Future of Globalization, EconoMatters

The Sharing-the-Crumbs Economy

Why Silicon Valley’s techno-utopian vision of “sharing economy” is a mirage.

Credit: STILLFX Shutterstock.com

Takeaways


  • Examples abound of firms laying off most of their workers and rehiring them as contractors.
  • Silicon Valley is forging a new economy that forces workers into a bidding war with each other.
  • Why won’t every employer eventually lay off all its regular, employees and hire contractors?
  • We’re losing decades of progress because tech apps somehow make exploitative firms “special.”
  • Is this a #sharingeconomy or a share-the-crumbs economy?

In the aftermath of the economic collapse in 2008, there has been increasing reliance among employers on “non-regular” workers.

This growing army includes freelancers, temps, contractors, part-timers, day laborers, micro-entrepreneurs, gig-preneurs, solo-preneurs, contingent labor, perma-lancers and perma-temps.

It’s practically a new taxonomy for a workforce that has become segmented into a dizzying assortment of labor categories.

It is also a significant factor in the decline of the quality of jobs in the United States, as well as in Europe, since 2008. Even many full-time, professional jobs and occupations are experiencing this precarious shift.

America’s 1099 economy

This practice has given rise to the term “1099 economy” in the United States. Under the U.S. tax system, these employees don’t file W-2 income tax forms as a regular, permanent employee. Instead, they receive the 1099-MISC form for an IRS classification known as “independent contractor.”

The advantage for a business of using 1099 workers over W-2 wage-earners is obvious: An employer usually can lower its labor costs dramatically, often by 30% or more.

It is not responsible for a 1099 worker’s health benefits, retirement, unemployment or injured workers compensation, lunch breaks, overtime, disability or paid sick, holiday or vacation leave, and more.

In addition, contract workers are paid only for the specific number of hours they spend providing labor, or completing specific jobs, which increasingly are being reduced to shorter and shorter “micro-gigs.”

Set to replace the crumbling New Deal society is a darker world. It is one in which wealthy and powerful economic elites are collaborating with their political cronies to erect the policy edifice that allows them to mold their proprietary workforce into one composed of a disjointed collection of 1099 employees.

This is a direct threat to the nation’s future, as well as to what has been lionized around the world as the “American Dream.”

Front-row seat to the new economy

After being laid off after many years of economic security, I stepped off the safe and secure boat of having what is known as a “good job” with a steady paycheck and a comprehensive safety net, into the cold, deep waters of being a freelance journalist.

Suddenly I was responsible for paying for my own health care, arranging for my own IRAs and saving for my own retirement.

I also had to pay the employer’s half of the Social Security payroll tax, as well as Medicare — nearly an extra 8% deducted from my income.

The costs for my health-care premiums zoomed out of sight, since I was no longer part of a large health-care pool that could negotiate favorable rates.

But that’s not all. Suddenly not only was the pay per article or lecture not particularly lucrative, but I didn’t get paid for those many hours in which I had to query the editors for the next article or lecture, or conduct research and interviews.

It was as if I had become an assembly line worker who was paid on a per-piece rate. Any moment I wasn’t working, even for a bathroom break, I was not earning.

I no longer had paid vacations, sick days, holidays. Nor could I benefit from unemployment or injured workers compensation.  I had to track my many and varied sources of income, making sure that unscrupulous editors didn’t stiff me.

In short, I had to juggle, juggle, juggle, while simultaneously running uphill — my life had been upended in ways that I had never anticipated. And I began discovering that I was not alone.

Pulitzers, piecework, and Pangloss

Many other friends and colleagues — including Pulitzer Prize-winning journalists, professionals and intellectuals, as well as many friends in pink-, white- and blue-collar jobs — also had become 1099 workers, tumbleweeds adrift in the labor market.

They found themselves increasingly faced with similar challenges, each in his or her own profession, industry or trade. In short, we had entered the world of what is known as “precarious” work, most of us wholly unprepared.

Not to worry. The new economy visionaries — who like Dr. Pangloss in Voltaire’s Candide always see “the best of all possible worlds” — have a plan in place for us.

