to recognize gig workers as employees. The government could create a safe habor provision where pooling independent workers for the purpose of buying insurance would not be legally interpreted as grounds for employee status. Gig platforms could also offer insurance for sick or family leave. There is scope for wage insurance, as well, where gig workers band together to insure against temporary drops in income.
Instead, policy makers want to keep the economy stuck in the past to protect workers, ignoring the fact that a more historically traditional way of working could be our future and we need creative solutions that embrace it.
This piece originally appeared at Bloomberg Opinion
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Allison Schrager is a senior fellow at the Manhattan Institute and a contributing editor of City Journal.
This piece originally appeared in Bloomberg Opinion