Roosevelt Institute | Cornell University

The Glamorization of the Gig Economy: Why We Need to Protect Our Increasingly Independent Workforce

By Harkirat SanghaPublished January 15, 2022

Cornell Roosevelt Institute
There has been a noticeable increase in the number of workers that are leaving permanent employment for gig work, i.e., jobs that depend entirely on short-term contracts and freelance work. The independence of gig work comes with the tradeoff of crucial benefits such as health insurance, a promise of minimum wage, and sick pay. Although the path to changing current labor regulations is difficult and hazy, there is a dire need for legislation that grants gig workers basic employment rights.

The gig economy business model––whereby workers enter short-term contracts or perform freelance work under larger companies––is becoming increasingly prevalent in various areas of the workforce. Though the gig economy is traditionally associated with the music and art industry, companies such as Uber and Instacart have been contributing to its expansion. In fact, a third of the United States’ employment consists of contract workers who are self-employed, temporarily employed, or who receive short-term jobs through online marketplaces. Additionally, during the COVID-19 pandemic, freelancing soared, and the total number of freelancers in the United States is projected to grow to 90 million by 2028. Companies both increase the appeal and facilitate the process of becoming a gig worker through simple onboarding processes, minimal screening, and handsome sign-up bonuses. 

In general, the appeal of being self-employed or working a gig job has much to do with obtaining a great sense of independence; Uber, for example, has expressed this sentiment by advertising how one can be financially compensated for working within the driving schedule that best suits them. However, while such opportunities appear enticing, these jobs come with the sacrifice of traditional benefits such as health insurance, sick and vacation days, and retirement fund matching. Companies that profit off this business model promise quick money and flexibility, yet most workers report low and inconsistent wages, as well as the need to work overtime. In fact, 31% of surveyed independent contractors and gig workers are uninsured, which is three times the overall rate of uninsured Americans. Furthermore, 64% of the uninsured respondents said that they did not think that they could afford health insurance. This common misconception prevents gig workers from accessing primary healthcare coverage. 

The American Rescue Plan Act of 2021 allows gig workers to take advantage of reduced monthly premiums and to lower out-of-pocket medical costs through tax credits. Under this act, 4 out of 5 enrollees can find health insurance, which would cost less than $10 per month. Encouraged by the Centers for Medicare and Medicaid Services, online platform companies shared information with their workers on their ability to enroll in affordable health coverage, but misconceptions still loom and prevent workers from accessing healthcare. The lack of insured gig workers is especially troubling, since 31% of Hispanic adults and 27% of African-American adults earn money through this type of economy. Furthermore, the expansion of gig jobs without reformed labor regulations may worsen existing healthcare disparities for these groups. 

Despite the rapid development of the gig economy, labor regulations are significantly lagging. Not only have fewer than 10 states guaranteed paid employment leave for new parents that would provide for gig workers, but Biden’s proposed American Families Plan also doesn’t include freelancers, and the Family and Medical Leave Act leaves out independent workers. Uber and other gig companies have led fierce lobbying efforts and spent millions of dollars to ensure that their workers would maintain their positions as contractors, as opposed to employees entitled to higher wages, overtime protections, benefits, and the right to unionize. 

Additionally, gig work involves high work stress and exemplifies the effort-reward imbalance (ERI) model. The ERI hypothesis states that the combination of high effort and low reward increases the risk of poor health, as well as emotional and psychological stress. Accounting for Uber’s commission, vehicle expenses, and the cost of health insurance, Uber drivers earn the equivalent of $9.21 an hour, which is less than 90% of all other wage earners and below the minimum wage in 13 of the 20 urban markets where Uber operates. Precarious work stress can lead to serious health conditions such as high blood pressure, coronary heart disease, and stroke. The pressure of managing health care costs, customer service, as well as the difficulty of finding mental health care, can wear on gig workers’ mental health. 

State courts have already taken action to protect its labor force. In September 2019, California passed Assembly Bill 5 (AB5), a labor law that expanded the definition of traditional employment by presuming all workers to be employees, unless they were classified otherwise by the ABC test. The ABC test is a three-prong test that presumes a worker is an employee unless (A) the worker is free from employer direction and control, (B) the work is outside the “usual course” of the employer’s business, and (C) the worker is engaged in an independent trade, occupation, or business. AB5 would give employees rights to minimum wage, overtime pay, unemployment benefits, worker’s compensation, paid sick days and family leave, and protections against discrimination and sexual harassment. 

If the gig economy is going to continue to expand as it has in the past decade, labor regulations and worker protections need to be expanded as well. The pandemic has shown us the importance of gig workers, especially food- and grocery-delivery workers. Although business costs would rise as much as 40% if gig companies were to treat their workers as employees, the current lack of protections is not sustainable. There is therefore an urgent need for a nationwide protection combatting the misclassification of workers. A nationwide protection similar to California’s AB5 would create a clear definition for “employee” in federal law and take some of the stress away from precarious work. 

A reasonable concern is that increased worker protections would threaten the business model and result in billions of dollars in new costs that would likely be passed onto customers, potentially reducing the use of gig-based apps and result in substantial job loss for gig workers. An additional concern is the possibility of retaliation from gig companies that have been essential in most areas. AB5 itself was controversial as Uber and Lyft threatened to stop operating in California altogether. Gig workers themselves were divided on the issue, with many saying they preferred being contractors, and Proposition 22 was voted in to “exempt app-based transportation and delivery companies from providing employee benefits to certain drivers.” 

Despite the failed attempts at worker protections for gig workers, one thing remains clear: the Biden Administration must work to develop legislation to uplift the millions of gig workers in the United States. The Biden Administration suggested that gig workers should be treated as employees, but it has not taken steps to change employment laws. Allowing these labor violations sends a message that the protection of this increasingly prevalent workforce is not important. It’s clear that if a gig-based company isn’t able to provide a livable wage for its employees through gig work, it’s not operating under a sustainable business model in the first place.