The new rules being promulgated by the U.S. Department of Labor about how to classify gig workers have evoked spirited responses on both sides of the issue.
Labor activists want to see gig workers treated as employees, with employers paying a minimum wage, overtime, a portion of a worker’s Social Security taxes, and contributions to unemployment insurance.
Companies that employ gig workers, meanwhile, want to treat them as independent contractors, as this eliminates investing in the assets supplied by the gig worker as well as the risk of overstaffing. How the majority of gig workers themselves feel about it is less clear, but neither alternative is likely to materially improve their lot.
Classification is no trivial matter of semantics. Although the controversy has put the spotlight on ride-hailing and delivery services such as Uber Technologies UBER,
These workers number in the millions. Pew Research Center reports that about 16% of U.S. adults, or around 41 million Americans, have done work using an online gig platform. Further, Pew found that a sizable percentage of these people fall at the lower end of the income scale, especially those for whom gig work is their only job.
Many people were enticed to take up gig work by the promise of “you are your own boss,” implying “you own your own business.” Some proponents even explicitly evoke the language of entrepreneurship. For instance, during the Trump administration, which made it easier to classify gig workers as independent contractors, then U.S. Labor Secretary Eugene Scalia said that the looser rule would respect the decisions “workers make to pursue the freedom and entrepreneurialism associated with being an independent contractor.” The CEO and co-founder of gig-company WeGoLook posted an article on the company’s website entitled “Gig Workers Are Entrepreneurs, Not Employees.”
“ Gig workers do not fit the profile of the entrepreneur that has persisted from earliest history to the present. ”
Having recently researched entrepreneurial behavior in people over the past 9,000 years, I can report that gig workers do not fit the profile of the entrepreneur that has persisted from earliest history to the present.
Entrepreneurs exhibit and have always exhibited three chief characteristics. First, they are self-directed — so much so in fact that they often flout laws and regulations in pursuit of their vision (as the founders of Uber did in many cities around the world). Second, they are innovative in ways that create perceived value in their culture. Third, entrepreneurs entice others to offer them something of value (often money, but other things as well) in return for delivering their innovation.
The only ones who fit that profile are the founders of the gig companies — not the gig workers.
The Labor Department’s new classification proposal leaves today’s gig workers with equally undesirable alternatives. Reclassification as employees would likely turn them into low-wage and minimal-benefits employees (as the first textile factories did to home-piece workers). Should they remain independent contractors, they are equally unlikely to earn at a level that would vault them into the middle class.
Is there a way out of this dilemma? If we look to the history of entrepreneurship, we will see that the way forward for gig workers will have to come from entrepreneurs, not from legislatures or the Labor Department.
The answer lies in the group behavior entrepreneurs have exhibited in all times and places: they cluster in “swarms,” copying each other and rapidly producing incremental innovations that eventually add up to profound economic and social impacts. (Silicon Valley is only a recent example of this longstanding behavior.)
Cities and regions can leverage this behavior to their benefit by offering incentives to trigger entrepreneurial swarms dedicated to the creation of technologies and business models that could help gig workers become entrepreneurs themselves. Wartime industries are a classic example of government instigating swarms.
Cities or states also could offer incentives in the form of minimal profit guarantees for a few years to the first entrepreneurs to deliver technologies these gig workers could actually benefit from using — the cost to taxpayers being offset by the rising income taxes as workers’ incomes improve. Yes, profit guarantees — because tax credits are ineffective at instigating entrepreneurial swarms, though they do work with big companies.
In the meantime, emerging entrepreneurs and existing giants like Uber should experiment with pricing and payment models that might at least reduce some of the inequities while the longer-term solutions take shape. In 2020, for example, Uber conducted an experiment in California that let drivers set their own prices. Uber pulled the plug on it because the drivers set prices so high that rider cancellations increased by 117%.
But the experiment was initiated to try to get around a new California law that classified gig workers as employees, and the drivers were not given the tools to make informed pricing decisions. After voters approved Proposition 22, which Uber spent millions of dollars promoting and which exempted app-based gig workers from the previous law, Uber lost interest.
But with drivers, there exists another possibility that might actually help them earn more: letting potential riders bid on trips. The key is to give drivers some negotiating room for individual rides — but not by accepting and canceling rides or deliveries until a more appealing gig shows up. A driver would have the opportunity to accept the ride, with no ability to cancel and with the options of receiving 5%, 10%, or 15% more or less than the standard rate. The customer would be presented with two or three choices, showing each driver’s rating, projected pick-up (or drop-off) time, and price. The customer would then choose their preferred option.
At the same time, the drivers would have enough pricing and job selection flexibility to actually create more or less aggressive and differentiated business models for how they accumulate revenue.
Such a system would not turn gig workers into middle-class entrepreneurs overnight, nor should it be seen as a permanent resolution of the current impasse. But it might provide a more equitable stopgap until leaders and governments take bold steps to harness the history of entrepreneurial swarming behavior and create a better future for everyone.
Derek Lidow is the author of The Entrepreneurs: The Relentless Quest for Value (Columbia Business School Press, 2022) and a professor at the Keller Center for Innovation in Engineering Education at Princeton University.
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