Archives For gig economy

Faithful and even occasional readers of this roundup might have noticed a certain temporal discontinuity between the last post and this one. The inimitable Gus Hurwitz has passed the scrivener’s pen to me, a recent refugee from the Federal Trade Commission (FTC), and the roundup is back in business. Any errors going forward are mine. Going back, blame Gus.

Commissioner Noah Phillips departed the FTC last Friday, leaving the Commission down a much-needed advocate for consumer welfare and the antitrust laws as they are, if not as some wish they were. I recommend the reflections posted by Commissioner Christine S. Wilson and my fellow former FTC Attorney Advisor Alex Okuliar. Phillips collaborated with his fellow commissioners on matters grounded in the law and evidence, but he wasn’t shy about crying frolic and detour when appropriate.

The FTC without Noah is a lesser place. Still, while it’s not always obvious, many able people remain at the Commission and some good solid work continues. For example, FTC staff filed comments urging New York State to reject a Certificate of Public Advantage (“COPA”) application submitted by SUNY Upstate Health System and Crouse Medical. The staff’s thorough comments reflect investigation of the proposed merger, recent research, and the FTC’s long experience with COPAs. In brief, the staff identified anticompetitive rent-seeking for what it is. Antitrust exemptions for health-care providers tend to make health care worse, but more expensive. Which is a corollary to the evergreen truth that antitrust exemptions help the special interests receiving them but not a living soul besides those special interests. That’s it, full stop.

More Good News from the Commission

On Sept. 30, a unanimous Commission announced that an independent physician association in New Mexico had settled allegations that it violated a 2005 consent order. The allegations? Roughly 400 physicians—independent competitors—had engaged in price fixing, violating both the 2005 order and the Sherman Act. As the concurring statement of Commissioners Phillips and Wilson put it, the new order “will prevent a group of doctors from allegedly getting together to negotiate… higher incomes for themselves and higher costs for their patients.” Oddly, some have chastised the FTC for bringing the action as anti-labor. But the IPA is a regional “must-have” for health plans and a dominant provider to consumers, including patients, who might face tighter budget constraints than the median physician

Peering over the rims of the rose-colored glasses, my gaze turns to Meta. In July, the FTC sued to block Meta’s proposed acquisition of Within Unlimited (and its virtual-reality exercise app, Supernatural). Gus wrote about it with wonder, noting reports that the staff had recommended against filing, only to be overruled by the chair.

Now comes October and an amended complaint. The amended complaint is even weaker than the opening salvo. Now, the FTC alleges that the acquisition would eliminate potential competition from Meta in a narrower market, VR-dedicated fitness apps, by “eliminating any probability that Meta would enter the market through alternative means absent the Proposed Acquisition, as well as eliminating the likely and actual beneficial influence on existing competition that results from Meta’s current position, poised on the edge of the market.”

So what if Meta were to abandon the deal—as the FTC wants—but not enter on its own? Same effect, but the FTC cannot seriously suggest that Meta has a positive duty to enter the market. Is there a jurisdiction (or a planet) where a decision to delay or abandon entry would be unlawful unilateral conduct? Suppose instead that Meta enters, with virtual-exercise guns blazing, much to the consternation of firms actually in the market, which might complain about it. Then what? Would the Commission cheer or would it allege harm to nascent competition, or perhaps a novel vertical theory? And by the way, how poised is Meta, given no competing product in late-stage development? Would the FTC prefer that Meta buy a different competitor? Should the overworked staff commence Meta’s due diligence?

Potential competition cases are viable given the right facts, and in areas where good grounds to predict significant entry are well-established. But this is a nascent market in a large, highly dynamic, and innovative industry. The competitive landscape a few years down the road is anyone’s guess. More speculation: the staff was right all along. For more, see Dirk Auer’s or Geoffrey Manne’s threads on the amended complaint.

When It Rains It Pours Regulations

On Aug. 22, the FTC published an advance notice of proposed rulemaking (ANPR) to consider the potential regulation of “commercial surveillance and data security” under its Section 18 authority. Shortly thereafter, they announced an Oct. 20 open meeting with three more ANPRs on the agenda.

