As Number of Freelance Workers Grows, Regulatory Challenges Persist

At more than 54 million, freelancers now make up more than one-third of the U.S. workforce, according to Freelancing in America 2015, an annual report commissioned by The Freelancers Union and Upwork. Half of all freelancers surveyed for the report said that, regardless of pay, they would not take a traditional job. Furthermore, 60 percent of respondents said that they were freelancing more by choice than by necessity, compared to 53 percent the previous year. Ultimately, these changes in the composition of the U.S. workforce prompt consideration over whether current policies are able to appropriately regulate contingent workers. 

As a result of its scale, ride-sharing company Uber provides a noteworthy example of the conflict between the freelance economy and the current regulatory environment. Because Uber considers its freelance drivers to be contractors, not employees, they do not see need to provide them with expanded benefits. This summer, California’s Labor Commissioner’s Office ruled that these same drivers should be considered employees – a case that Uber is now appealing.

However, not all freelance jobs are created equal. While Uber drivers may have recently become the face of the freelance movement, educational services (17.3 percent), construction (10.2 percent), administrative support services (9.8 percent), retail trade (7.5 percent), and professional technical services (6.1 percent) make up the industries with the highest share of contingent workers, according to an April report from the U.S. Government Accountability Office (GAO).  The report, Contingent Workforce: Size, Characteristics, Earnings, and Benefits, finds that largely as a result of the instability of the work and policies surrounding employment benefits, contingent work tends to lead to lower earnings, fewer benefits, and a greater reliance on public assistance. Furthermore, contingent workers are two-thirds less likely to have work-provided retirement plans than standard workers and are less likely to have private or work-provided health insurance.  In describing more than 10 different worker protection and benefit laws, the report also finds that since the scope for coverage of each law varies, the extent to which a particular law applies depends largely on the specific circumstances of a freelancer’s employment arrangement.

To expand on the nexus between the sharing economy, the freelance movement, and public policy, the U.S. House Subcommittee on Commerce, Manufacturing, and Trade held a hearing last month, titled The Disrupter Series: How Sharing is Faring: Growth and Adjustment in the Sharing Economy. The hearing, which involved several witnesses from a variety of institutions, emphasized how policymakers would be able to appropriately regulate disruptions so that they are safe for consumers and competitively neutral. In addition to acknowledging the potential economic benefits, the hearing’s background memo also described issues surrounding the sharing economy – particularly around transportation network companies (TNC) like Uber or Lyft. These policy challenges include liability insurance, labor issues, and the confrontations with local regulations intrinsic in the sharing economy and freelance movement.

During his testimony at the hearing, Dean Baker, the Co-Director of the Center for Economic and Policy Research, posits that there are four basic types of regulatory issues posed by the sharing economy: labor regulation, consumer protection, property rights, and rules on discrimination. According to Baker, the Uber argument – because they are not their drivers’ primary source of income the drivers are contractors and not employees – is problematic for two reasons. First, Baker states that, given a lack of data, it is unclear whether or not this is actually true. Second, if their work should not be viewed as comparable to a traditional job, there is still an expectation that workers deserve protection.  Baker notes that, although it would be difficult to redesign worker protections to make them compatible with a sharing economy employer-employee relationship, it is a doable task backed with a clear public purpose. To respond to concerns with consumer protections, Baker suggests that state and local governments should be encouraged to experiment with more flexible forms of regulation so that common standards clearly apply to both existing firms and any new firms that emerge.

The trend of increased freelancing is expected to be ongoing as contingent workers continue to drive economic growth, according to the Freelancers Union. If this is indeed the case, as the ramifications of an increasingly contingent workforce carry out across all sectors in the economy, it is important that public policy reflects the ability to appropriately and fairly regulate.