Gig economy has roots in anti-labor tactics: Harvard researcher

December 15, 2020
 A sign for the car sharing service Lyft stands near a pickup zone outside the Pepsi Center in downtown Denver. (AP)

A sign for the car sharing service Lyft stands near a pickup zone outside the Pepsi Center in downtown Denver. (AP)

Gig economy companies like Uber, Lyft and Doordash rely on a model that resembles anti-labor practices employed decades before by the U.S. construction industry, and could lead to similar erosion in earnings for workers, a researcher found.

Mark Erlich, a fellow at Harvard University Law School and a retired carpenters union leader, found in a new paper that the U.S. construction industry’s shift from classifying full-time employees to independent contractors laid the groundwork for today’s gig economy.

In his paper published in Cornell’s Industrial and Labor Relations Review in November, Erlich said modern reliance by app-based companies on independent contractors is a new application of an aggressive labor relations tactic, designed to strip away worker rights.

“Gig employers took a practice that had been used to skirt legal obligations and ratcheted it into a moral and ethical value of a better form of employment for the 21st century,” said Erlich, who has been a fellow at Harvard Law’s Labor and Worklife Program since 2017, in an interview. 

Until the 1970s, U.S. construction firms almost exclusively used full-time employees, according to Erlich. That meant employers paid for workers’ compensation insurance, as well as income, unemployment, Social Security and Medicare taxes. Many workers meanwhile benefited from union representation that boosted wages. 

In an effort to boost profits, construction companies in the 1970s began to misclassify workers as independent contractors to avoid paying for insurance and taxes, Erlich said. 

“The ability to eliminate as much as 30% (or more) of labor costs by simply reclassifying a company’s workforce as independent contractors was a clever and effective method to gain a competitive edge over other contractors who continued to bear the burden of required mandate,” wrote Erlich, adding that hiring undocumented immigrants who were afraid to complain about work conditions helped cement this system. 

Classifying a worker who performs the duties of an employee as an independent contractor is illegal, but lawmakers, law enforcement and the Internal Revenue Service were slow to respond to this nationwide shift, conducting few investigations and issuing paltry fines. This led to a 17% drop in real wages between 1980 and 1992, a trend that has only continued since, said Erlich. 

The change was especially pronounced in Republican-led states, where a decline in jobsite safety standards has led to disasters like the 2019 Hard Rock Hotel collapse in New Orleans, Louisiana which killed three construction workers. 

Similarly, companies like Uber, Lyft and Doordash all classify their workers as independent contractors and therefore don’t pay certain taxes or sick leave. But Erlich said that gig companies have added an “ideological spin” to the practice. 

“The difference between gig employers and construction is that nobody went around in the 60s and 70s saying that being an independent contractor is actually better,” Erlich said. 

In addition to contextualizing the gig economy -- often treated as solely a 2010s phenomenon -- Erlich’s paper also added to the academic literature focusing on the construction industry. Although it is a trillion-dollar-plus industry that constitutes about 4% of U.S. gross domestic product, construction is far more decentralized than manufacturing or tech and therefore more difficult to study. 

“It’s not so much that there were holes in the literature, there was no literature,” said Erlich of his decision to research construction. 

As a former carpenter and organizer with groups like the New England Regional Council of Carpenters and Massachusetts AFL-CIO, Erlich said he brings a pro-union perspective to his work. But he adds that his experience within the industry gives him insights that may not be apparent to researchers with more traditional academic backgrounds. 

“I discovered the issue of misclassification in my role as a union leader when I was elected first in 1992,” said Erlich. “I would go walk onto non-union jobs and workers would tell me that they had been classified as an employee on Friday and on Monday the employer told them they were now an independent contractor.” 

“I bring a perspective from the inside that is not that common among academics,” he added.

Despite clear downsides for workers in the gig economy, it is unclear whether a Biden administration, despite being more progressive than the current Trump administration, will lead to a reversal of current trends, Erlich said. The gig economy may have become too entrenched.

In California, a ballot measure allowing app-based transportation and delivery companies to classify their workers as independent contractors passed with more than 58% of the vote after companies including Uber, Postmates, Doordash and Instacart spent over $200 million in support of the bill, making it the most expensive ballot proposition in the state’s history. Legal and legislative battles in Arkansas and Alaska have also turned out in gig companies’ favor. 

The ballot measure, Proposition 22, could indicate similar support for gig economy companies in other states, even those that are solidly Democratic with strong support of pro-worker policies, allowing the continued widespread reliance on independent contractors, Erlich said.

The article, titled “Misclassification in Construction: The Original Gig Economy,” was first published on Nov. 26 in the ILR Review. 

Mark Erlich, Wertheim Fellow at the Harvard Labor and Worklife Program, Harvard University Law School was the sole author of the study.

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