First, on the advance notice: I’m not sure what they mean by “commercial surveillance.” The term doesn’t appear in statutory law, or in prior FTC enforcement actions. It sounds sinister and, surely, it’s an intentional nod to Shoshana Zuboff’s anti-tech polemic “The Age of Surveillance Capitalism.” One thing is plain enough: the proffered definition is as dramatically sweeping as it is hopelessly vague. The Commission seems to be contemplating a general data regulation of some sort, but we don’t know what sort. They don’t say or even sketch a possible rule. That’s a problem for the FTC, because the law demands that the Commission state its regulatory objectives, along with regulatory alternatives under consideration, in the ANPR itself. If they get to an NPRM, they are required to describe a proposed rule with specificity.

What’s clear is that the ANPR takes a dim view of much of the digital economy. And while the Commission has considerable experience in certain sorts of privacy and data security matters, the ANPR hints at a project extending well past that experience. Commissioners Phillips and Wilson dissented for good and overlapping reasons. Here’s a bit from the Phillips dissent:

When adopting regulations, clarity is a virtue. But the only thing clear in the ANPR is a rather dystopic view of modern commerce….I cannot support an ANPR that is the first step in a plan to go beyond the Commission’s remit and outside its experience to issue rules that fundamentally alter the internet economy without a clear congressional mandate….It’s a naked power grab.

Be sure to read the bonus material in the Federal Register—supporting statements from Chair Lina Khan and Commissioners Rebecca Kelly Slaughter and Alvaro Bedoya, and dissenting statements from Commissioners Phillips and Wilson. Chair Khan breezily states that “the questions we ask in the ANPR and the rules we are empowered to issue may be consequential, but they do not implicate the ‘major questions doctrine.’” She’s probably half right: the questions do not violate the Constitution. But she’s probably half wrong too.

For more, see ICLE’s Oct. 20 panel discussion and the executive summary to our forthcoming comments to the Commission.

But wait, there’s more! There were three additional ANPRs on the Commission’s Oct. 20 agenda. So that’s four and counting. Will there be a proposed rule on non-competes? Gig workers? Stay tuned. For now, note that rules are not self-enforcing, and that the chair has testified to Congress that the Commission is strapped for resources and struggling to keep up with its statutory mission. Are more regulations an odd way to ask Congress for money? Thus far, there’s no proposed rule on gig workers, but there was a Policy Statement on Enforcement Related to Gig Workers.. For more on that story, see Alden Abbott’s TOTM post.

Laws, Like People, Have Their Limits

Read Phillips’s parting dissent in Passport Auto Group, where the Commission combined legitimate allegations with an unhealthy dose of overreach:

The language of the unfairness standard has given the FTC the flexibility to combat new threats to consumers that accompany the development of new industries and technologies. Still, there are limits to the Commission’s unfairness authority. Because this complaint includes an unfairness count that aims to transform Section 5 into an undefined discrimination statute, I respectfully dissent.”

Right. Three cheers for effective enforcement of the focused antidiscrimination laws enacted by Congress by the agencies actually charged to enforce those laws. And to equal protection. And three more, at least, for a little regulatory humility, if we find it.

The business press generally describes the gig economy that has sprung up around digital platforms like Uber and TaskRabbit as a beneficial phenomenon, “a glass that is almost full.” The gig economy “is an economy that operates flexibly, involving the exchange of labor and resources through digital platforms that actively facilitate buyer and seller matching.”

From the perspective of businesses, major positive attributes of the gig economy include cost-effectiveness (minimizing costs and expenses); labor-force efficiencies (“directly matching the company to the freelancer”); and flexible output production (individualized work schedules and enhanced employee motivation). Workers also benefit through greater independence, enhanced work flexibility (including hours worked), and the ability to earn extra income.

While there are some disadvantages, as well, (worker-commitment questions, business-ethics issues, lack of worker benefits, limited coverage of personal expenses, and worker isolation), there is no question that the gig economy has contributed substantially to the growth and flexibility of the American economy—a major social good. Indeed, “[i]t is undeniable that the gig economy has become an integral part of the American workforce, a trend that has only been accelerated during the” COVID-19 pandemic.

