Explaining Gig Economy Numbers and Their Wide Divergence
By John Schmitt and Heidi Shierholz, Economic Policy Institute
We could not agree more with virtually everything that David Weil writes on the fissured workplace. His work has had a profound impact on our thinking about the forces driving slow and unequal growth in wages over the last four decades. Rather than enthusiastically repeat what David has already said, we’d like to focus on several problematic aspects of the public discussion of what is variously (but not exhaustively) labeled contingent, non-standard, atypical, alternative, freelance, or gig work.
One of the most confusing aspects of the debate revolves around measurement. How big is the sector? How fast is it growing?
The Bureau of Labor Statistics defines contingent workers as “persons who do not expect their jobs to last or who report that their jobs are temporary” and estimates that about 3.8 percent of U.S. workers held contingent jobs in 2017. In the same year, the BLS put the share of workers in “alternative work arrangements” (independent contractors, on-call workers, temporary help agency workers, and workers provided by contract firms) at 6.9 percent of the workforce. These shares of contingent and alternative work had not changed much from 1995, when the BLS first started collecting comparable data.
Research commissioned jointly by Upwork and the Freelancers Union, however, concluded that 57.3 million people worked as “freelancers” in the same year. This figure was almost four times greater than the BLS estimate of alternative work and came with a prediction that more than half of the U.S. workforce would “freelance” by 2027.
What accounts for these wildly different estimates of the size and growth of non-standard work? The answer is not merely a statistical curiosity, but goes to the heart of several crucial policy debates.
The most important reason that the BLS estimate is relatively small and has not grown much over the last two decades is that the BLS contingent and alternative work survey only gathers data on workers’ main job, not their second (or third or fourth) jobs. Workers who use online platforms to make money on the side are not counted in the BLS survey on contingent work, but are included in almost all of the nongovernment surveys we’ve seen on these types of work arrangements.
Another crucial difference is that the BLS asks workers about their employment status during a particular week, while most studies that find much larger shares of non-standard work typically ask if respondents have engaged in any non-standard work at any point in the last year, even if the respondent currently has a standard job and is no longer “freelancing.”
This practice of counting second (and third and fourth) jobs carried out at any point in the past year is the biggest reason that some estimates diverge so widely from the BLS. (Another factor is that some nongovernment estimates include participation in “asset-based” online platforms such as Airbnb, while the BLS focuses exclusively on payments for labor.)
These measurement issues also have an impact on how we gauge growth in the sector. The share of taxpayers reporting 1099 income from self-employed work, rather than W-2 income received from an employer, has increased sharply in the 2000s. This tax data suggests that contingent and non-standard work are growing rapidly. But a closer look reveals that the tax data overwhelmingly captures second jobs or jobs of short duration performed at some point in the tax year by workers who continue to get the largest share of their income from regular employment.
While it would certainly be helpful for the BLS to collect data on contingent and alternative employment even when it is not a worker’s main job, we do believe that for most purposes, focusing on a worker’s main job is fundamental. The overriding public-policy interest is in the conditions that workers face in their main jobs, where the vast majority of workers spend the vast majority of their working hours.
These measurement issues have at least four important implications for policy.
First, in many key respects, non-standard work is a symptom rather than a cause of our long-standing wage problems. Given that the share of workers in standard employment in their main job has changed little in decades, while at the same time the share of workers basically engaging in side hustles is up substantially, the central problem facing workers appears to be that pay in standard employment has deteriorated, requiring workers to seek out non-standard work in order to fill the gap. Much of non-standard work is the tail, while regular employment is still the dog.
Second, a focus on an alleged tidal wave of non-standard workers has given rise to the deeply pessimistic idea, embraced by many on the center-left, that labor law must recognize a new class of “independent workers,” who are definitely not self-employed, but somehow should be stripped of the basic rights enshrined in standard employment relationships. These efforts to “recognize reality” and “modernize” labor law in this particular way feed on fears of the large size and rapid growth of non-standard work and, ironically, will undoubtedly foster the erosion of standard work.
Third, while we strongly support efforts of workers to organize wherever they work, the data on non-standard work clearly indicates that the real problem facing the labor movement is the decline in union density in regular jobs, not the expansion of employment in non-standard “gig” and related jobs. The data also paints a discouraging picture for organizers of gig workers; it will be an uphill battle to organize many non-standard workers if they are overwhelmingly in second jobs or working only intermittently throughout the year.
