The Case Against Full-Time Employees

"A lot of people are convinced that a lot of people should be paid a lot less, but I'm pretty sure everyone I've ever met thinks they should be paid a lot more. A lot of people are going to end up unhappy."
     ~ My buddy Dan 

"Gig jobs" - the newest term for the employment of freelancers or independent contractors - are invoking a lot of discussion these days. Companies like Lyft, TaskRabbit, Upwork and many others are frequently criticized for providing services delivered by independent (or even unlicensed) contractors. Some journalists are raising terrifying claims about how the sky is falling because "full-time employment is dying and soon we'll all be obsolete". It's as if by 2020 we will be out on the street, penniless and begging a parasol-carrying bourgeois couple to let us run them across town in a rickshaw so we can earn a few tuppence for tonight's pudding.

A lot of people are buying into the fearmongering. They shouldn't. 

The debate even seems to be impacting employment models of companies that probably should be using a lot of independent contractors: Shyp recently made the risky - and costly -  decision to hire its delivery workers as full time employees; it feels like AirBnB - whose owner-hosts certainly don't pay employment taxes - is being sued in every city it operates; Sprig and Blue Apron must face the dilemma of do we hire full time people or do we pay contractors piecemeal?; Gravity Payments finds itself in an odd situation after guaranteeing great minimum salaries for all its full-time employees, a choice that appears to be costing it more than just money; and Zirtual shut down at least in part because it hired full-time employees...and hopes to relaunch using independent contractors.

Hotels hate AirBnB. Taxis hate SnapCar. Trains hate BlaBlaCar. Restaurants hate Sprig. Cleaning services hate TaskRabbit. This hate and debate - about an employment model that disrupts or destroys entrenched businesses - is increasingly focused on the use of independent contractors. 

I'm caught in the middle. As a consumer, but also founder of a company that contributes to the creation of thousands of jobs in Paris, I want to explain why "gig economy jobs" will continue to comprise an outsized percentage of global employment growth in the coming years.

Many jobs - particularly highly-skilled or managerial ones - will always be better fulfilled by full-time employees than by contractors. Every company needs dedicated resources that focus all their energy on a single set of responsibilities. You can't run and grow a company if you don't have dedicated workers, and by definition independent contractors are free to work for anyone they wish.

But at the most basic level gig economy jobs are exploding because there weren't enough of them in the first place. This increasingly important employment paradigm demonstrates that for certain types of jobs there are more efficient ways of allocating resources, leading to better services for customers, more money for contractors, and indirect benefits to consumers because of productivity boosts to economies.

In the past, the complexity/impossibility of resource pooling made it too hard for most companies to use independent contractors on any large scale, even though many could really have benefited from doing so. So consumers paid more than we should have for products and services provided by people who were full-time employees, but who didn't really need to be to serve us appropriately. The traditional model has cost you money your whole life because in certain cases it's less efficient than an economic model based on pooling independent resources to provide services that many people need/want.

We know now that you don't need to pay for a full time driver to get a quality ride on demand; or stay in a dedicated hotel to find a great place to sleep; or hire a full-time maid to have your house/apartment cleaned; or have a full-time chef to get a quality meal prepared and delivered straight to you. These kinds of services, which in many cases were previously price-inaccessible to all but the wealthy, are now consumed by a much larger set of people around the world because the resources that supply those services can be federated across a broader demand market.

It's mostly thanks to technology. Geolocalization has enabled what is truly a revolution: the virtually costless pooling of supply-side resources. It's the pooling that foments greater supply and incites demand from a broad audience, enabling independent contractors to earn a living in ways they previously could not. That, along with the demand you provide for their services, is what is attracting them to gig economy jobs.

But gig job growth isn't just often great for the worker who might otherwise find himself unemployed, it's also great for employers (though not so good for governments. Perhaps more on that some other time).

Which means that sometimes hiring full-time workers is a terrible idea.

In most countries there is a significant cost difference for an employer to use full-time employees versus independent workers. The figures may shock you. Here's a real, typical example from France:

Yes...It frequently costs significantly more to hire a full-time employee than it costs to hire an independent contractor to do exactly the same job. In the United States the cost difference may not be as stark as in Europe but it is still significant.