In marked contrast, however, the Federal Trade Commission’s (FTC) Sept. 15 Policy Statement on Enforcement Related to Gig Work (“gig statement” or “statement”) is the story of a glass that is almost empty. The accompanying press release declaring “FTC to Crack Down on Companies Taking Advantage of Gig Workers” (since when is “taking advantage of workers” an antitrust or consumer-protection offense?) puts an entirely negative spin on the gig economy. And while the gig statement begins by describing the nature and large size of the gig economy, it does so in a dispassionate and bland tone. No mention is made of the substantial benefits for consumers, workers, and the overall economy stemming from gig work. Rather, the gig statement quickly adopts a critical perspective in describing the market for gig workers and then addressing gig-related FTC-enforcement priorities. What’s more, the statement deals in very broad generalities and eschews specifics, rendering it of no real use to gig businesses seeking practical guidance.

Most significantly, the gig statement suggests that the FTC should play a significant enforcement role in gig-industry labor questions that fall outside its statutory authority. As such, the statement is fatally flawed as a policy document. It provides no true guidance and should be substantially rewritten or withdrawn.

Gig Statement Analysis

The gig statement’s substantive analysis begins with a negative assessment of gig-firm conduct. It expresses concern that gig workers are being misclassified as independent contractors and are thus deprived “of critical rights [right to organize, overtime pay, health and safety protections] to which they are entitled under law.” Relatedly, gig workers are said to be “saddled with inordinate risks.” Gig firms also “may use transparent algorithms to capture more revenue from customer payments for workers’ services than customers or workers understand.”

Heaven forfend!

The solution offered by the gig statement is “scrutiny of promises gig platforms make, or information they fail to disclose, about the financial proposition of gig work.” No mention is made of how these promises supposedly made to workers about the financial ramifications of gig employment are related to the FTC’s statutory mission (which centers on unfair or deceptive acts or practices affecting consumers or unfair methods of competition).

The gig statement next complains that a “power imbalance” between gig companies and gig workers “may leave gig workers exposed to harms from unfair, deceptive, and anticompetitive practices and is likely to amplify such harms when they occur. “Power imbalance” along a vertical chain has not been a source of serious antitrust concern for decades (and even in the case of the Robinson-Patman Act, the U.S. Supreme Court most recently stressed, in 2005’s Volvo v. Reeder, that harm to interbrand competition is the key concern). “Power imbalances” between workers and employers bear no necessary relation to consumer welfare promotion, which the Supreme Court teaches is the raison d’etre of antitrust. Moreover, the FTC does not explain why unfair or deceptive conduct likely follows from the mere existence of substantial bargaining power. Such an unsupported assertion is not worthy of being included in a serious agency-policy document.

The gig statement then engages in more idle speculation about a supposed relationship between market concentration and the proliferation of unfair and deceptive practices across the gig economy. The statement claims, without any substantiation, that gig companies in concentrated platform markets will be incentivized to exert anticompetitive market power over gig workers, and thereby “suppress wages below competitive rates, reduce job quality, or impose onerous terms on gig workers.” Relatedly, “unfair and deceptive practices by one platform can proliferate across the labor market, creating a race to the bottom that participants in the gig economy, and especially gig workers, have little ability to avoid.” No empirical or theoretical support is advanced for any of these bald assertions, which give the strong impression that the commission plans to target gig-economy companies for enforcement actions without regard to the actual facts on the ground. (By contrast, the commission has in the past developed detailed factual records of competitive and/or consumer-protection problems in health care and other important industry sectors as a prelude to possible future investigations.)

The statement then launches into a description of the FTC’s gig-economy policy priorities. It notes first that “workers may be deprived of the protections of an employment relationship” when gig firms classify them as independent contractors, leading to firms’ “disclosing [of] pay and costs in an unfair and deceptive manner.” What’s more, the FTC “also recognizes that misleading claims [made to workers] about the costs and benefits of gig work can impair fair competition among companies in the gig economy and elsewhere.”

These extraordinary statements seem to be saying that the FTC plans to closely scrutinize gig-economy-labor contract negotiations, based on its distaste for independent contracting (which it believes should be supplanted by employer-employee relationships, a question of labor law, not FTC law). Nowhere is it explained where such a novel FTC exercise of authority comes from, nor how such FTC actions have any bearing on harms to consumer welfare. The FTC’s apparent desire to force employment relationships upon gig firms is far removed from harm to competition or unfair or deceptive practices directed at consumers. Without more of an explanation, one is left to conclude that the FTC is proposing to take actions that are far beyond its statutory remit.

