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Workers without employers: shadow
corporations and the rise of the
gig economy
Gerald Friedman*
University of Massachusetts at Amherst, USA
A growing number of American workers are no longer employed in ‘jobs’with a long-term
connection with a company but are hired for ‘gigs’under ‘flexible’arrangements as ‘inde-
pendent contractors’or ‘consultants,’working only to complete a particular task or for
defined time and with no more connection with their employer than there might be between
a consumer and a particular brand of soap or potato chips. While the rise of this ‘gig’
economy is praised by some as a response to the wishes of a more entrepreneurial gener-
ation, it is more likely that it is driven by the concerns of businesses to lower wages and
benefit costs during business down-turns while also reducing their vulnerability to unfair
dismissal lawsuits. The rise of gig labor calls for new initiatives in social policy because it
shifts more of the burden of economic risk onto workers even while removing gig workers
from many of the employment-bound New-Deal-era social insurance programs.
Keywords: business fluctuations, labor economics, labor policy, wage level and structure,
compensation packages, payment methods, mobility, unemployment, turnover, vacancies,
lay-offs, unemployment insurance
JEL codes: E32, J010, J080, J31, J33, J38, J60, J63, J65
1 AN ECONOMY WITHOUT JOBS?
With attention focused on the decline of unions and changing wage differentials, labor
economists have devoted less attention to another profound change in the American econ-
omy and labor relations: the dramatic decline in long-term employment relations and the
rise of what has come to be called the ‘gig economy.’(A notable exception is Blank
1998.) Shadow businesses relying on a largely transient workforce with few
permanent employees have become prominent in the American economy. A growing
share of the American workforce is no longer employed in ‘jobs’with a long-term con-
nection with a company, a job ladder, and mutual interest in the well-being of both the
company and the worker. Instead, they are hired under ‘flexible’arrangements, as
‘independent contractors’or ‘consultants,’working only to complete a particular task
or for a defined time. There is no more connection between the worker and the employer
than there might be between a consumer and a particular brand of soap or potato chips.
* I am grateful to Richard Greenwald, Rosa Friedman, and Debra Jacobson. Natasha Friedman’s
life experiences (and dog-walking and cat-sitting) helped provide inspiration. The author can be
reached at gfriedma@econs.umass.edu.
Review of Keynesian Economics, Vol. 2 No. 2, Summer 2014, pp. 171–188
© 2014 The Author Journal compilation © 2014 Edward Elgar Publishing Ltd
The Lypiatts, 15 Lansdown Road, Cheltenham, Glos GL50 2JA, UK
and The William Pratt House, 9 Dewey Court, Northampton MA 01060-3815, USA
‘Gig workers’are employed in occupations across the American economy. While
the term comes from the employment of musicians to play for a particular set or for
an evening performance, it is now used to describe a wide range of employments.
Gig workers are employed in coffee shops and university lecture halls, farms, factories,
and as janitors cleaning offices at night. They work for low wages as personal care
attendants, dog walkers, and day laborers for landscapers, and for high wages as man-
agers of IT installations, accountants, editors, lawyers, and business consultants. Gig
workers often do the same work as do those on traditional contracts; often the same
work that they themselves had performed before they were laid off from a traditional
job to be rehired on a gig. Rather than skill or training, they are distinguished by the
social relations of work, the form of contract not the technology or type of work.
The long-term employment of the post-New Deal era –what is now called ‘traditional
employments’–had time and memory. A worker’s position and earnings depended on
job tenure, and future positions and rewards (such as promotion up a job ladder or a
pension) depended on current performance. By contrast, the gig economy is timeless:
workers are hired on the spot for the job without regard for their past employment,
with no promise for future employment, legacy pay, or deferred compensation. Gigs
thus restore a type of flexibility to an economy congealed by long-term contracts and
informal arrangements connecting workers to their employers. By hiring workers for
the ‘gig’rather than making them part of the company as employees, employers can
adjust employment and even wages in response to demand conditions. Making employ-
ment and wages more flexible, gig employments shift the risk of economic fluctuations
onto the workers. When conditions are bad, employment and wages will fall; to be sure,
when they improve, employers will have to pay.
Some observers applaud the rise of the gig economy because they argue it reflects
the wishes of a new, entrepreneurial generation of ambitious and talented Americans.
But there is more here than simply a change in worker preferences. Every labor con-
tract involves both workers and employers, and it is a change for American employers
to choose to hire workers on a short-term basis rather than building a workforce.
Since the 1970s, growing numbers of employers have rejected an employment
model where they hire ‘company men’on long-term contracts where training, employ-
ment-linked benefits, and opportunities for advancement are exchanged for ‘loyalty,’a
commitment to work hard, to support the company’s interests, and to reject alternative
employment offers. They reject the model of a productive company where workers are
walled-off from the competitive labor market in favor of shadow corporations
providing a brand produced by workers hired on the spot for particular tasks who
are furnished with minimal or no on-the-job training, often with minimal equipment,
and replaced at the end of the task with another group of workers also with minimal
lasting connection with the business.
The shift from long-term employment to the gig economy has profound effects on
the American economy and labor force. For workers, the shift to the gig economy dra-
matically increases uncertainty and economic risk. Employment and income have
become more variable, forcing workers to work extra hard when there is work to
compensate for the down-times. Uncertainty is magnified by the lag in social policy.
