¶ The Gig Economy and Proposed Rule
Hi, I'm Erin Delmore. And as we work, we're seeing a tug of war over who counts as an employee in the gig economy. The potential game changer for millions of gig workers. A new proposal to classify millions of gig workers as employees. Rather than independent contracts.
So today's announcement aims to lay out clear
Who should be considered?
This is as we were. Street Journal, a show about the changing workplace and everything you need to know to navigate it. Coming up on the show, the Biden administration is proposing new rules that would make it easier for gig workers to be classified as employees. It would mean changes for some of the more than 58 million. People here in the US who identify themselves as independent workers. And it has the potential to upend the gig economy down the line. Stay with us.
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Gig work has long existed. Maybe it's your hairdresser or the carpenter you hired to build that bookcase or the musicians who played at your wedding. That's a gig. That's where the term comes from. But the rise of app-based work has given way to new kinds of gigs, like driving for Uber and Lyft, delivering for DoorDash, or pet sitting for that client you found on Rover.
The list goes on and on. The Pew Research Center did a survey last year and found that 16% of Americans have earned money from an online gig platform at some point in their careers. And while some like the flexibility of the work, others don't like the lack of benefits and job security, two things that came to a head during the early days of the pandemic when those workers were among the most vulnerable.
Which brings us to last month, when the Biden administration proposed a new rule that would make it harder for companies to claim that the people who work for them are contractors. The rule could potentially make millions of workers eligible for all sorts of labor protections offered to full-time employees, like overtime pay, paid sick leave, and even a minimum hourly wage. Uber and Lyft told us that drivers prefer the flexibility that comes with being an independent contractor.
Doordash said flexible earning opportunities are vital in today's economy, and Rover, when we asked for comment, told us it doesn't direct or control the services provided by the pet sitters on its platform. There's a lot at play here. So we called up Wall Street Journal economics reporter David Harrison to help make sense of it.
¶ Understanding Biden's Classification Rule
David, why does the Biden administration say this change is needed?
The Biden administration says that an awful lot of workers are misclassified. So they should be counted as full time employees, but they're in fact classified as contractors, uh, in ways that are inappropriate. So, you know, imagine you're running like a nail salon, say, or your construction business and
But you hire somebody off the street to do to paint nails or to help you build a house. And you and you uh classify them as a contractor, which means you don't have to pay them minimum wage, you don't have to
Give them all these other benefits. But they're essentially doing work for you that you would think ordinarily a full time employee would do but you hire them as a contractor to not have to provide all these benefits. And that's exactly the sort of thing that the administration wants to get rid of.
What's the current rule right now? What checklist is that person's employer going through to figure out whether it's an employee or a contractor?
Yeah, so right now the rule is pretty loose for an employer. Basically you can count somebody as a contractor if you can prove that they have a fair amount of control over their work, so they can decide, you know what, I just don't want to come in today because my kid is sick, say.
Or if th the workers is is responsible for their own profit and loss. So, you know, they have a lot of customers, they make more money. It's a pretty loose standard. It allows you to basically count a lot of people as contractors. Under the proposed rule, what the Biden restriction wants to do is you want to make it much tougher for, say, the Nil Salon to say that somebody is a contractor. So besides those two tests.
There's also the question of say uh is the position on an open ended basis or is it only temporary? Do you only hire somebody for like a few weeks because you have an opening? Um because say somebody on vacation or something like that. Or Um another test is like, is the work that the person is doing, the worker is doing, essential to your business operation? So, you know, if the nail salon say contracts out with a plumber to fix a toilet
That's not really essential to the nail salon's business. You need a contractor to do the plumbing. But if you know you're hiring somebody to paint nails, that's essential to their business. So that's something that you would look at to determine whether or not somebody should be uh should be a contractor or should be uh an employee.
Okay, so we've talked about the Trump era rule, and we've talked about the rule that President Biden hopes will become the Biden era rule. But what was it before that?
Under the Obama Reservation, it was more or less what the Biden Recursion wants to put in place now. Essentially what the Biden Reservation wants to do is to go back to the way it was under Obama.
Okay, so this basically ping-pongs back and forth from administration to administration, is that right?
That's right, that's the case for a lot of these labor rules. This is basically w another chapter in a long, ongoing saga over gig workers. You know, you have a Republican administration puts in one rule, a democratic administration comes in and changes it, Republican administration comes in and you know, undoes the changes and vice versa. Um and on we go and you know that that that that basically and you ends up having sort of very little certainty over what the actual rule is.
So if the rules change depending on which political party is in the White House, how are gig workers supposed to figure out what this all means for them? We'll speak with a professor who's been studying that very question next.