The gig statement next tries to tie the FTC’s new gig program to violations of the FTC Act (“unsubstantiated claims”); the FTC’s Franchise Rule; and the FTC’s Business Opportunity Rule, violations of which “can trigger civil penalties.” The statement, however, lacks any sort of logical, coherent explanation of how the new enforcement program necessarily follows from these other sources of authority. While a few examples of rules-based enforcement actions that have some connection to certain terms of employment may be pointed to, such special cases are a far cry from any sort of general justification for turning the FTC into a labor-contracts regulator.

The statement then moves on to the alleged misuse of algorithmic tools dealing with gig-worker contracts and supervision that may lead to unlawful gig-worker oversight and termination. Once again, the connection of any of this to consumer-welfare harm (from a competition or consumer-protection perspective) is not made.

The statement further asserts that FTC Act consumer-protection violations may arise from “nonnegotiable” and other unfair contracts. In support of such a novel exercise of authority, however, the FTC cites supposedly analogous “unfair” clauses found in consumer contracts with individuals or small-business consumers. It is highly doubtful that these precedents support any FTC enforcement actions involving labor contracts.

Noncompete clauses with individuals are next on the gig statement’s agenda. It is claimed that “[n]on-compete provisions may undermine free and fair labor markets by restricting workers’ ability to obtain competitive offers for their services from existing companies, resulting in lower wages and degraded working conditions. These provisions may also raise barriers to entry for new companies.” The assertion, however, that such clauses may violate Section 1 of the Sherman Act or Section 5 of the FTC Act’s bar on unfair methods of competition, seems dubious, to say the least. Unless there is coordination among companies, these are essentially unilateral contracting practices that may have robust efficiency explanations. Making out these practices to be federal antitrust violations is bad law and bad policy; they are, in any event, subject to a wide variety of state laws.

Even more problematic is the FTC’s claim that a variety of standard (typically efficiency-seeking) contract limitations, such as nondisclosure agreements and liquidated damages clauses, “may be excessive or overbroad” and subject to FTC scrutiny. This preposterous assertion would make the FTC into a second-guesser of common labor contracts (a federal labor-contract regulator, if you will), a role for which it lacks authority and is entirely unsuited. Turning the FTC into a federal labor-contract regulator would impose unjustifiable uncertainty costs on business and chill a host of efficient arrangements. It is hard to take such a claim of power seriously, given its lack of any credible statutory basis.

The final section of the gig statement dealing with FTC enforcement (“Policing Unfair Methods of Competition That Harm Gig Workers”) is unobjectionable, but not particularly informative. It essentially states that the FTC’s black letter legal authority over anticompetitive conduct also extends to gig companies: the FTC has the authority to investigate and prosecute anticompetitive mergers; agreements among competitors to fix terms of employment; no-poach agreements; and acts of monopolization and attempted monopolization. (Tell us something we did not know!)

The fact that gig-company workers may be harmed by such arrangements is noted. The mere page and a half devoted to this legal summary, however, provides little practical guidance for gig companies as to how to avoid running afoul of the law. Antitrust policy statements may be excused if they provided less detailed guidance than antitrust guidelines, but it would be helpful if they did something more than provide a capsule summary of general American antitrust principles. The gig statement does not pass this simple test.

The gig statement closes with a few glittering generalities. Cooperation with other agencies is highlighted (for example, an information-sharing agreement with the National Labor Relations Board is described). The FTC describes an “Equity Action Plan” calling for a focus on how gig-economy antitrust and consumer-protection abuses harm underserved communities and low-wage workers.

The FTC finishes with a request for input from the public and from gig workers about abusive and potentially illegal gig-sector conduct. No mention is made of the fact that the FTC must, of course, conform itself to the statutory limitations on its jurisdiction in the gig sector, as in all other areas of the economy.