Our social insurance safety net is designed for workers with regular and lasting jobs;
health insurance, retirement pensions, unemployment insurance, and other social
protections are all designed for people with jobs, not gigs.
If the trend towards more contingent labor with alternative contracts continues, the
gig economy will change the nature of the American economy, shifting the balance
between employment and inflation, and changing the nature of worker collective action.
172 Review of Keynesian Economics, Vol. 2 No. 2
© 2014 The Author Journal compilation © 2014 Edward Elgar Publishing Ltd
In this paper, I will discuss the changing dimension of the gig economy and will suggest
ways that economic policy can be adapted to the new industrial relations system. I begin
by discussing the nature and spread of the gig economy before considering the ways
changes in industrial relations will affect macroeconomic policy. I then conclude by dis-
cussing the implications for social policy and our system of social insurance.
2 THE RISE OF THE GIG ECONOMY
Pundits and columnists say that the world has changed. Two years ago, Atlantic called
the ‘Freelance Surge’‘the Industrial Revolution of Our Time,’and said that the rise of
the gig economy is ‘nothing less than a revolution,’as important a shift as ‘when we
transitioned from an agricultural to an industrial economy’(Horowitz 2011). Critics
often cite the benefits to businesses: how the transition to gigs frees companies
from legacy responsibility for workers hired in the past. Workers may also see advan-
tages from gigs (Greenwald 2012; Greenwald and Katz 2012). Gig work frees workers
to seek for themselves the best possible working conditions and wages even while
upgrading their skills or setting up a business for themselves. Gigs can be liberating,
freeing the previously untapped entrepreneurial energies of the American worker.
‘Everywhere we look,’says one fan, ‘we can see the US workforce undergoing a
massive change’(Horowitz 2011).
No longer do we work at the same company for 25 years, waiting for the gold watch, expecting
the benefits and security that come with full-time employment. We’re no longer simply lawyers,
or photographers, or writers. Instead, we’re part-time lawyers-cum-amateur photographers who
write on the side. Today, careers consist of piecing together various types of work, juggling
multiple clients, learning to be marketing and accounting experts, and creating offices in
bedrooms/coffee shops/coworking spaces. Independent workers abound. We call them freelan-
cers, contractors, sole proprietors, consultants, temps, and the self-employed. (Ibid.)
‘And,’she concludes, ‘perhaps most surprisingly, many of them love it’(ibid.).
Ambitious workers can revel in the opportunity to structure their own time and career
paths; working enough to pay the rent while focusing on designing their own work port-
folio and developing their own business plans. Working gigs allows ‘unemployed and
underemployed professionals to keep their careers moving forward, and it has also pro-
vided many full-time workers an opportunity to practice facets of entrepreneurship
before taking the full plunge’(Carson 2012). Young workers especially are said to
want to break free of the confining restraints of traditional jobs. A survey of young
‘millennials’finds that over a third have started their own businesses on the side. Called
‘sidepreneurs,’they are said to demonstrate that ‘entrepreneurship is a viable solution to
youth unemployment and under employment. We have to find a way to support sidepren-
eurship. Whether it’s a Mary Kay party or selling vacuums, people are looking for
ways to make extra money on the side’(Ribitzky 2011).
The pattern of the growth of the use of contingent labor should raise questions about
this optimistic, preferences-driven approach. There have always been workers on gigs:
part-time employments, independent contractors and others employed under what the
Bureau of Labor Statistics (BLS) now calls ‘alternative arrangements.’When such
employments began to rise rapidly in the 1970s and early 1980s, the increase may
have reflected changes in worker preferences, but it can definitely be linked with
changes in the American political economy: changes in labor law, the decline of unions,
and rising levels of unemployment. First, the traditional concept of employment-at-will
Workers without employers: shadow corporations and the gig economy 173
© 2014 The Author Journal compilation © 2014 Edward Elgar Publishing Ltd
was challenged by federal legislation and state court rulings. The right of employers to
discharge an employee at will was first challenged by the National Labor Relations Act
and then by the Civil Rights Acts.
1
Then, court cases beginning in the late 1970s
restricted the right to fire even in situations where there was no written contractual
protection and no racial or collective-action concerns. Instead, state courts began to insist
on protection for implied commitments to respect investments that workers make in jobs
where they have reasonable expectations of employment security and long tenure.
2
With
courts establishing this ‘implied contract exception,’employers who had made promises
of job security, either explicitly in employment handbooks or implicitly in their corpor-
ate cultures, found themselves legally bound by them when they sought to fire long-
tenure workers during the recessions of the late 1970s and early 1980s (Edwards
1993; Krueger 1989; Stone 2009; Weiler 1990).
In practice, it has proven relatively simple for companies to avoid suits for wrongful
dismissal; good management practices, like clear employment guidelines and periodic
performance reviews, have allowed employers to discharge workers almost at will,
even while improving communication and productivity. Nonetheless, fear of lawsuits
and of further incursions on the doctrine of employment at will has led many employ-
ers to seek alternatives to traditional ‘permanent’employment by hiring more contin-
gent workers (Berkhout et al. 2013, p. 15; Krueger 1989; Stone 2009).
