The Future of Work: The Gig Economy, Healthcare, and California’s Proposition 22

While most people are paying little attention, a critical battle is being waged between the tech firms that produce the Uber-like jobs, the workers in that so-called gig economy, and the unions that wish to provide some sort of representation for the workers.  At stake is the definition of what is a job.  Traditionally, a worker with a job will legally have certain rights and benefits the employer is required to honor.  These conditions of employment produce a monetary cost to be borne by the employer.  Companies have long tried to avoid most of this burden by claiming that their workers are not employees but independent contractors.  The ensuing legal confrontations have kept lawyers employed but have not led to a solid definition of who is an employee and who is a contractor.  The issue became critical with the gig economy and the deep-pocketed tech firms who provide an income for armies of both part-time and full-time workers.  The tech firms view a requirement that their workers be considered employees as an existential threat.  A significant fraction of the gig workers considers their activities to be a full-time job which should accord them the earnings and benefits necessary to provide a living.  The unions are torn between battling for traditional employment status for the workers or being willing to create a separate form of representation for gig workers.  The tech firms seem willing to consider union representation for workers as long as they are not considered employees. 

This mess came to a head during the last election in the battle over California’s Proposition 22.  Josh Eidelson provided an assessment of the situation in the Bloomberg Businessweek article The Gig Economy Is Coming for Millions of American Jobs. 

“In April 2018, California’s Supreme Court ruled unanimously that a delivery company called Dynamex Operations West Inc. violated state law when it attempted to convert its drivers from employees to contractors. As part of its decision, the court established a sweeping new “ABC test,” named for its three parts. The court said workers were to be considered employees unless they did their work free of a company’s direct control, the work fell outside the usual course of the company’s business, and the workers had independently chosen to go into business for themselves.”

This would be a good contractor definition for the person who remodels your kitchen, but it would eliminate all the gig workers.  Uber and Lyft led the way in arguing for relief from this ruling.  Unions and worker groups endorsed this precedent and helped get the ABC ruling incorporated into law as AB5 in September of 2019.  

The companies would fight back by placing Proposition 22 on the November 2020 ballot with the goal of nullifying the ABC ruling and theAB5 law.

“Last year companies such as Uber, Lyft, DoorDash, and Instacart spent a record $200 million campaigning for an Election Day ballot measure that would exempt them from the California law, arguing in ads and in-app messages that keeping drivers contractors would protect their ability to work.” 

The media were inundated with misleading ads suggesting that what was at issue were the jobs of people who had other incomes but wished to raise a little extra money now and again.  These good people would lose the opportunity to make that extra money unless Prop 22 was passed.  And it was. 

“Prop 22 also insulates itself from future reform efforts by preempting local laws and requiring that any tweaks by the state legislature comport with its intent and pass with a seven-eighths supermajority. All this has left many drivers feeling stranded in the worst of both worlds—as beholden to bosses’ whims as employees, without the corresponding protections.”

This conflict is not simply a California problem, it follows Uber and Lyft wherever they go.  The danger, or opportunity, depending on your perspective arises if the Prop 22 results become a precedent that spreads to other regions.  Eidelson was sufficiently concerned to issue the following statement as his article’s lede. 

“California’s vote to classify Uber and Lyft drivers as contractors has emboldened other employers to eliminate salaried positions—and has become a cornerstone of bigger plans to ‘Uberize’ the U.S. workforce.”

“Employees in related fields are already feeling the knock-on effects. In December, Albertsons Cos, the supermarket chain, started informing delivery drivers they’d be replaced by contractors. In California hundreds of Albertsons employees are being swapped for DoorDash Inc. workers, according to the United Food & Commercial Workers union. Albertsons declined to comment on the layoff figures but says that the move is happening in multiple states to ‘help us create a more efficient operation’ and that affected workers are being offered other jobs there. (Some workers dispute that last part.) Startups such as Jyve Corp., which sends contractors to grocery stores to stock shelves in lieu of employees, are seeking similar exemptions.”

“Companies in a range of industries could use the Prop 22 model to undermine or eliminate employment protections. A week after the election, Shawn Carolan, a partner at early Uber investor Menlo Ventures, wrote an op-ed heralding the potential to spread Prop 22’s vision of work ‘from agriculture to zookeeping,’ including to ‘nursing, executive assistance, tutoring, programming, restaurant work and design’.”