And yet in many cases an independent contractor takes home more money at the end of the month than if he was employed full-time. Because payroll and income taxes are generally lower for independent contractors than for full-time employees (laws vary from country to country) and because if a contractor works more he usually makes more. And he's free to work more (or less).

But beyond salaries and taxes there are other significant advantages to employing - and being - an independent contractor: the worker works when and for whom he wishes. And he can work for more than one company at a time. So if he makes 1800€ a month from SnapCar he might also make that amount from a competitor, like Uber. This motivates SnapCar - and Uber - to pay the driver as well as possible in an effort to win his loyalty. It's not necessarily a race to the top but I can promise it's anything but a race to the bottom. 

There is more. The independent worker can have additional, separate jobs on the side. He takes vacations/holidays when he wants. And perhaps the most important element: the barriers to entry for contractor jobs are often not particularly high. So less experienced people and/or those lacking a strong financial footing can often still find work right away. This is a hugely valuable opportunity for many. It's not for everyone but it helps many. 

There are some very real drawbacks: the most glaring of which that job security for a contract/freelance worker is lower than in a full-time role. An independent contractor also has no guaranteed daily/monthly income. It's possible to work a ten hour day and make nothing, although this essentially never happens. He's not paid for taking vacations. If his performance is poor or demand dries up he can find himself unable to earn a living. He must buy his own health insurance or perhaps supplemental health insurance (in France all basic health care is paid by the government, funded by payroll taxes. Hence payroll taxes here are 3-4x higher than in the United States).

He also doesn't get to hang out with his colleagues by the water cooler. He won't be paid for playing World of Warcraft during board meetings (like American hero Brian Roddy who was so brilliant he could get away with it) or for watching Yadier Molina win another game for the world's greatest sports franchise and make me fall in love with him all over again. He doesn't get to go to any obligatory work meetings. He doesn't attend company training sessions.

Wait, are those drawbacks...?

Because the worker isn't earning when he's not working, he tends to be motivated to work. Hard. So independent contractors can often be more driven than salaried employees: their primary motivation is to do a job sufficiently well today so they'll make even more tomorrow. And via customer-based rating systems the service providers - SnapCar, TaskRabbit, AirBnB, etc - automatically know who the best independent contractors are, and are motivated to keep them.

In France, where it can cost a year's salary to remove an unmotivated salaried employee, a motivated independent worker is a beautiful thing. Imagine you have a full-time employee who starts refusing to come to work because he knows if he's fired the law requires he be paid six months of salary (or more). With an independent worker this issue doesn't exist. If he's highly-rated by customers he stays and can make a good living. If he's poorly-rated he'll probably have a harder time finding work.

This freedom to work or not, to employ or not, to consume or not, creates a liquidity in the labor market that is healthy and generally good for employers, employees and consumers alike.

Thanks to the costless supply-side resource pooling revolution, independent workers now cost less without necessarily making less, so the services they provide can be consumed less expensively. We all end up taking more SnapCar rides, getting more dry cleaning deliveries from TaskRabbit, more personal assistant services from Zirtual (until it died because they hired full-time employees), and faster medical services via DoctorOnDemand. That thing is going to take over the world. 

You wouldn't consume those services if you didn't want to: you're free to choose. If you believe the fearmongering then it's probably best for you to pay for hotels rather than for Airbnb, for full-time limousine companies instead of SnapCar (or taxis), and to hire a permanent engineer with five weeks' vacation to build that app you've been telling your friends about.

But that's not what consumers are doing, which probably means that consumption of services from independent contractors makes their lives better. And since the independent contractors are equally free to offer their services or not - and here they are, offering them on an unprecedented scale - it probably makes for a better life for many of them, too. As soon as it stops working for you, you'll stop buying. As soon as it doesn't work for your driver, he'll stop supplying. So be nice to him. He'll be nice to you, and you'll get where you need to go. 

Because everybody needs to get somewhere.