3
Other
economic changes since the late 1970s associated with the rise of conservative state
regimes and neoliberal economic policies have also contributed to the increasing
use of contingent labor. The recessions of the 1970s and early 1980s, the worst
since the 1930s, lowered the cost of labor on the spot-market even while rising com-
petition with foreign suppliers forced employers to downsize, and to reduce their
workforce. High unemployment and the slow-down in wage growth widened the
gap between the cost of labor in internal labor markets and the cost of hiring workers
on the outside spot-market. Vigorous attacks on labor unions, encouraged by the
Reagan Administration and after, have also reduced a barrier to the use of low-
wage contingent workers. Finally, rising benefit costs, for social security contributions
and health insurance premiums, led employers to hire contingent workers without ben-
efits (Dube and Kaplan 2010; Houseman 2001).
Most American workers continue to work under traditional contracts (see Figure 1).
Government data collection is organized around market productivity, occupations, and
earnings rather than employment arrangements, and the means of production rather
than the social relations of production. In 1995, 2001, and 2005, however, the BLS
did question about workers’social relations (Bureau of Labor Statistics 2001; 2005;
Cohany 1996; General Accounting Office 2000; a privately conducted employer sur-
vey is described in Houseman 2001; Polivka 1996). The BLS made three estimates of
‘contingent labor,’and one comparing alternatives with traditional employment rel-
ationships (see Table 1); the ‘contingent labor’estimates give various measures of
the number of workers on temporary contracts while the ‘alternative contract’measure
1. State legislation also prevented wrongful dismissal for various actions. By the early 1980s,
22 states, for example, had made it unlawful to dismiss an employee for filing a workers’compens-
ation claim; and 34 states gave legislative protection for whistle-blowers (Stone 2009, pp. 9–10).
2. One of the first of these, Foley v. National Cash Register Co., 364 N.E. 2d 1251 (Mass.
1977) involved a company discharging a salesman on the verge of earning a large commission.
3. The share of workers with alternative contracts is lowest in the United States of all OECD
countries and highest in countries with the most legislated protection against unjust dismissal
(Berkhout et al. 2013).
174 Review of Keynesian Economics, Vol. 2 No. 2
© 2014 The Author Journal compilation © 2014 Edward Elgar Publishing Ltd
includes those working for temporary help agencies and companies doing contract
work even if these are long-term jobs
4
(General Accounting Office 2000). While
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1995 2001 2005 2013
Alternative arrangements
With traditional
arrangements
Figure 1 Share of workers under traditional and alternative contracts, 1995–2013
Table 1 Estimates of share of contingent workers of United States employment:
BLS estimates 1995–2005 and projections for 2013
Year Estimate of share of contingent
workers
Share of workers under alternative
arrangements
Estimate 1 Estimate 2 Estimate 3
1995 2.3% 2.9% 5.1% 9.8%
2001 1.7% 2.2% 4.0% 9.3%
2005 1.8% 2.3% 4.1% 10.7%
2013
e
2.0% 2.5% 4.3% 13.4%
Note:
e
= estimated.
Source: BLS survey questions added to Current Population Surveys for 1995, 2001, 2005. Projection for
2013 made assuming annual rate of growth in the share of contingent workers would continue at the
same rate as in 2001–2005. For the estimate of workers under alternative arrangements, it is assumed that
the number of workers in traditional arrangements and under each of the alternative arrangements (indepen-
dent contractors, on-call workers, employees of temporary help agencies, and workers provided by contract
firms) would increase through 2013 at the same rate as from 2001–2005 except for a slowdown reflecting the
slowing of aggregate employment.
4. Contingent workers are persons who do not expect their jobs to last or who report that their
jobs are temporary. The narrowest estimate includes those who expect their jobs will last for an
additional year or less and who had worked at their jobs for 1 year or less; self-employed work-
ers and independent contractors are excluded from the estimate. The second estimate includes
the self-employed and independent contractors, who expect their employment to last for an addi-
tional year or less and who had worked at their jobs (or been self-employed) for a year or less.
The third estimate includes those who do not expect their jobs to last regardless of their job
tenure. Alternative work arrangements includes independent contractors, on-call workers,
employees of temporary help agencies, and workers provided by contract firms. The GAO
added to these estimates ‘self employed’and ‘part-time workers’to arrive at a larger estimate
that nearly 30 percent of the labor force are contingent workers. I will be using the narrower
Workers without employers: shadow corporations and the gig economy 175
© 2014 The Author Journal compilation © 2014 Edward Elgar Publishing Ltd
none of these perfectly captures the size of the ‘gig economy,’they provide insight into
size, composition, and change over time.
Clearly, the great majority of American workers continue to be employed under tradi-
tional arrangements at jobs with fixed hours, location, and a certain expectation of
employment security.
5
Furthermore, any significant increase in the share of gig employ-
ment is recent, dating only from the end of the Clinton boom of the 1990s. When work-
ers were in a strong bargaining position from 1995 to 2001, the share of contingent
workers fell.