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Sure, a level of uncertainty is built into gig work. And for a lot of people, that's the trade-off for some degree of flexibility. But changing rules about the way gig workers are classified, as employees with benefits or as contract workers without, can be hard to navigate.
¶ Market Reactions and Business Model Threats
We asked Mark Goff, an associate professor of labor and employment relations at Penn State, to spell it out for us. Mark, we've seen these proposed rules change from presidential administration to presidential administration. What's new and different about this time?
Nothing.
And this is honest. And so d to some degree I mean be a student of history. What was new when Trump changed it? It was paused by Bot and then here we are. And so this is why I caution everyone needs to kind of take a a step back, take a deep breath. Because this in and of itself is um, I mean, I don't want to say inconsequential, because it's not. It has some consequences.
But it's uh it's a tempest in a teapot right now. The fear is that's gonna grow, right? The fear is this is the start of a chain reaction. But, you know, if if there's an administration change in the next election, guess what? You're gonna call me back and we're gonna have the same conversation in three years. And you're gonna say, Hey, what's new? and I'm gonna say Nothing.
But Mark, markets moved on this news. We saw shares of Lyft fall twelve percent on the day the proposed rule was unveiled. Uber dropped ten percent, DoorDash down six percent.
And and this is why I say I don't want to say it's inconsequential. And A, I can't read the tea leaves of the market. But I think you're also correct that it absolutely goes to the core of their business model. Why do you see such volatility? It's because there is so much uncertainty baked in. If it were certain, we wouldn't have seen this immediate bat you know, it'd be like, Hey, this is kind of the new rule, this is what it's gonna be.
Great, let's build that in, let's factor it into our models, perfect, this is what it's worth. But we have uncertainty. And that's what I think this rule simply introduces. The Department of Labor, the Biden administration is gonna say, Hey, we're actually trying to provide more certainty on employee classification.
Right? That there's a lot of lawsuits about misclassification. We want to provide certainty, but in reality providing certainty in one aspect can provide a lot of uncertainty in other arenas. And I think that's what we saw in in the market.
Gotcha. Well who's affected here? What kinds of gig workers?
It's the traditional gig workers that this rules a a response to, right? So it's the quintessential Uber drivers. But if you look at the broad contractor economy, well that encompasses much more than just these basically food delivery apps and transportation apps that are the focus of most of of the headlines. Construction and agriculture have some of the largest
representation for independent contractors. And so this is designed to provide some certainty, but certainty in terms of are you an employee or are you not an employee? And that distinction matters because it comes with protection.
Well, tell me what they are.
Uh-huh. Well, in this case it would be minimum wage and overtime. Those are gonna be the primary protections that that are guaranteed. But either the promise or the fear of these changes is well what comes next? Right, that right now it's quote unquote just overtime and minimum wage. Is it gonna be anti discrimination, you know? Like what else are you gonna throw in that basket of workplace protection?
Like the right to unionize? Could that be one?
Exactly. Under the National Labour Relations Act. That would have a much larger effect on these firms' business operations than simply adherence to the minimum wage.
So what would be the effect on companies that hire gig workers?
It can attack the very core business model that they're operating under, which is, hey, we're just a bunch of software companies, and all of our drivers, all the delivery workers, they're just end users of our app. We provide the software and drivers are simply end users of the software.
¶ The Enduring Debate on Gig Worker Rights
So Mark, read the tea leaves for us. What's the likelihood of this going into effect?
Yeah. What's up?
I know. It's a hard question, but you're our expert.
Great. Reading the tea leaves, I'd say there's about a third chance. Um
How do you base that?
Ha ha. Tea leaves.
Okay. What kind of tea? Green or black?
Um rather than putting a a number on it, let's talk about the uncertainty behind it. So again, right now this is a proposed rule. It hasn't even formally been been adopted yet. So we have to get the formal a adoption. If it goes
Into effect.
It's going to be litigated. That's not a super quick process. It will likely coincide with an administration change. Right? I just don't think it's it's very likely that it's actually going to go into effect or at least that it's gonna have these consequences. But I do think that this is more indicative as a society, this essentially is part of the conversation we're having and
Do gig workers deserve rights? Are gig workers employees? Hey, that's a separate question. Then are gig workers workers and do they deserve rights? And if they deserve rights, w what rights do they deserve? And you can have a good faith debate about this. And I don't think that debate's gonna go away. What are the chances that gig work in twenty twenty two is gonna look just like gig work in twenty twenty five? I'd say zero percent chance.
The the gig economy is growing fast enough, it represents a large enough proportion of our economy that these discussions aren't going anywhere. Do I think this is going to be the straw that breaks the camel's back? No.
