On a hot day last May, entrepreneurs from all over the world packed themselves into a warehouse event space just off of New York City’s FDR highway for TechCrunch Disrupt. Half trade show, half Shark Tank–style pitch competition, Disrupt is a tri-annual gathering where startups with names such as Happification, Binary Mango, and Blazesoft come to get noticed by venture capitalists and the tech writers whose blogs they read.
Managed by Q’s Dan Teran was there for a keynote with the CEO of Handy, Oisin Hanrahan. While in the same line of work, the two entrepreneurs had taken very different approaches to their cleaning and handyman services. Teran’s version serves offices and relies on a regular staff of employees. Handy’s customers are households, and its cleaners and handymen are classified as independent contractors.
Despite these completely different approaches, it was hard to say from a business perspective which company had turned out to be more successful. Managed by Q was at that point a mid-size company on the brink of profitability, with 3,000 clients. Handy was operating in more than 28 cities and, as of a few months earlier, had raised more than $110 million of venture capital. Though the latter startup’s early struggles in maintaining both customers and workers had been well-documented, they hadn’t been a death sentence. Inc. magazine had recently profiled the company’s “painful path to profitability.”
“Is the gig up for this business model?” moderator Jon Shieber, an editor at TechCrunch, began.
It was a fair question. Many of the companies that once called themselves part of the gig economy, with exceptions like Uber, Lyft, and Handy, had either changed their business models or failed. And as the economy had recovered from a major recession—with six years and counting of continuous US job growth—it seemed that fewer people were willing to take their jobs piecemeal.
In fact, participation in gig economy platforms had been falling since June 2014, according to data from the JPMorgan Chase Institute. And more than half of the people who started working in the gig economy quit within a year.
At the same time that workers were dropping out of the gig economy, legal issues were making the business model look riskier. Uber had settled a pair of its most concerning misclassification lawsuits in California and Massachusetts by agreeing to pay drivers $100 million (an arrangement later declared inadequate by a judge), but recent rulings looked more threatening. In 2017, New York’s state labor department upheld a court decision that had determined that three former Uber drivers, as well as “similarly situated” drivers, should be treated as employees for unemployment insurance purposes. And in the UK, the Transport for London would soon strip Uber of its license, saying it was not a “fit and proper” private car company, while the top EU court dealt the company a major blow when it ruled that it should be regulated as a taxi company rather than a technology company that merely connects drivers and riders.
The gig economy, as Silicon Valley had invented it, had largely come and gone. It had not, however, ceased to be relevant.
Long before the gig economy, large companies outside of Silicon Valley had started moving away from direct-employment relationships. Startups like Uber simply demonstrated new strategies and technologies that could make this process more efficient. They broke work into parcels, automatically coordinated workers, and established practices for using apps as management. These were all developments that more established companies would soon emulate. Julie Sweet, the North America leader of the consulting firm Accenture, told me in June 2016 that she imagined soon there would be a company that only hired c-suite executives. “The ability to outsource corporate functions is high,” she said. “For my main workforce, I can tap into the gig economy.” (She did not foresee this shift for Accenture itself, which she said is “built on relationships” and “not a transaction industry.”)
Gig economy boosters often point out that between 70% and 85% of independent contractors say they prefer to work for themselves. But the type of job that has traditionally been completed by independent contractors is narrowly defined and, most importantly, highly skilled. In the future, this may change. For instance, Deliveroo workers—who, the UK Central Arbitration Committee ruled in 2017, are legitimately self-employed as couriers—are not well-paid professionals who can likely afford to create their own safety nets.
As the potential for companies to use independent contractors expands with mobile technology and automation, it’s possible that new types of piecemeal labor could be regarded by workers as being more like temp work. Unlike freelancers, 77% of temp workers say they would rather have a traditional full-time job.
At Techcrunch Disrupt, Teran and Hanrahan clutched bottles of conference-branded water and crossed their legs, resting a foot on a knee. Rather than answer the question about whether the gig economy was over, Hanrahan argued over semantics. These new developments shouldn’t be called the gig economy, he said, punctuating every beat with his free hand. What they really do is remove friction from business transactions. He hadn’t exactly suggested a new name for the gig economy, but the moderator joked about the “frictionless economy.”
Hanrahan attributed the lawsuits Handy has faced to “lawyers who want to make a quick buck.” Teran noted that there’s no reason that flexibility has to mean that workers give up the protections of being an employee—after all, there’s no law stopping companies from letting employees pick their own schedules.
