In recent years, the US labor force has been undergoing a fundamental transformation. In today’s "Uber economy," gig workers, freelancers, contractors, temps, permatemps, remote workers after COVID, and so-called “independent workers” have been championed by Silicon Valley and Wall Street as the “new way to work”—the wave of the future, especially with AI changing the nature of work itself.
Many US consumers have driven in an Uber taxi, but don’t realize that most drivers earn below minimum wage after accounting for vehicle expenses, gas, maintenance, and unpaid time waiting for passengers. Those drivers are so-called “independent contractors,” so the billion-dollar Uber is not responsible for providing healthcare, Social Security contributions, workers' compensation, or unemployment compensation, not to mention sick leave or vacation pay.
Another type of “gig-preneur” can be found on platforms like Fiverr, an online job brokerage that connects buyers to sellers of numerous tasks and services called micro-gigs. Each gig pays as little as $5 per job (hence its Fiverr name). One worker, after fulfilling 27 orders, made $176 in total. “I’ve seen panhandlers get more money outside of the 7-11,” she complained.
Other workers swept up in this job market degradation don’t work gigs; they have regular jobs. Meet Chris Young, an assembly-line worker at a Nissan manufacturing plant in Tennessee. Young works alongside dozens of other employees doing the exact same job, but he doesn’t work directly for Nissan. Instead, he works as a “perma-temp” for Yates Services, a private contractor that provides a majority of Nissan’s workers. He builds the same Infiniti SUV as Nissan workers, but he and other Yates employees get half the salary, less job security, and far fewer safety-net benefits. Some “temps” have worked at the same company for as long as 11 years—hence the new term "perma-temp.”
How many new economy workers?
America is a wealthy nation, but these drastic changes to the job market have left millions of Americans without access to that wealth. How many of these new economy workers are there? It’s hard to say because they are difficult to count.
The Bureau of Labor Statistics counts about 12 million “independent contractors” (7.4% of 162 million workers in the US) and another 2.8 million (1.7%) on-call workers, over 9 percent of the total workforce. But the BLS uses a narrow definition of “worker,” and broader definitions push total estimates much higher, from 16.5 million to over 30 million workers, depending on whether researchers count occasional side gigs or secondary jobs. Industry trackers like MBO Partners estimate that roughly 75 million Americans (46%) engage in some form of independent work yearly, with 22% treating it as their primary full-time career, more than double the 10% who did so in 2019.
New app- and web-based technologies are making it easier than ever to hire such workers. Employers also have strong incentives to do so, especially in certain industries and occupations, by taking advantage of what is known as the “independent contractor loophole.” An employer can lower labor costs dramatically by around 30%, just by evading contributions for a worker’s health benefits, Social Security, Medicare, unemployment, workers' compensation, lunch breaks, paid sick days, and vacation leave. A McKinsey report also found that independent contractors get paid 20-30% less than employees. So these savings provide a powerful incentive for an employer to hire as many contractors as possible.
To be sure, some businesses benefit from labor flexibility, since they need to ramp up and down in response to fluctuations in demand for their product or service. But hiring a large contractor workforce lets a company greatly lower labor costs by wiping out workers’ safety net, undermining a key component that has made the U.S. economy so successful.
A portable safety net provides the best of both worlds
Fortunately, an innovative solution exists. It’s called a “portable safety net,” or “portable benefits.” It would allow any worker hired by multiple employers during the year to benefit from a robust safety net. Here’s how it works.
Each business that hires an independent worker would contribute a set amount above the worker's wage, prorated by the hours the worker worked for that employer. Those payroll deductions would go into an Individual Security Account for each worker, helping that worker pay for her/his safety net. The ISA accounts would be structured to direct the payroll deductions into existing federal and state safety net programs -- Social Security, Medicare, unemployment insurance, and workers’ compensation -- as well as other safety net components, especially health care, and possibly paid sick days and vacation (the worker also would have some wages deducted, much like regularly employed full-time workers do).
For example, suppose Donna is a regular employee working 20 hours a week for a hairdresser, then contracts for 10 hours a week with TaskRabbit, and drives 10 shifts for Uber. She would earn 50 percent of her benefits from the hairdresser, 25 percent from TaskRabbit, and the remaining percentage based on her Uber driving wages. Each company would deposit the funds into her ISA.
This is similar to how Social Security and Obamacare work now, where a personal ID number tracks a retirement or health care account for people who work for multiple employers.
A portable safety net for all workers who need it would have several benefits. It would allow some scheduling flexibility for workers and businesses, as well as the health and financial security that workers and their families need. It would also improve affordability for many individuals and families, especially after the Trump administration’s deep cuts to Medicaid, Medicare, SNAP, and other programs.
A portable safety net would also move us beyond labor abuses and lawsuits over who’s a contractor or regular employee and entitled to safety-net coverage, because all workers would be covered. It would also remove the perverse incentive for businesses to use cheaper contractors to undercut competitors, which unleashes a race to the bottom.
Note that requiring all businesses in an industry to pay into their workers’ ISAs would not hurt the competitiveness of any of those businesses, because all employers would be subject to the same rules. Businesses could pass the costs of this kind of “safety net insurance plan” on to customers, since customers are the largest pool capable of absorbing them. Many customers would also be the same workers receiving benefits, so it would be a virtuous circle, “a rising tide lifting all boats.”
Several 21st-century countries already do something like this, and in the US, 40 business, government, labor, and NGO leaders from the right and left have endorsed a portable safety net and agree it is a necessary foundation for the 21st-century economy. President Barack Obama endorsed portable benefits in his 2016 State of the Union address, and Uber and Lyft have supported legislation proposed in state legislatures in New York, Washington, and New Jersey. But the legislation died in all three states when Uber and Lyft made a measly offer: instead of something close to 20% of a worker’s wage to provide an adequate safety net, they offered only 2.5%.
A portable safety net for all workers is long overdue. This has the makings of a win-win solution. We need to ensure the labor force and the broader economy are built on a fair, healthy foundation for the future. All Americans deserve to be enriched by technology and innovation, not made obsolete or impoverished by it.
Steven Hill was policy director for the Center for Humane Technology, co-founder of FairVote, and political reform director at New America. See more of his writing at his Substack newsletter DemocracySOS.