Finally, in the public debate, the attention heaped on non-standard employment often acts to obscure the more important “fissured” employment relationships identified by David Weil. As he has so persuasively argued, one of the biggest problems that workers currently face is the layering of employers in between workers and a lead firm—the company that ultimately calls the shots on core conditions of work.
For workers at temp agencies, this layering is self-evident. For many more workers, however, the fissuring is less obvious, but no less pernicious. Corporate headquarters have far more say over wages and working conditions for workers at franchises than the franchisees themselves. Hotel chains that contract out housekeeping services—not the subcontractors—typically determine the pay, benefits, and schedules of the workers cleaning rooms. And so on. Crucially, almost all of these victims of fissured workplaces are in standard employment relationships with their employer of record. Reducing or “fixing” non-standard work will provide little or no relief for these workers who far outnumber those in non-standard employment at their main job.
We’ll close with an important caveat. That non-standard work is not as large or growing as fast as some estimates suggest does not mean that employers don’t deploy non-standard work strategically to undermine the bargaining power of workers. Trucking companies, construction firms, and tech startups, for example, regularly misclassify employees as “independent contractors” with disastrous effects on pay and benefits in those sectors. We are only saying that the size and growth rates have sometimes been greatly exaggerated, to the detriment of formulating a clear-eyed response to broad-based anti-worker corporate power.
John Schmitt is vice president of EPI. Heidi Shierholz is senior economist and director of policy for EPI.
Why the Fissured Workplace Is Bigger Than the Contingent Worker Survey Suggests
By David Weil
When I was working on the manuscript for The Fissured Workplace, I sought a term to capture the profound business restructuring that was emerging in a variety of industries. Those changes included but were not limited to offshoring, outsourcing, and the use of staffing agencies that led to work characterized by low wages, noncompliance with core workplace statutes, limited benefits, more contingent employment, greater risk exposure, and weakened bargaining leverage for workers in general. I purposefully chose a somewhat obscure geologic term as the metaphor for this fragmentation because I wanted to highlight that the practices associated with fissuring arose from a more fundamental change in how businesses structured themselves beginning in the 1980s.
The fissured workplace connotes restructuring motivated by capital market demands that major businesses focus on the core competencies that provide value to customers and investors and concomitantly shed activities to other entities to carry out those efforts. But the organizations that undertake that fissured activity for lead businesses are guided by exacting standards and high-powered incentives to ensure that core competencies are met.
Think detailed subcontracting and supply chain requirements; franchise agreements; and most recently, the highly calibrated incentive systems created by platform algorithms. This allows major businesses to have it both ways: to benefit from work executed in strict compliance with central corporate objectives while not being required to treat the workers who do it as their employees with the obligations that relationship holds.
This more comprehensive definition of transformations in the U.S. workplace (and elsewhere around the world) gives rise to the challenge of how to measure its prevalence. Start with the kinds of alternative work practice tracked by the Bureau of Labor Statistics’ Contingent Worker Survey (CWS) that are certainly a piece of the fissured workplace. The CWS tracks on-call, temporary help agency, and contract-firm workers based on household survey. But workers may not even be aware of the presence of such intermediaries in a setting where all of the managerial outcomes are set by a lead business (think hotel, retailer, or fast-food brand) even if the employer of record is a different entity. Indicative of the often hidden nature of relationships is that “temporary agencies” now predominately deem themselves “staffing companies” because of the permanence of their placements. And people who work for staffing agencies are often payroll employees—yet still clearly part of the fissured workplace.
The CWS definition of alternative work also includes independent contractors—that is, those workers who are not considered employees under the definitions of workplace laws. Though the criteria for classifying independent contractors vary under state and federal statutes (allowing widespread misclassification of workers as independent contractors), a growing body of evidence indicates that workers often incorrectly classify themselves as employees. Abraham et al. show that self-employment has been growing when using Internal Revenue data sources (based on actual tax filings) even though household sources like the CWS suggest little change in incidence. Ongoing work by Abraham, Hershbein, and Houseman indicates that part of the discrepancy may arise from household survey respondents misunderstanding their actual employment status.
But the fissured workplace does not stop there. A variety of other organizational setups also allow businesses to follow the fissured recipe. The growth of franchising from its familiar presence in fast food into areas like hospitality, janitorial services, and home care is driven by a fissured-workplace calculus. So too the heightened use of subcontracting that shifts activities to businesses that may provide full-time, W-2 employment, but operate under very different economic constraints and incentives than if those jobs had remained inside their original organizations. Such employment would never be picked up in the CWS and would require information about contracting relationships between companies rather than household surveys to detect.