A new mash-up of Silicon Valley technology and Wall Street investment has thrust upon us the latest economic trend:  the so-called “sharing economy,” also known as the gig or on-demand economy.

Companies like Uber, Airbnb, Instacart, Upwork and TaskRabbit allegedly are “liberating workers” to become “independent” and “the CEOs of their own businesses.”

These companies, the sharing economy gurus tells us, allow us to “monetize our assets” — rent out our house, our car, our labor, our driveway, our spare drill and other personal possessions — using any number of brokerage websites and mobile apps.

This is the new “sharing” economy:  contracted, freelanced, “shared,” automated, Uber-ized, “1099-ed.”

A curious kind of revolution

An award-winning professional photographer can been “liberated” to become an innkeeper in his own home and a taxi driver in his own car – all through the power of a smartphone app and a layoff.

These gig economy workers hire themselves out for ever-smaller jobs and wages, with no safety net, while the companies profit.

Websites like Uber, Upwork, TaskRabbit, Airbnb and others have taken the Amazon/eBay model the next logical step. They benefit from an aura that seems to combine convenience with a patina of revolution: Convenience as revolution.

The idea of a “sharing” economy sounds so groovy — environmentally correct, politically neutral, anti-consumerist and all of it wrapped in the warm, fuzzy vocabulary of “sharing.”

The vision has a utopian spin that is incredibly seductive. We live in a world where both government and big business have let us down by leading us into the biggest economic crash since the Great Depression. Individualism can save us all!

Even more layoffs to come

But the “sharing” economy’s app- and Web-based technologies have made it so incredibly easy to hire freelancers, temps, contractors and part-timers. In that light, why won’t every employer eventually lay off all its regular, W-2 employees and hire 1099 workers?

Any business owner would be foolish not to, as he or she watches their competitors shave their labor costs by 30% (by escaping having to pay for an employee’s safety net and other benefits).

Sounds extreme? Merck, one of the world’s largest pharmaceutical companies, was a vanguard of this underhanded strategy.

When it came under pressure to cut costs, it sold its Philadelphia factory to a company that fired all 400 employees — and then rehired them back as independent contractors.

Merck then contracted with the company to carry on making antibiotics for them, using the exact same workers.

Examples abound of companies laying off all or most of their workers and then rehiring the same workers — but as independent contractors, a clear abuse of this legal loophole.

One new economy booster clarified employers’ audacious strategy: “Companies today want a workforce they can switch on and off as needed” — like one can turn off a faucet or a TV.

And now the apps and websites of the “share the crumbs” economy have made it easier than ever to do that. Companies can hire and fire 1099 workers at will.

Bidding wars in the at-will world

In essence, the purveyors of the new economy are forging an economic system in which those with money will be able to use faceless, anonymous interactions via brokerage websites and mobile apps to hire those without money by forcing an online bidding war to see who will charge the least for their labor, or to rent out their home, their car, or other personal property.

These perverse incentives are threatening to destroy the U.S. labor force and turn tens of millions of workers into little more than day laborers.

BuzzFeed’s Charlie Warzel has rightly observed, “any tech reporter who spends their time covering the sharing economy is now, essentially, a labor reporter.”

Outsourcing to these 1099 workers has become the preferred method for America’s business leaders to cut costs and maximize profits. This is only the beginning.

The Great Regression

We have yet to see how these trends will affect the labor force over the next decade or so. But already we can see that the so-called “new” economy looks an awful lot like the old, pre-New Deal economy, in which piece-work jobs did not lift families or communities.

We’re losing decades of progress, apparently for no other reason than because these on-demand companies conduct their business over the Internet and apps, somehow that makes them “special.”

Technology has been granted a privileged and indulged place where the usual rules, laws and policies often are not applied.

If that practice becomes too widespread, you can say goodbye to the good jobs that have supported American families, goodbye to the middle class and say adios to the way of life that made the United States the leading power of the world.

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About Steven Hill

Steven Hill is a journalist and author of the recently published book Die Startup Illusion: Wie die Internet-Ökonomie unseren Sozialstaat ruiniert (www.Startup-Illusion.com). Find him at www.Steven-Hill.com and @StevenHIll1776

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