Summing Up the Gig Statement

In sum, the critical flaw of the FTC’s gig statement is its focus on questions of labor law and policy (including the question of independent contractor as opposed to employee status) that are the proper purview of federal and state statutory schemes not administered by the Federal Trade Commission. (A secondary flaw is the statement’s unbalanced portrayal of the gig sector, which ignores its beneficial aspects.) If the FTC decides that gig-economy issues deserve particular enforcement emphasis, it should (and, indeed, must) direct its attention to anticompetitive actions and unfair or deceptive acts or practices that harm consumers.

On the antitrust side, that might include collusion among gig companies on the terms offered to workers or perhaps “mergers to monopoly” between gig companies offering a particular service. On the consumer-protection side, that might include making false or materially misleading statements to consumers about the terms under which they purchase gig-provided services. (It would be conceivable, of course, that some of those statements might be made, unwittingly or not, by gig independent contractors, at the behest of the gig companies.)

The FTC also might carry out gig-industry studies to identify particular prevalent competitive or consumer-protection harms. The FTC should not, however, seek to transform itself into a gig-labor-market enforcer and regulator, in defiance of its lack of statutory authority to play this role.

Conclusion

The FTC does, of course, have a legitimate role to play in challenging unfair methods of competition and unfair acts or practices that undermine consumer welfare wherever they arise, including in the gig economy. But it does a disservice by focusing merely on supposed negative aspects of the gig economy and conjuring up a gig-specific “parade of horribles” worthy of close commission scrutiny and enforcement action.

Many of the “horribles” cited may not even be “bads,” and many of them are, in any event, beyond the proper legal scope of FTC inquiry. There are other federal agencies (for example, the National Labor Relations Board) whose statutes may prove applicable to certain problems noted in the gig statement. In other cases, statutory changes may be required to address certain problems noted in the statement (assuming they actually are problems). The FTC, and its fellow enforcement agencies, should keep in mind, of course, that they are not Congress, and wishing for legal authority to deal with problems does not create it (something the federal judiciary fully understands).  

In short, the negative atmospherics that permeate the gig statement are unnecessary and counterproductive; if anything, they are likely to convince at least some judges that the FTC is not the dispassionate finder of fact and enforcer of law that it claims to be. In particular, the judiciary is unlikely to be impressed by the FTC’s apparent effort to insert itself into questions that lie far beyond its statutory mandate.

The FTC should withdraw the gig statement. If, however, it does not, it should revise the statement in a manner that is respectful of the limits on the commission’s legal authority, and that presents a more dispassionate analysis of gig-economy business conduct.

[TOTM: The following is part of a blog series by TOTM guests and authors on the law, economics, and policy of the ongoing COVID-19 pandemic. The entire series of posts is available here.

This post is authored by Sam Bowman, (Director of Competition Policy, ICLE).]

No support package for workers and businesses during the coronavirus shutdown can be comprehensive. In the UK, for example, the government is offering to pay 80% of the wages of furloughed workers, but this will not apply to self-employed people or many gig economy workers, and so far it’s been hard to think of a way of giving them equivalent support. It’s likely that the bill going through Congress will have similar issues.

Whether or not solutions are found for these problems, it may be worth putting in place what you might call a ‘backstop’ policy that allows people to access money in case they cannot access it through the other policies that are being put into place. This doesn’t need to provide equivalent support to other packages, just to ensure that everyone has access to the money they need during the shutdown to pay their bills and rent, and cover other essential costs. The aim here is just to keep everyone afloat.

One mechanism for doing this might be to offer income-contingent loans to anyone currently resident in the country during the shutdown period. These are loans whose repayment is determined by the borrower’s income later on, and are how students in the UK and Australia pay for university. 

In the UK, for example, under the current student loan repayment terms, once a student has graduated, their earnings above a certain income threshold (currently £25,716/year) are taxed at 9% to repay the loan. So, if I earn £30,000/year and have a loan to repay, I pay an additional £385.56/year to repay the loan (9% of the £4,284 I’m earning above the income threshold); if I earn £40,000/year, I pay an additional £1,285.56/year. The loan incurs an annual interest rate equal to an annual measure of inflation plus 3%. Once you have paid off the loan, no more repayments are taken, and any amount still unpaid thirty years after the loan was first taken out is written off.

