How the gig economy could change as the nature of work evolves

Platform- or app-based gig work has seen its share of ups and downs in recent years, and this week brought a new twist.

The U.S. Department of Labor proposed a rule that would push companies to classify many gig workers as employees — with all the rights and benefits that entails.

Platforms like Uber, Lyft and DoorDash have pushed to keep workers independent contractors, saying it’s essential to their business models.

So where could the gig economy go from here?

Marketplace’s Meghan McCarty Carino spoke with Arun Sundararajan, a business professor at New York University, who explained that gig work is now part of the fabric of our economy and how it should change to meet modern demands.

The following is an edited transcript of their conversation.

Arun Sundararajan: You know, this idea of arranging economic activity in a way that you’ve got a platform sitting in the middle — consumers on one side and either workers or small businesses on the other — has grown dramatically over the last decade. A majority of Amazon’s business in the United States today comes from 5 million retailers who are running tiny retail businesses through the Amazon platform. Even in sectors like rental cars, today platforms like Turo and Getaround are an extremely important part of the car rental business. But it has underscored the fact that we have created a social safety net for the 20th century economy of large corporations employing people full time. And it has underscored the pressing need to refashion our social safety net so that it suits the future of work rather than being designed for the past.

Meghan McCarty Carino: Right, because when I, you know, think about the early days of the sharing economy, where it was sort of like, more of the gig economy, in essence. You have a car? OK, you know, pick someone up on your way home and make a few bucks. But once these things have sort of permeated our economy in such essential and widespread ways, and this model becoming a central part of our economy seems to be where a lot of the tension arises.

Sundararajan: Absolutely, Megan. I think that the fact that this is such a dominant part of the economy really underscores the need to rethink how we approach the regulation of labor and more broadly, the regulation of business. I think that what the reactions to the COVID lockdowns reveal to us was that the platform business model was far more resilient. A couple of months after the lockdowns began, sure, Uber was in trouble. But it wasn’t in as bad trouble as Hertz, which actually declared bankruptcy because its business model was simply not built to deal with this kind of volatility. But some of the risks that was traditionally held by the big [companies] was shifted to the small businesses operating through the platform. And these small businesses didn’t have the kinds of protection that the big businesses had. And so it revealed to us that it’s not just the individual-benefit social safety net that is broken and not designed for today’s economy. But we have to rethink who is bearing risk in the economy and what kind of systems are in place to protect, like, you know, not just the big businesses, but the little businesses who are operating through the platforms.

McCarty Carino: Tell me more about some real-life examples we can look to to see how a more traditional model of employment could play out for these platforms.

Sundararajan: There are a few examples of, like you know, what actually will happen when platform workers are forced to be categorized as employees. The city of Geneva mandated that everyone who delivered food through a platform like Uber Eats had to become a full-time employee. The number of people earning a living delivering food in Geneva dropped from over 1,000 to under 300. These individuals stopped having any sort of direct relationship with Uber Eats. Instead, they had to be hired by some sort of delivery services company that then contracted with the platform.

McCarty Carino: What kinds of opportunities have these platforms offered to workers? And what sorts of concerns have they raised for workers?

Sundararajan: In the past, we have sort of arranged our day in a way that involves my time is my own, my time is my employer’s, then my time is my own again. And over the sort of late 20th century, we saw that employer time start to creep more and more into your personal time in the evening — mobile phones, email, sort of accelerated this trend. And so what platforms have brought back is the idea that you can actually work anytime you want, you can stop anytime you want. If you want to stop for two weeks and do something else instead, if you want to stop for three months and go back to school. I think more and more people today are realizing that there’s a more entrepreneurial and independent path that is possible through a platform, whether it be as an individual starting a small business, that entrepreneurship doesn’t have to be trying to start the next Facebook or the next Airbnb. It can simply be working for yourself for the foreseeable future while getting all of the branding and sort of institutional trappings from the platform that you would normally only get by being an employee at a big company.

McCarty Carino: What could be an alternative means to address some of the concerns raised by platform-based employment that doesn’t rely on traditional full-time employment as a solution?

Sundararajan: So the simple answer is create funding mechanisms for benefits that can be attached to any work arrangement, not just full-time work. So a great example that I’ve seen recently is what has happened in the state of Washington, where the state Legislature is moving forward with a system that through some combination of funding from the platforms, from the people who work through the platforms and from the government, being able to allow the choosing of different benefits by platform workers without categorizing them as full-time employees. We’re starting to see examples of these actually being put in place. And so the next few years will tell us how well they are working and what’s missing, and we can continue to evolve the [legislation.]

Related links: More insight from Meghan McCarty Carino

Professor Sundararajan mentioned an example of how classifying food-delivery platform workers as full-time employees caused a drop in that type of work in Geneva, Switzerland.

You can read that report here, but take it with a grain of salt — that study was done by Uber.

We also want to note that reclassifying these gig workers as full-time employees and providing those benefits can potentially be life-changing.

A survey from the Economic Policy Institute from June of this year reported that about 1 in 7 gig workers said they earned less than the hourly federal minimum wage, and about 1 in 5 have gone hungry because they didn’t make enough money to eat regularly.