The gig economy is the tip of the iceberg
The gig economy is the tip of the iceberg
10% of New York workers are misclassified independent contractors, according to a new report
Hello Oversharing subscribers! It’s been a while since we zoomed out on the gig economy, so today I wanted to look at a recent report on the state of worker misclassification in New York from the Center for New York City Affairs (CNYCA), an applied policy research institute at The New School.
The June 2022 report, “For One in 10 New York Workers, ‘Independent Contractor’ Means Underpaid and Unprotected,’” comes from CNYCA directors James Parrott and L.K. Moe. Longtime Oversharing readers might recognize Parrott’s name from his influential report on a minimum pay standard for New York City ride-hail drivers, which led to the first wage floor for ride-hail drivers in the U.S. This weekend I’ll also be running an interview with Parrott about this latest report, how he got involved with the ride-hail pay floor, and why he thinks the issues of worker misclassification in the gig economy is far from settled, so stay tuned for that.
Since Uber came onto the scene in 2009, gig work has become synonymous with the debate over worker classification. For more than a decade now, legal fights have been waged around the world over whether gig economy companies like Uber, Lyft, DoorDash, Instacart, and Handy deliberately misclassify their workers as independent contractors. In the U.S., where most people access benefits and basic labor protections like health care, sick leave, and a minimum wage through payroll jobs, those who work as independent contractors are effectively cut out of the social safety net, to the financial gain of their employers/hiring entities.
But gig workers are just the tip of the iceberg. The CNYCA report uses various sources of employment data to find that roughly 873,000, or 10%, or New York state’s 8.8 million workers are misclassified independent contractors. Of these, just over 20% (190,000), or 2.2% of the state’s overall workforce, are gig workers who earn primarily through apps like Uber. The other 680,000 include construction workers, home cleaners, janitors, and nail salon technicians, among others.
By misclassifying these workers as independent contractors, companies not only skirt contributions to social security, unemployment insurance, workers’ comp, and state paid family and medical leave programs—saving roughly 30% on employer costs—they also manage to pay them less. According to the report, full-time, low-paid independent contractors earn an average of $28,000 a year, just 40% of the U.S. median household income, while standard payroll employees in the same low-paid industries earn roughly 1.5x as much. Over the past decade, inflation-adjusted median earnings of full-time independent contractors in most of these industries also rose less or fell more than the wages of their payroll counterparts.
One especially notable case study is the construction industry, which as the report says, “provides a good example of how tightening statutory language regarding proper classification of workers, coupled with effective enforcement, can have a significant impact in curbing misclassification.” From 2005 to 2010, the number of construction workers classified as independent contractors in New York City surged 42% while payroll jobs declined. In response, the state passed the Construction Industry Fair Play Act which presumed construction workers were employees unless they could meet all three conditions laid out by an “ABC” test:
Free from direction and control in performing the job, and
Perform work outside the course of business for the company, and
Have an independently established business similar to the service they perform
The Construction Industry Fair Play Act, coupled with proper enforcement, proved effective: from 2010 to 2018, the number of payroll construction workers in New York City rose by 42%, or roughly 45,000 jobs. By one estimate, construction industry misclassification in the city fell by 34% over roughly the same period. “This strongly suggests that the Fair Play Act has significantly lessened the extent of independent contractor misclassification in construction, offering a clear example of how effective scrutiny of the independent contractor label can shift hiring practices, and benefit workers as well as the State’s social insurance programs, and diminish unfair competition faced by legally compliant businesses,” the report concludes.
Legislators have attempted to apply a similar standard to the gig economy. AB5, the landmark bill passed by California in 2019, would have radically restructured gig work by codifying an ABC test as the standard determination of whether a worker is an independent contractor or employee. After failing to kill the bill in the legislature, gig companies led by Uber, Lyft, and DoorDash poured more than $200 million into a state ballot initiative to exempt themselves from the law. The ballot measure became the most expensive in state history and voters approved it in November 2020. Nine months later, a judge ruled Prop 22 unconstitutional, a decision that Prop 22 supporters have since appealed.
The CNYCA report helps to clarify why companies like Uber may have found AB5 and the prospect of a codified ABC employment classification test so threatening. If a similar standard gave New York City the tools to reduce construction industry misclassification by 34% and boost payroll jobs in the industry over eight years, what might it do to ride-hail, food delivery, and other gig services? It’s an open question whether Uber can be profitable as is, much less if it were forced to rejigger its entire business and start treating U.S. workers as employees.
Worker misclassification in non-gig industries like construction or educational services doesn’t get as much attention as the plight of Uber drivers. It lacks the allure that billions of dollars in venture-capital funding confer. But zooming out on the broader problem of worker misclassification is helpful—not only because it puts the scale of the gig economy in perspective, but also because it’s a reminder that we’ve seen this before, that companies bending labor rules to their advantage is an old trick and not some shiny new Silicon Valley innovation.
In the case of the New York City construction industry, it also shows that there are tools for tackling misclassification that, while imperfect, are also hugely effective. That’s something gig companies would probably rather everyone else forget about.