Indeed, Managed by Q had proven that a cleaning and handyman company could be profitable while treating its workers well.
Why hadn’t Handy, Shieber wanted to know, been more vocal about the threatened dismantling of the Affordable Care Act? After Donald Trump was elected president, congressional Republicans made it clear they planned to repeal the US law, which had made it easier for the independent contractors that Handy relied on to buy their own insurance. Hanrahan didn’t answer the question. “There’s a massive amount of uncertainty,” he said.
But doesn’t this affect your workforce, Shieber asked.
“It’s a very serious issue,” Hanrahan allowed.
Shieber shifted tactics, asking whether the gig economy was a way to take money from front-line workers and turn it into profits for tech entrepreneurs.
“I think we are in danger of that, but we are all actively working to solve that problem,” Hanrahan said. He seemed to be referencing the drafted state bill that Handy had circulated a year earlier, which proposed a safe harbor for gig economy companies that contributed to workers’ benefit funds.
Handy wasn’t the only gig economy company that talked about efforts to improve the experience of workers on their platforms. Care.com, a website for hiring nannies, babysitters, and other caregivers, with 26.4 million registered users worldwide, had, for instance, experimented with a benefits platform that took a percentage of transactions paid to workers and put it into a fund that workers could use to pay for healthcare, sick days, and other benefits. Uber also had experimented with the idea of a portable benefit. It structured one pilot program somewhat similarly to the Black Car Fund in New York, which provides more than 70,000 livery drivers—typically, like Uber drivers, independent contractors—with workers’ compensation insurance via a 2.5% surcharge on every ride. The customer pays into the fund, rather than the dispatcher. Uber’s version raised rates on some rides by about 5 cents per mile and gave drivers an option to put that additional 5 cents per mile into a fund that, in the event of an accident, would cover medical expenses, lost income, or survivors’ benefits.
Additional startups had meanwhile rushed to fill in some of the security that work increasingly lacked. An app called Even helped employees with unpredictable schedules plan for the uneven income. Whenever a worker was paid less than her average, Even would deposit extra money in her account, interest- free. When she made more than her average, Even paid itself back. It created the semblance of steady income. Even eventually partnered with Walmart to give employees an option to receive part of their paycheck before their two-week pay period was over, helping them avoid payday loans if they faced an unexpected expense. Another startup called Honest Dollar provided retirement savings accounts for independent workers. It offered a $5 monthly discount to drivers for Lyft, which introduced it in a blog post as “an easy, affordable investing platform built with independent contractors in mind.” (Goldman Sachs acquired Honest Dollar four months later.)
The problems with many efforts that aimed to close gaps in security for workers were, first, that their results usually paled in comparison to the security of a traditional full-time job with standard benefits, and, second, that they involved a choice. Companies that hired independent contractors could choose whether to participate in a benefits fund. They also could choose to ensure subcontracted workers were paid at least $15 per hour, like Facebook had done. And they could choose whether to listen to workers’ complaints or to listen to workers at all. Given customer demands for dirt-cheap service no matter what the cost to workers, and the threat of misclassification lawsuits, all of these were choices that companies weren’t likely to make.
Subcontracting, freelancing, and outsourcing can all involve good treatment and compensation. But relying on good actors to make decisions that benefit workers is not a scalable solution. While the so-called Good Jobs Strategy may have been successfully embraced by companies like Managed by Q, one need only take a look at how many employees have access to sick days (65%) and paid family leave (13%)—neither of which is mandated by US law—to see that the strategy doesn’t cover everyone.
Fixing this problem involves more than cracking down on companies that cheat workers by incorrectly classifying them as non-employees. The gig economy has, in addition to creating gray areas of control, demonstrated how the ranks of the legitimately independent could be expanded. Gig-work platforms make the process of hiring freelancers far more efficient. Those like Mechanical Turk even make it possible to chop jobs into individual gigs and disperse them to a crowd.
Indeed, it’s easier than ever to get work done without hiring someone as an employee. But the growing group of nontraditional workers that has come about as a result has no rights to the labor protections or safety nets provided by law to employees.
At TechCrunch Disrupt, the conversation between Teran and Hanrahan ultimately turned to this bigger structural problem. “I think we have to be eyes wide open to the reality that we live in a world where wealth perpetuates wealth and poverty perpetuates poverty,” Teran said.
“There’s a big conversation to have about how to build the middle class in America, and I don’t think that it’s honestly something that Oisin and I can solve.”