6
Gig jobs declined as a share of the economy when workers had more bar-
gaining leverage during the employment boom –the first internet boom –of the second
Clinton Administration. This suggests that it is employers, not employees, who are push-
ing the gig economy. When employment rose to full employment levels, for the first
time since the 1960s, and workers had a choice, they avoided gig work and employers
had to offer them regular jobs. The gig economy expanded only when workers lost bar-
gaining leverage with rising unemployment after the collapse of the internet boom. And
the gig economy exploded with the economic collapse and the Great Recession.
While traditional arrangements accounted for most of the growth in employment
during the Clinton boom years, the pattern of employment growth has been dramati-
cally different since 2001, a period of economic slowdown and recession. It is since
2001 that the pundits who celebrate the rise of the gig economy are right; most of
the growth in employment since 2001 has been among workers employed under alter-
native work arrangements. While such workers accounted for only 3 percent of
employment growth during the late 1990s, including the years of the first internet
boom, they have accounted for a sizable majority of growth since. Alternative
arrangements accounted for a majority of employment growth from 2001–2005; and
since 2005, the period that includes the Great Recession, estimates suggest that
alternative work arrangements account for almost 85 percent of employment growth
(see Figure 2).
7
Because of the great stock of traditional jobs, they continue to
dominate the economy; but change is coming.
3 EXPLAINING GIGS
The BLS surveys provide snapshots of the emerging gig economy that discredit some of
the popular enthusiasm for it. While some contingent workers are young and well-
educated in jobs using advanced technology, much gig labor is employed in
labor-intensive traditional work. The different employments are shown in Figure 3. Gig
labor is relatively common in sectors employing well-paid consultants and computer
technicians with degrees from elite schools, including financial services and professional
and business services. But the sector which uses the most gig labor is construction,
definition here both to maintain continuity across the different surveys and to exclude profes-
sionals, farmers, and other traditionally self-employed workers and those who are part-time
by choice (General Accounting Office 2000).
5. While most jobs are under traditional contracts, most firms were experimenting with con-
tingent labor as early as the 1990s (Houseman 2001, p. 152).
6. Consistent with this, Dube and Kaplan (2010) use the regular current population survey to
track the rise of contingent employment among janitors and security guards, and find that this
increased steadily after the 1980s except for the late 1990s when it leveled off.
7. This is based on the assumption that employment growth in each of the contract categories
(alternative arrangements and traditional employment) increased after 2005 at the same rate as
2001–2005, adjusted for the general slowdown in employment growth with the Great Recession.
176 Review of Keynesian Economics, Vol. 2 No. 2
© 2014 The Author Journal compilation © 2014 Edward Elgar Publishing Ltd
followed by agriculture, and the catch-all sector of ‘other services’which includes per-
sonal care attendants as well as two fast-growing occupations employing recent liberal-
arts college graduates: dog walking and cat sitting. Sectors employing relatively little gig
labor are distinguished less by their technology than by the relative strength of worker
organization, including public services, education, and health care. While they all use
high technology, they employ little gig labor because they have relatively strong unions.
The high proportion of gig labor in both high- and low-tech occupations, and finan-
cial and business services, as well as agriculture and services, suggests the breadth of
the category of contingent labor. The gig economy includes some workers who are
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1995–2001 2001–2005 2005–2013
Alternative arrangements
With traditional
arrangements
Figure 2 Share of employment growth accounted for by workers under traditional
and alternative contracts, 1995–2013
3.5
2.5
1.5
0.5
0.0
Agriculture and related industries
Mining
Construction
Manufacturing
Wholesale trade
Retail trade
Transportation and utilities
Information
Financial activities
Professional and business services
Education and health services
Leisure and hospitality
Other service
Public administration
3.0
2.0
1.0
Figure 3 Relative use of alternative labor by industry –ratio of share of workers
under alternative contracting to the national average, 2005
Workers without employers: shadow corporations and the gig economy 177
© 2014 The Author Journal compilation © 2014 Edward Elgar Publishing Ltd
doing very well. Free to market their labor broadly, some middle-aged and
well-educated independent contractors have high earnings as independent contractors.
(See Figures 4 and 5 for the characteristics of these workers.) On average, however,
most gig workers earn less than their equally educated counterparts on traditional con-
tracts; and younger and less educated workers do much worse in alternative contractual
arrangements.
8
Companies hire gig workers to lower labor costs, especially benefits,
and gig workers earn significantly less than other workers, especially when account
14%
12%
10%
8%
6%
4%
2%
0%
16–19 20–24 25–34 35–44 55–6445–54
Age
Independent contractors and contract workers
Share of employment
On-call and tem
p
orar
y
hel
p
workers
Figure 4 Share of workers under alternative contract arrangements by age, 2005
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
HS and less Some colle
g
eBA+
Independent contractors an
d
contract workers
On-call and temporary help
workers
Figure 5 Share of workers under alternative contract arrangements by education
level, 2005
8. The greater age and education of independent contractors and the higher proportion of men
accounts for the nominal 11 percent greater earnings. Adding in the effect of employer-provided
benefits and even independent contractors earn significantly less than workers under traditional
contracts (see Figure 6).
