Is an Uber-ized, free agent economy one of abundance—or scarcity, deprivation and economic insecurity for workers? Or both? And how can we keep society fair when more people are getting work through digital middlemen and other nontraditional routes?
These are not easy questions to address. But with President Obama placing “middle class economics” front and center, they're very important. And so far the only real leadership in answering them is coming from financial services entrepreneurs on the bleeding edge of the on-demand economy, who are offering new solutions to keep freelancers afloat. (More on them later).
The lack of attention to solo business owners is shocking. About 53 million Americans now work as one-man or one-woman bands in the "contingent" economy as freelancers, contractors, temps or part-timers, by the Freelancers Union's count. And more businesses are relying on these flexible workers. In a new report, Elance-oDesk--one of the larger freelance marketplaces--found that U.S. businesses spent $604 million hiring freelancers through its platform in 2014, up 30% year-over-year since 2013. People of all levels of professional skill now rely on freelance work. The most in-demand skills on Elance-oDesk include mobile technology, sales and marketing, administrative support, and writing and translation.
Still, the fate of the enormous group of freelance taxpayers is almost always an afterthought in discussions of public policy. Join the world of independent employment--whether with enthusiasm or because you were forced by circumstances--and you will find yourself strangely invisible and living with almost no safety net.
With Uber growing aggressively and freelancing getting rebranded with sexier names like the "on-demand economy," that may be changing--a little. Some people are starting to become concerned about the rights of Uber's drivers, and whether they should be considered employees of the company or not. With the debate brewing, the latest round of Uberized headlines focuses on a recent survey of its drivers. Seventy-eight percent of the folks behind the steering wheels said they were satisfied with the Uber platform; most reported that driving for Uber was a part-time gig. However, as Newsweek says it verified, many drivers declined to participate in the research. And the sample size was small.
To me, the heated debate signals that it's time to reinvent our industrial-era institutions. Many people now work in ways that don't fit neatly into the old-fashioned W-2 vs. 1099 buckets. It doesn't make sense to shoehorn digital platforms and the freelancers who use them into dated, punch-clock era employment models that have just about run their course.
In any discussion of the middle class, it is time to consider some new questions:
* What is different about an online freelance marketplace from a traditional employer? Given the differences, what is the fairest way for the platforms to operate and treat workers who use them?
* What do we do when workers gets kicked off of one of these platforms for reasons they think are unfair--and potentially lose their whole business?
* What happens when a platform fails? Do we need to view it the way we would if a big corporation failed and try to control the fallout?
* Should we create systems to deal with the disruption that will eventually occur when a new technology, like driverless cars, puts an end to the livelihood of certain on-demand workers?
With legions of people finding work through digital platforms, the answers matter.
The few leaders who are concerned about contingent workers tend to turn to the same old solutions, like crackdowns on employee misclassification. Going after employers who are trying to cheat low-wage workers out of benefits is very important. But many freelance workers are not misclassified. And they like running their own businesses. Nonetheless, to stay in the middle class, some need a little help sharpening their business skills and replicating the support systems that many traditional workers get from their jobs. We need innovative new ideas to help them do that.
Right now, most government programs for business treat one-person firms as an annoying problem to be fixed. The thinking is that these solopreneurs are potential job creators who could potentially grow if only they had the right mindset to scale up. The emphasis is on getting the owners to the point where they are employers. The underlying reason is that government does not want to create more freelancers. They are harder to tax than W-2 workers whose payments to Uncle Sam get deducted automatically from their paychecks. That is very annoying to bureaucrats. Why create more hard-to-control folks who don't fit into a cookie-cutter system?
As a result, there's almost no meaningful help offered to a freelancer who, for instance, wants to get from $25,000 in income to $150,000 or $200,000 to support a family in a high-cost state and then keep the business running profitably for years as a solo operation. We should be asking "Why not?" Of the 28.2 million small businesses the SBA has tallied, more than three quarters are nonemployers. These folks have collectively created millions of jobs--for themselves. It would help society tremendously if all of these folks knew how to give themselves a "raise" --even if they have no desire to become the next Mark Zuckerberg or Sara Blakely.
One of the biggest areas where these soloists need help is managing cash flow, given the unsteady income that comes from self-employment. The financial sector has had little interest in solving this challenge so far. But new ideas are finally starting to percolate among entrepreneurs.
The Pacific Standard recently reported on a startup – still in beta testing -- called Even that aims to help freelancers and part-timers. They contribute their pay to the startup, which gives them a regular paycheck based on their average weekly income for the past six months, paying $5 a week to use the service. When users are tight on funds, Even allows them to take an interest-free loan to be paid back through their future earnings. If the business model works, it could potentially help many freelancers bring financial stability to their lives--particularly if Even partners with some of the major freelance platforms to make the process seamless.
In Europe, another interesting idea being tested is worker-run collectives to insulate freelancers from loss of income if they fall ill, as The Guardian recently reported. They put a certain amount of money into the pool, based on how much income they would need to replace if they could not work, and therefore get the right to collect if they get sick for more than a month. While there is some potential for abuse, these worker-friendly alternatives to disability insurance seem to be holding up well so far and are worth watching.
Freelancing is not going to slow down. Both freelancers and their customers like the on-demand economy and the Uber cabs it brings. But that doesn't mean we can't find creative new, digital-era solutions to make sure that freelancers can stay in the middle class. And the moment to do that is right now.
