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Liz Warren Drops Hammer on Gig Economy, Addresses Misclassification, Future of Benefits

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Speaking at the New America Foundation, Massachusetts Senator Elizabeth Warren gave a lengthy speech about the so-called “gig economy.” She called on Congress to modernize labor protections and for misclassified workers to receive a system of “portable benefits.”  While the speech may not have put companies such as Uber and Lyft in quite as negative a light as labor advocates would like, her vision for “portable benefits” is nonetheless vital, and her influence and credibility are welcome on the anti-misclassification scene.

Warren acknowledges that important web-based advances should not be stifled, but asserts the gravity of the workplace issues associated with the gig — also referred to as the “on-demand” — economy.  Misclassification is chief among them, according to Warren:

More and more of today’s jobs have sharply limited protections and benefits. Long before anyone ever wrote an article about the “gig economy,” corporations had discovered the higher profits they could wring out of an on-demand workforce made up of independent contractors. Labor law makes a sharp distinction between employees and 1099 independent contractors, and many employers figured out how to exploit that distinction. They hired people who do the work once done by people characterized as employees, but then re-characterized them as independent contractors or as somebody else’s employees. The result was that these workers lost their benefits, lost the stability of guaranteed work, and lost the ability to form a union and bargain collectively.

But the employee-1099 divide is not the only way the basic work bargain is fraying. Employees, particularly low-wage employees, face challenges that are not unlike challenges facing gig workers and independent contractors. They too have lost both benefits and the stability of a guaranteed work schedule and a steady income. As employers have moved to just-in-time staffing, more hourly workers are trapped in part-time jobs or stripped-down full-time jobs.  An increasing number of workers are in sub-contracting or franchise arrangements where their employment conditions are controlled by firms they can’t bargain with or hold accountable for meeting basic wage or safety obligations. They may not even know the name of their actual employer.

She paints a picture of labor protections being extended, rather than reduced, in order to meet the needs of the modern economy.  This vision includes a three-step plan — focused on the safety net, insurance, and paid leave — for Congress to change labor law:

I believe we start with one simple principle: all workers-no matter when they work, where they work, who they work for, whether they pick tomatoes or build rocket ships–all workers should have some basic protections and be able to build some economic security for themselves and their families. No worker should fall through the cracks. Here are some ideas about how to rethink and strengthen the workers’ bargain.

We can start by strengthening our safety net so it catches anyone who has fallen on hard times, whether they have an employer or not. There are three much-needed changes right off the bat:

First, make sure every worker pays into Social Security as the law always intended. Right now, it’s a challenge for someone who doesn’t have an employer to automatically deduct payroll taxes to pay into Social Security.

This can affect both a worker’s ability to qualify for disability insurance after a major injury, and it can result in much lower retirement benefits. If Social Security is to be fully funded for generations to come, and if all workers are to have adequate benefits, then electronic, automatic, and mandatory withholding of payroll taxes must apply to everyone—gig workers, 1099 workers, and hourly employees.

Second, every worker should be covered by catastrophic insurance. Workers who have serious accidents or suffer from illnesses that knock them out of the labor market for an extended period need a backstop. Everyone means everyone – even workers who haven’t built up enough credits for disability insurance, even workers who don’t have traditional worker’s compensation. This type of insurance could be relatively cheap if it’s pooled across the entire workforce through regular, small, automatically-deducted contributions.

Finally, all workers, no matter where they work or who they work for, should have some paid leave. Any worker should be able to stay home when they are sick or take off some time to care for a sick baby without going hungry. We can debate where to draw the lines, but let’s start with two ideas. First, each worker should be able to accrue proportional credits toward a certain number of days a year for any purpose. Second, workers should have some paid family and medical leave to insure against longer absences such as a more serious illness or to care for a newborn.

These three—Social Security, catastrophic insurance, and earned leave—create a safety net for income. Together they give families some protection in an ever-more-volatile work – 5 – environment, and they help ensure that, after a lifetime of work, people will face their last years with dignity.

Warren calls for a reduction in “the managerial involvement of employers” in health care and benefits.  She believes both workers and employers will thrive by creating health care and retirement programs targeting workers not labeled as traditional employees:

One change would make a big difference: a high-quality retirement plan for independent contractors, self-employed workers, and other workers who have no access to retirement benefits to supplement their Social Security. This plan should use best-in-class practices when it comes to asset allocation, governance structure, and fee transparency. It should be operated solely in the interest of workers and retirees, and they should have a voice in how the plan is run.

Instead of an employer-sponsored 401(k), this plan could be run by a union or other organization that could contract investment management to the private sector—just as companies like General Motors contract with providers like Fidelity to offer 401(k)s in the employment setting. And, because of the amazing advances in online investment platforms and electronic payroll systems, individuals could set up automatic contributions. It’s time for all workers to have access to the same low-cost, well-protected retirement products that some employers and unions provide today.

The benefits to workers from gaining access to health insurance and retirement plans are obvious, but the benefits to employers are also substantial. Those employers can shed managerial responsibilities peripheral to their businesses, and small businesses and startups can compete for workers without needing to get into the health insurance and retirement benefits business. That’s how markets should work.

Read the entire speech via Warren’s site archive.


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