So if you're a gig worker, how should you navigate this uncertainty? What's your advice for gig workers?
Use your voice. Make your preferences known. I think that's the the best advice. If you're for it or you're against it, please speak up.
So Mark Goff says, if you're a gig worker, hold tight and speak up. While this proposed rule change isn't changing anything right now, it's another step in a saga that could play out in the years to come. But no matter what kind of work you do or how you choose to do it, you know it takes not only talent to succeed, but also luck. Is it better to be lucky or good? We'll answer that question in our pro tip. Stay with us.
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¶ Pro Tip: Luck, Talent, and Career Strategy
And finally today, our pro tip. Ben Cohen writes the science of success column for the Wall Street Journal, and he says there's research to prove that the most successful people have something in common. Okay, Ben, don't make me guess. What's the secret?
When researchers have explored the role of talent and luck in success, they have found that. It is not sufficient to just be talented. You also have to be lucky. We tend to think of successful people as the most talented because we want to ascribe some kind of credit to their success and think that. They must have done something that differentiated and distinguished themselves from everybody else. What this line of research suggests is that.
They were no more talented than you or me. What they were was lucky. And I think it's really hard for us to wrap our minds around the role that luck plays in careers.
I could see us wanting to lead towards that assumption too though, because don't we wanna believe it's a meritocracy that if somebody worked really hard they rose to the top and we can do the exact same thing if we follow those steps?
If we also get lucky, right? And I think that at the root of this research, which is kind of silly but also sort of profound, is this idea of like, Does meritocracy exist? And, you know, the Italian researchers behind this particular study would say that they are looking into Talent and luck and success, because what they really want to do is probe the roots of meritocracy. And to them, meritocracy is a sham. Well,
I'm curious about how they even researched this concept because luck is so nebulous, right? It's how do you measure it? And furthermore, how do the researchers even separate it out from talent?
Um this was a team of three Italian researchers, one economist, and two theoretical physicists, which is sort of a neat combination. And they essentially built a computer simulation. They simulated 40 years of career success. And every six months in this simulation, these people with different levels of talent would bump into red dots and green dots at random. The red dots were bad luck, the green dots were good luck. When they ran into good luck, their success
multiply based on the level of their talent, right? Because if you think about it, more talented people can take greater advantage of the luck that they encounter. When you ran into red dots, the bad luck, your success was cut in half. When they looked at the stick figures of normally distributed talent,
who were the most successful people at the end of those forty years. And what they found was that it was not the most talented people. It was the people who ran into luck the most times. And so that is how they came to their sort of counterintuitive finding that luck is more important than talent in career success. It was by taking like this real world idea and applying like, you know, some very trippy physics to
Okay, so they took these very trippy physics and basically proved that old saying, I'd rather be lucky than good.
Yes, that's essentially what they did.
Ha ha ha.
I'm trying to make it more profound, but I think that you have um you've summed it up very well.
I will point out that we don't get to choose. So how can we make our own luck? Or how can we take advantage of that randomness when good luck comes our way?
What they say is that if success is so dependent on luck then the way to reap the benefits of that randomness is to essentially embrace it. Their advice essentially comes down to this like very neat aphorism, which is expose, explore, and then exploit. Right. So Expose you want to like try a whole bunch of different things.
and figure out what you might be good at and explore like drill down a little bit. And then once you figure it out, exploit your talent in that area and hope that like if you are talented, you will be able to take advantage of the luck that comes your way.
Right, because if luck comes your way and you don't act on it, it's like it never happened at all, right? And maybe it's not just you saying, Oh, I'm not gonna act on this. Maybe you don't have the skills yet or you don't have the connections, you don't have what you need to go push that along.
And that's why they would say that exposing and exploring are so important. You have to figure out what you are good at and what you like and then how you might be able to take advantage when things do go your way eventually, hopefully, in that line of work.
Good luck at work can be one thing. Good luck before work can get your whole day off on the right foot. No traffic on the freeway. Your minutes away? That perfect cup of coffee with no weight in line. Next time on the show, we're setting our sights on your commute. And yes. Some commuters are learning to love the daily slog. We'll share some advice on how to make it a valuable and even enjoyable part of your day. I'll be thinking about it as I take my own train ride home.
Like the show? Subscribe! And tell your friends to. And then hit us with a five-star review on your favorite platform. As we work as a production of the Wall Street Journal, Charlotte Gartenberg is our producer. Jonathan Sanders has already seen the latest news before you even woke up. And he's our booking producer. Scott Salloway is our supervising producer. Jessica Fenton is our sound engineer, and our music was composed by Hansdel Sue. I'm Erin Delmore. See ya!
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