178 Review of Keynesian Economics, Vol. 2 No. 2
© 2014 The Author Journal compilation © 2014 Edward Elgar Publishing Ltd
is taken of benefits. While few contingent workers receive employer-provided bene-
fits, even for government-mandated benefits such as social security, virtually all work-
ers under traditional contracts receive mandated benefits and over half receive health
insurance. Including the value of benefits magnifies the earnings differential for tradi-
tional workers (see Figure 6).
4 WHO WORKS GIGS?
Some prefer gigs to jobs. Some relish the freedom from commitments to an employer,
not having to go to an office; they are said to consider themselves the Pajama Gener-
ation, ambling ‘out of bed in the morning in our PJs and fire up the Mac’(Brenoff
2010). Young people are supposed to be too entrepreneurial for ‘Dad’s’old-type-
career. They want to strike out on their own, to form their own start-ups, forge their
own paths (Pofeldt 2013; Ryan 2012;). Others value the flexibility to be home at
odd hours to care for children or to fulfill other family responsibilities.
$900
$850
$750
$700
$600
$650
Median weekly wages Median weekly
wages with
government benefits
Median weekly wages
with government benefits,
health insurance,
and pensions
All alternative
Traditional
$800
Notes: Earnings for workers under traditional arrangements include employer share of Social Security,
Medicare, Unemployment Insurance, workers compensation, and disability coverage. Health insurance
premiums are from http://kff.org/other/state-indicator/individual-premiums/.
The average value of health insurance premiums paid by employers are estimated by assuming the family
status for workers under different family arrangements is available for 1995, from http://www.bls.gov/mlr/
1996/10/art4full.pdf.
The share receiving employer-based health insurance coverage is from http://www.bls.gov/news.release/
conemp.t09.htm.
Average employer pension contribution is from 2013, at http://www.bls.gov/news.release/ecec.nr0.htm.
The value of insurance coverage is the weighted average of the benefits for each type of contract where the
weights are the proportion of workers under each type of alternative arrangement. For each, the value is the
product of the weekly value of premiums for each category of family type weighted by the distribution of
family-types within each category of contract and the proportion receiving employer-provided coverage.
Figure 6 Median weekly earnings by contract arrangement and employer-provided
benefits, 2005
Workers without employers: shadow corporations and the gig economy 179
© 2014 The Author Journal compilation © 2014 Edward Elgar Publishing Ltd
Few of the workers in the gig economy actually enjoy this happy life-style. The
relatively well-paid independent contractors are happy with their alternative arrange-
ment, but solid majorities of workers in the other categories of contingent workers
would prefer traditional jobs (Bureau of Labor Statistics 2005, tables 10 and 11).
It may be that even more would prefer a traditional job today than in 2005 after
economic recession pushed many workers out of traditional jobs into positions as inde-
pendent contractors and other ‘entrepreneurial’vocations. While workers become
independent contractors from choice in good times, such as the late 1990s, in the reces-
sion years since 2000, companies have turned jobs into gigs, often reneging on infor-
mal commitments to reward senior workers for long job tenure. While many younger
workers have been disappointed that they have been unable to find the secure employ-
ment that their parents had held, entry into the new gig economy has been a shock for
many older, senior workers. Such was the experience, for example, of the editorial
staff of Out magazine in 2012, when they were discharged and invited to apply to
do their work as employees of an independent contractor established by the maga-
zine’s editor, a company with one client: Out (Pompeo 2012). Discharge followed
by rehiring as independent contract labor has become so routine that CBS news ran
a story called: ‘The Companies that Laid You Off? They Want You Back, Sort Of’
(Ceci Rodgers, MoneyWatch, March, 2010).
It may not be coincidental that the gig economy has expanded during the worst
recession since the 1930s. Long-term contracts were a way for companies to protect
themselves from labor shortage during times of low unemployment. While a bad
strategy when unemployment is low, it becomes irresistible when there are many
looking for work and spot-market wages are low. Without loyal workers and
long-term contracts, tied to short-term labor markets, shadow corporations are
more vulnerable to the macroeconomy; they benefit from low labor costs during
recessions but are forced to pay dramatically more for workers during booms. Hiring
labor on the spot market, they need a reserve army of the unemployed available to
work at stable wages. If we returned to full employment, they might find it hard to
locate workers who are ready-to-work: healthy, trained, and imbued with enough
intrinsic sense of responsibility that they will work without promise of future
reward. Short-sighted managers may not care about the loss of corporate identity
and team spirit that was used to build companies. When unemployment remains
high, companies like Out can replace regular workers with outside contractors to
lower labor costs without giving up access to experienced and trained workers.
Over time, however, if companies hire short-term they will not be reproducing
their workforce training and acculturation.
Substituting gigs for long-term employment relationships marks a change in the
policies of American businesses which for over a century have provided job ladders,
pension benefits, and other inducements to encourage workers to make careers of
their employments (Conference on Labor Market Segmentation 1975; Doeringer
1985; Edwards 1979; Jacoby 1985; 1997; Slichter 1960). Long-term contracting
may have been attractive to workers but it was a policy established by employers.