There is a lobbying organization called the Coalition for Workforce Innovation that promotes wider use of contract employees.  It is allied with trade groups representing many of the best known and largest corporations, and it is poised to take advantage of the California precedent. 

“Now gig companies are pressing their advantage. While pushing Prop 22 as a national model, they’re also aiming to secure deals with unions in states like New York and California that could codify some form of union representation as well as benefits without making workers employees.”

The business model of Uber and Lyft is to promote the efficiency of their platform by always having a number of workers roaming around the streets waiting for an assignment.  Users don’t have to wait but a few minutes for their ride, but that means there must be much time roaming.  The more efficient the platform, the lower the earnings of the workers.  This is a model that neither the workers nor the unions who seek to represent them should have to tolerate.  The situation of the unions involved is sad and disappointing.  If they give up on the employee issue, eliminating negotiation of earnings and benefits, what do they bring to the table?  The companies would love to create the precedent of union representation by throwing a few crumbs on the table assuming that might eliminate the employee issue forever. 

Society’s goals are not to be superseded by those of corporate efficiency.  It is necessary that we get this right.  We don’t want to allow the wholesale elimination of traditional terms of employment just because some lazy voters in California didn’t think this through. 

As part of “getting this right,” we have to ask the question: “Why are Uber and Lyft so determined to avoid gig workers as employees?”  There is a ready answer in their business model.  The goal is to provide a lot of service at low cost.  This is an inherently low-wage business.  Herds of low-earnings workers as employees generate enormous marginal costs, particularly in the area of healthcare.

Atul Gawande is a respected surgeon and author who was tapped to lead the highly-promoted collaboration by Amazon, Berkshire-Hathaway, and JP Morgan Chase to produce a better way to deal with healthcare costs.  After about two years, Gawande was gone and had produced an article for The New Yorker, Why Americans Are Dying from Despair, which essentially declared that employer-provided healthcare was about the dumbest thing imaginable. 

Gawande’s article was focused on discussion of the work of Anne Case and Angus Deaton as presented in their book Deaths of Despair and the Future of Capitalism.  Their work illustrates the highly unusual increase in mortality centered on poorly-educated whites. Several causes for this trend can be identified, including drug and alcohol abuse.  Of interest here is the role healthcare can play in generating “deaths of despair” by diminishing employment opportunities.  Gawande explains.

“The focus of Case and Deaton’s indictment is on the fact that America’s health-care system is peculiarly reliant on employer-provided insurance.”

“As they show, the premiums that employers pay amount to a perverse tax on hiring lower-skilled workers. According to the Kaiser Family Foundation, in 2019 the average family policy cost twenty-one thousand dollars, of which employers typically paid seventy per cent. ‘For a well-paid employee earning a salary of $150,000, the average family policy adds less than 10 percent to the cost of employing the worker,’ Case and Deaton write. ‘For a low-wage worker on half the median wage, it is 60 percent.’ Even as workers’ wages have stagnated or declined, then, the cost to their employers has risen sharply. One recent study shows that, between 1970 and 2016, the earnings that laborers received fell twenty-one per cent. But their total compensation, taken to include the cost of their benefits (in particular, health care), rose sixty-eight per cent. Increases in health-care costs have devoured take-home pay for those below the median income. At the same time, the system practically begs employers to reduce the number of less skilled workers they hire, by outsourcing or automating their positions.”

If your business is inherently low wage, like Uber and Lyft, you can’t avoid such workers, but you can avoid healthcare costs by claiming they are independent contractors.

Gawande was moved to provide this conclusion. 

“Instead of preserving a system that discourages employers from hiring, retaining, and developing workers without bachelor’s degrees, we need to make health-care payments proportional to wages—as with tax-based systems like Medicare. Democrats are split over whether our health care should involve a single payer or multiple insurers. But that’s not the crucial issue. In other advanced economies, people pay for health care through wage-based taxes. In some countries, such as Germany and Switzerland, the money pays for non-government insurance; elsewhere, the money pays for Medicare-like government insurance. Both strategies work. Neither undermines the employment prospects of the working class.”

If we took the time and made the effort to renovate our obsolete methods of providing healthcare, we could alleviate the pressures driving corporations to turn us all into low-paid day laborers.  And perhaps the gig economy could exist in a form that allows greater earnings and dignity for its participants.