The comprehensive change in the wiring of our economy ripples outward beyond its impacts on compliance with laws, access to benefits, or volatility of employment, as important as those outcomes are. It alters the way wages and salaries are set in our economy and, therefore, links to the well-documented growth of earnings inequality. Shifting work outward means that wage-setting processes that were internal to a company (thereby including considerations of the implications of raising pay of one group of workers on the morale of another group) become a price-setting process externalized to another entity. If that other organization—be it a staffing agency, franchisee, or independent contractor—is under more intense market competition, the resulting wage and other compensation decisions will likely be driven downward.
Work and the workplace have changed fundamentally. It’s important that discussions of the May 2017 Contingent Worker Survey include the caveat that it captures only a part of more fundamental changes in the workplace. The task is how to best measure the new wiring under the hood through a combination of household, establishment, and administrative measures. Declaring that the results of the CWS demonstrate that nothing has really changed misses the point and leads us away from more fundamental questions of what is required to address worsening conditions for far too many working people.
David Weil is dean and professor at the Heller School for Social Policy and Management at Brandeis University. He served as the Wage and Hour Administrator at the U.S. Department of Labor during the Obama administration. Information about his research on the fissured workplace can be found here.
Response by John Schmitt and Heidi Shierholz
We wholeheartedly agree with David Weil that we need to go beyond debating the relative prevalence of standard and non-standard work. Our engagement on the topic in recent years has been only in response to what we see, in some cases, as inaccurate and unhelpful claims about the size and growth of non-standard work, creating a diversion from issues of greater importance like those David describes.
Our concern is not merely academic. As we have argued, an exaggerated view of the spread of non-standard work may inadvertently work against broader efforts to reverse the long-term decline in workers’ bargaining power. Potential problems include fostering undue pessimism about the future of collective bargaining, the promotion by policymakers and public commentators of new, less secure employment relationships such as “independent workers,” and reduced attention to what we think is a more immediate threat, the “fissuring” of workplaces, which robs even workers in standard jobs of important legal protections and related leverage in bargaining. That said, one aspect of the discussion that deserves emphasis is the fact that even a relatively small, relatively stable number of non-standard jobs can significantly undermine employment standards if employers deploy these kinds of jobs strategically (as Robert Kuttner noted in his introduction to this discussion).
Meanwhile, the strategic development of non-standard work arrangements is just one part of a broader backdrop of concerted—and largely successful—efforts to reduce the bargaining power of workers. Over the last four decades, employers, as a class, have remade economic policy with the specific goal of decimating workers’ bargaining power. In addition to the fissuring of workplaces mentioned above, core elements of this effort include attacks on the right to organize and bargain collectively in both the private and public sectors, a long-term erosion in the purchasing power of the federal minimum wage, a pro-corporate, anti-worker globalization agenda, a sharp decline in enforcement of existing labor regulations, macroeconomic policy that puts fighting inflation ahead of full employment, and many more. Workers—standard and non-standard—have to be prepared to fight on many fronts.
Final Comment by David Weil
John Schmitt and Heidi Shierholz’s response underscores our agreement on a number of basic issues in regard to why work has become so bad for so many. But I would still argue that debating the relative size of standard versus non-standard (or contingent vs. noncontingent) employment pulls us away from increasingly more pressing fundamental issues:
- If more and more households depend on multiple jobs to cover their expenses, then we should be worried about primary, secondary, and tertiary income streams.
- We should worry about formal and informal sources of that income, since in many industries, misclassification has morphed into off-the-books payments that are hard to trace even with access to 1099 records.
- We must consider how increasing volatility of single or multiple earnings streams contributes to the Federal Reserve Board finding that 46 percent of households would have difficulty handling an unexpected $400 expense, reflecting a wide-scale liquidity crisis facing too many working families.
- And we need to explore how the reconstitution of businesses could push down referent wages in labor markets, driving entry and exit decisions at work for already low-wage, vulnerable workers.
In short, we need to go beyond debating the relative prevalence of “non-standard” versus “standard” jobs. Instead, we must examine how the transformation of business organization and the structure of the economy has changed the very nature of work in all its forms and then turn, laser-focused, to what to do about it.