They converted short-term jobs, or nineteenth century ‘gigs,’into ‘positions’and
‘careers’to gain leverage over workers, to stabilize wages, especially during periods
of economic boom and low unemployment, and so that they could safely train work-
ers and develop new technologies confident that their workers would not use their
new knowledge to step out on their own. Entrapping their workers within careers,
they bound their workers’interests to those of the company to encourage hard work
and productivity (Dow 2003; Freeman and Medoff 1984; Jacoby 2005; Meyer 1981;
180 Review of Keynesian Economics, Vol. 2 No. 2
© 2014 The Author Journal compilation © 2014 Edward Elgar Publishing Ltd
Slichter 1960). Long-term employment relationships protect company investments in
human capital and training while encouraging workers to identify with their employer
and to discover new productivity improvements. They also stabilize wages; while sticky
wages for workers in protected jobs becomes a problem when unemployment is high
and wages are falling, they become an advantage when wages are rising and workers
hard to find because unemployment is low (Buttrick 1952; Gordon 1982; Kalecki
1943; Marx 1935).
9
Job ladders with implicitly guaranteed deferred compensation for long-tenure workers
were always problematic for workers whose careers depended on the good will of their
employer not to renege on promised deferred compensation (Edwards 1993; Krueger
1989; Medoff and Abraham 1981; Summers 2000). This temptation has proven too
strong for the managers of many American companies, and not only those with heavy
legacy costs. The rise of the gig economy during a period of recession reflects ways that
the American economy has moved away from the conditions favorable to long-term con-
tracts. Fear of unions and labor unrest no longer drives employers to establish internal
labor markets; they have developed an arsenal of other tools –legal and other –to defeat
labor militancy. Companies also believe that they have developed other means to main-
tain productivity; rather than relying on initiatives from a stable and comfortable work-
force, they use research and development, outside consultants, and direct supervision.
Finally, the benefits of a stable workforce during periods of low unemployment seem
less important after 40 years of go-slow macroeconomic policy during which the
economy approached full employment only once, in the late 1990s –which, not coin-
cidentally, was when companies backed away from gigs.
5 CHALLENGES FOR MACROECONOMIC POLICY
The rise of the gig economy raises issues for economic research and policy. As is clear
from the earlier discussion, the Bureau of Labor Statistics and the Census Bureau do
not collect appropriate data for analysis of ‘contingent employments’and alternative
employments.
10
With more people holding multiple part-time employments, including
working on their own account, the number of jobs per person and hours worked per
employment have become more variable; the economy’s supply of labor has become
more elastic with respect to output because gig-laborers work more when they can
find work, but drop out of the regular economy to engage in home production or
work on their own account when there is no work. Without paid employment or immedi-
ate prospects of finding it, gig laborers do other things; they retrain, they upgrade their
portfolios, they work at home and spend more time with family and friends. Thus the
population with jobs or looking for work becomes more elastic. In a depressed economy
it contracts, understating the number of people willing to work if the economy were
stronger and the hours they would work.
For individual employers, gig employments provide more flexibility. Dispensing
with long-term contracts and minimizing separation costs allows employers to adjust
employment quickly to demand conditions. For the workers involved, and the econ-
omy as a whole, however, this means that employment will be reduced more quickly
9. Companies also established benefit programs and job ladders to discourage union involve-
ment (Brandes 1976; Ozanne 1967).
10. The contingent worker survey was dropped after 2005 for budgetary reasons; President
Obama has unsuccessfully proposed restoring funding.
Workers without employers: shadow corporations and the gig economy 181
© 2014 The Author Journal compilation © 2014 Edward Elgar Publishing Ltd
as the economy heads into a recession.
11
(This may have contributed to the extraordin-
ary fall in employment in late 2008 and early 2009.) Employers’gain thus risks ampli-
fying economic distress, reducing employment and wages, as well as consumer
spending, in the downturn.
The movement of gig workers in and out of the workforce in response to economic
conditions makes the economy’s labor supply more strongly procyclical. The withdrawal
of gig workers minimizes the measured increase in unemployment in recessions; their
return when the economy expands allows longer expansions before the measured unem-
ployment rate indicates full employment. Not only does the current measure of reported
unemployment, U3, understate the magnitude of recessions but even the augmented
measure, U6, understates distress because it does not take full account of the willingness
of gig workers to work additional hours and to substitute paid work for other activities.
When businesses increase hours of employment for contingent and gig workers, or when
gig workers shift from portfolio development to paid market work, production increases
faster during business cycle upswings than does reported employment. To put it another
way, there is change in the amount of employment for every increase in output because
there is more change in hours worked while the content of unmeasured output changes.
Larger increases in the GDP are needed, therefore, to achieve the same reduction in gen-
uine unemployment; the Okun curve has become steeper.
Changing relations of production also change the relationship between inflation and
wage changes and employment. Long-term employment relations flattened the Phillips
Curve because long-term contracts locked-in wage changes regardless of current busi-
ness conditions. For a time, the gig economy may flatten the Phillips Curve even
further because the return of gig workers to the labor force and their willingness to
increase hours worked will restrain wage increases during expansions. But once the
labor supply effect is exhausted and full employment is reached with all gig workers
fully employed at increased hours of work, the Phillips Curve will be much steeper. By
intention, the growth of gig employment makes wages more flexible, and labor costs
more responsive to unemployment. While employers and policy-makers have focused
on the benefits this provides in inflation management, the same principle will work on
the other side of the business cycle to raise wages more steeply when unemployment is
low. Hiring labor on the spot market will put employers at the mercy of busy workers
under circumstances that would vindicate the efforts by their predecessors to lock-in
workers with long-term contracts and careers.
The use of contract labor and independent consultants may facilitate the dissemina-
tion of new technologies if it reduces the lag between first-movers and followers. Shed-
ding long-term employment relationships may also make it easier for companies to raise
productivity by shifting production to the most efficient sites. In other ways, however,
the spread of gig jobs may undermine productivity growth. By reducing any attachment
employees feel towards their employer, the rise of gig jobs may slow learning-by-doing
and the development by workers of productive innovations. While employers may use
the threat of job loss to push employees to work harder, fear is a poor prod for creative
and innovative thinking (Ariely 2008, pp. 80–83; Pink 2009; Woolhandler and Ariely
2012). Ironically, flexibility may make the new shadow corporation better at mass pro-
duction of products with clear, easily-taught technology but less competitive at those
requiring adaptation and innovation (Gramm and Schnell 2001).
11. The ability to adjust employment levels quickly is one of the advantages of contingent con-
tracts cited by employers (Houseman 2001).
182 Review of Keynesian Economics, Vol. 2 No. 2
© 2014 The Author Journal compilation © 2014 Edward Elgar Publishing Ltd
The rise of gig labor raises a problem for a free-market capitalist economy. As a
group, capitalists need a labor force trained in skills and acculturated in a capitalist
work ethic (Becker 1975; Bowles 2011; Sennett 1993) as well as the authority to
hire and fire easily (Moudud and Martinez-Hernandez 2013).
12
But individual capital-
ists have no incentive to provide this training unless they can be assured of employing
them for long enough to earn a return on their investment. By reducing turnover,
internal labor markets bridged the gap between private interest and public; the rise
of the gig economy blows this bridge, bringing back the problem for the capitalist
class as a whole. For a time, American gig capitalists can live off past training
investments; but if companies do not invest in worker training, they may have
to rely more on threats and punishments, higher rates of unemployment, and
cost-of-job loss to maintain continued work effort; and, as mentioned earlier, such
punitive incentives cannot elicit creative and innovative work (Bowles 1985; Bowles
and Boyer 1988). Public education has been a source of general workforce training and
acculturation, which makes attacks on public education by tax-resistant capitalists
particularly counter-productive to capitalists’own long-term interests; but recent
attempts to make schooling mesh better with the ‘needs’of industry may be seen as
an attempt to have schools fill this emerging skills gap in the gig economy.
6 CHALLENGE FOR SOCIAL POLICY
The rise of gig employment threatens our system of income security where social insur-
ance is provided through employment in traditional jobs. This system was built on an
earlier capitalist initiative, the efforts by welfare capitalists to discourage labor unrest or
labor mobility by linking workers with their employment. Unemployment insurance,
workers’compensation and disability insurance, health insurance, and many retirement
pensions are all linked with employment, provided as an added benefit to workers. These
are benefits that go with holding a job; they are withdrawn if workers leave a particular
employment.
Behind this system of employer-based social insurance is a social safety net that is
increasingly frayed. After a lay-off, workers receive unemployment insurance if they
have had a traditional job for enough of the past year and they may be eligible to buy
into their health insurance through the COBRA program. Apart from this employment-
based insurance, the unemployed may be eligible for safety-net programs like food stamps
and health insurance through Medicaid; and they can go to food banks and beg on the
streets. Programs that in the past gave support to the poor, such as Aid to Families with
Dependent Children and General Relief have been drastically scaled back since the
1980s. The combination of gig employments and cutbacks in general social support
means that Americans now experience dramatically more income fluctuation than in
the past (Hacker 2010). As a country, we could have mitigated much of the last decades’
rise in inequality and income instability with a system of social insurance providing uni-
versal benefits available to all; or we could have provided these benefits through unions,
as is done with unemployment insurance in Scandinavia (Esping-Andersen 1990;
Rodgers 1998). Instead, we have continued to rely on a system of employer-sponsored
benefits, a system established by businesses to ward off both unions and social
12. In an extreme form of worker lock-in, slave owners avoided the problem of human capital
investment by owning their workers.
Workers without employers: shadow corporations and the gig economy 183
© 2014 The Author Journal compilation © 2014 Edward Elgar Publishing Ltd
reformers, reinforcing the market by rewarding workers for holding good jobs and
maintaining long job tenure (Klein 2003; Lichtenstein 2002; Quadagno 2006).
A system of employment-based social insurance has little space for workers on
gigs. Few gig workers are protected by federal labor laws; the National Labor
Relations Act, the Americans with Disability Act, and other basic protective legislation
have no place for the self-employed and little for part-time and contract workers. States
provide little protection; few offer unemployment insurance benefits for workers
employed part-time or for the self-employed (General Accounting Office 2000). Not
only do gig workers miss the cash value of any employer-provided benefits (including
health insurance and workers’compensation), they lose the employer subsidy for
social security (including the employer share of social security retirement and
Medicare as well as unemployment insurance premiums). When they buy insurance
or pension coverage as individuals, the cost is much higher than the group plans
offered by large employers.
13
Gig workers also miss many of the workplace public goods provided as a natural part
of stable employments. Where they work alongside traditional workers in factories,
offices, or shops, some gig workers can benefit from some employment-based benefits,
such as health and safety regulations. Many part-time university instructors, for exam-
ple, have safe offices and lecture halls because they work in the same facilities as do
regular tenure-track faculty. Even these gig workers are at a disadvantage, however,
because their precarious employment situation makes them reluctant to bring com-
plaints to their supervisors and employers. More vulnerable still are those who are
hired without a place in an established workplace, a group that not only includes
those running their own businesses, like musicians, jewelry makers, and caterers work-
ing out of their homes, but also many consultants, delivery workers, freelance research-
ers, writers, and editorial workers. Responsible for their own workplaces, working out of
their bedrooms and neighborhood Starbucks, they are denied the protection of OSHA or
other health and safety regulation.
14
Not to mention such matters as holiday pay, sick
days, or disability or any other form of social insurance.
At times, the use of gig labor not only threatens health but undermines productivity
growth. Employers can also lose because workplaces filled with gig workers become
less productive when individual workers fail to develop skills through productive
social connections. Thirty years ago, for example, copyeditors helped each other
become better workers when they worked together in the offices of newspapers or pub-
lishing houses. Today, however, most publishers hire freelancers scattered throughout
the country (or the world). For the gig freelancers, working at home (or in a coffee
shop) opens work opportunities with flexible hours, and allows them to work without
moving. The price of this opportunity, however, is that workers and the employer lose
the benefits of workplace public goods. Employment contracts can be individual, but
workplaces are inherently public. Both workplace safety and productive conviviality
are available to all in an office but are difficult, or impossible, to produce for workers
scattered over the globe. Outside of office settings, freelance copyeditors struggle to
carve ergonomic worksites out of crowded homes, or coffee shops. And the experience
of working near other freelance gig workers at a Starbucks is no substitute for that of
copyeditors at a publishing house like Norton who could talk together informally about
13. This is because of risk-sharing with group plans and economies to scale in administration
as well as the greater bargaining leverage available to administrators of larger plans.
14. With its free internet, Starbucks has become a center of the gig economy for young profes-
sionals (Henderson 2013; Schenkel 2013; Woody 2013).
184 Review of Keynesian Economics, Vol. 2 No. 2
© 2014 The Author Journal compilation © 2014 Edward Elgar Publishing Ltd
language and other editing issues.
15
Employers as well as workers lose when the
physical dispersal of production comes at the cost of the public good of shared experi-
ence and learning.
7 CONCLUSION: GIGS AND THE FUTURE OF INSECURITY?
We should not expect gigs to replace traditional employments any more than inside
labor markets replaced simple at-will employment after the 1930s, or factory mass pro-
duction replaced artisanal shops in an earlier time. Nonetheless, the rise of the gig
economy presents us with a new opportunity to reconsider social policy. Gigs can lib-
erate American workers trapped within oppressive organizations, forced to remain on
hated jobs to hold onto insurance benefits and programs of deferred compensation.
Replacing fixed employments with gigs can produce an economic boost, not only
by allowing a better match of workers to jobs but by freeing the energies of workers
frustrated with their jobs.
Our social problem is to use this chance to open opportunities without undermining
goals of promoting high productivity, stable full employment, and rising and stable
incomes. Gig employments can create a class of isolated individuals living from job
to job, without lasting financial or social connections to workplaces or to other
workers. Dubbed the ‘precariat,’this class of individuals not only suffer from precar-
ious employment and income, they also lack the workplace social connections that
bound together unionized workers during the capitalist Golden Age after World
War II; the loss of these social connections is not only a problem for the health and
income stability of the workers involved but threatens social cohesion and community
stability in general (Kawachi 2002; Putnam 2000; Standing 2011).
Those who are enthusiastic about the gig economy are right that breaking down
rigid organizations and internal labor markets can be liberating both for individual
workers and for businesses. The social problem is to find a way to expand individual
autonomy while providing security and community through new forms of social
support: when the labor contract becomes more individual, with gigs rather than
employment in an organization, society needs to provide more structure and support
to balance the market’s individualism.
16
When employers do not provide essential
benefits to contingent workers, these needs can be provided either through state pro-
grams or through renewed programs of mutual aid. The Affordable Care Act’s provi-
sions for individual pooling through insurance exchanges is an example of state
support, as are proposals for state pooling of individual pension plans (Walsh
2012). Aware that its shops are used as offices by many gig workers, one corporation,
Starbucks, has stepped forward to provide mutual aid by continuing free internet
access. The New York-based Freelancer’s Union, one of the fastest growing labor
organizations in the United States, looks to organize large group social insurance
programs for its members as well as provide mutual support in winning workplace
safety and employee rights. Their slogan speaks to the problem of our new times:
‘Do Together What You Can’t Do Alone’(Horowitz 2013).
15. I am grateful to my mother-in-law Esther Jacobson for stories of her days as a copyeditor at
Norton.
16. This need is recognized by some (Horowitz 2011; 2012).
Workers without employers: shadow corporations and the gig economy 185
© 2014 The Author Journal compilation © 2014 Edward Elgar Publishing Ltd
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