In practice, these terms mean that there is a significant subsidy to university students, most of whom never pay off the full amount. Under a less generous repayment scheme that was in place until recently, with a lower income threshold for repayment, out of every £1 borrowed by students the long-run cost to the government was 43.3p. This is regarded by many as a feature of the system rather than a bug, because of the belief that university education has positive externalities, and because this approach pools some of the risk associated with pursuing a graduate-level career (the risk of ending up with a low-paid job despite having spent a lot on your education, for example).

For loans available to the wider public, a different set of repayment criteria could apply. We could allow anyone who has filed a W-2 or 1099 tax statement in the past eighteen months (or filed a self-assessment tax return in the UK) to borrow up to something around 20% of median national annual income, to be paid back via an extra few percentage points on their federal income tax or, in the UK, National Insurance contributions over the following ten years, with the rate returning to normal after they have paid off the loan. Some other provision may have to be made for people approaching retirement.

With a low, inflation-indexed interest rate, this would allow people who need funds to access them, but make it mostly pointless for anyone who did not need to borrow. 

If, like student tuition fees, loans were written off after a certain period, low earners would probably never pay back the entirety of the ‘loan’ – as a one-off transfer (ie, one that does not distort work or savings incentives for recipients) to low paid people, this is probably not a bad thing. Most people, though, would pay back as and when they were able to. For self-employed people in particular, it could be a valuable source of liquidity during an unexpected period where they cannot work. Overall, it would function as a cash transfer to lower earners, and a liquidity injection for everyone else who takes advantage of the scheme.

This would have advantages over money being given to every US or UK citizen, as some have proposed, because most of the money being given out would be repaid, so the net burden on taxpayers would be lower and so the deadweight losses created by the additional tax needed to pay for it would be smaller. But you would also eliminate the need for means-testing, relying on self-selection instead.

The biggest obstacle to rolling something like this out may be administrative. However, if the government committed to setting up something like this, banks and credit card companies may be willing to step in in the short-run to issue short-term loans in the knowledge that people could be able to repay them once the government scheme was set up. To facilitate this, the government could guarantee the loans made by banks and credit card companies now, then allow people to opt into the income-contingent loans later, so there was no need for legislation immediately.

Speed is extremely important in helping people plug the gaps in their finances. As a complement to the government’s other plans, income-contingent loans to groups like self-employed people may be a useful way of catching people who would otherwise fall through the cracks.

[TOTM: The following is part of a blog series by TOTM guests and authors on the law, economics, and policy of the ongoing COVID-19 pandemic. The entire series of posts is available here.

This post is authored by Mark Jamison, (Director and Gunter Professor, Public Utility Research Center, University of Florida and Visiting Scholar with the American Enterprise Institute.).]

The economic impacts of the coronavirus pandemic, and of the government responses to it, are significant and could be staggering, especially for small businesses. Goldman Sachs estimates a potential 24% drop in US GDP for the second quarter of 2020 and a 4% decline for the year. Its small business survey found that a little over half of small businesses might last for less than three months in this economic downturn. Small business employs nearly 60 million people in the US. How many will be out of work this year is anyone’s guess, but the number will be large.

What should small businesses do? First, focus on staying in business because their customers and employees need them to be healthy when the economy begins to recover. That will certainly mean slowing down business activity and decreasing payroll to manage losses, and managing liquidity.

Second, look for opportunities in the present crisis. Consumers are slowing their spending, but they will spend for things they still need and need now. And there will be new demand for things they didn’t need much before, like more transportation of food, support for health needs, and crisis management. Which business sectors will recover first? Those whose downturns represented delayed demand, such as postponed repairs and business travel, rather than evaporated demand, such as luxury items.

Third, they can watch for and take advantage of government support programs. Many programs simply provide low-cost loans, which do not solve the small-business problem of customers not buying: Borrowing money to meet payroll for idle workers simply delays business closure and makes bankruptcy more likely. But some grants and tax breaks are under discussion (see below).

Fourth, they can renegotiate loans and contracts. One of the mistakes lenders made in the past is holding stressed borrowers’ feet to the fire, which only led to more, and more costly loan defaults. At least some lenders have learned. So lenders and some suppliers might be willing to receive some payments rather than none.

What should government do? Unfortunately, Washington seems to think that so-called stimulus spending is the cure for any economic downturn. This isn’t true. I’ll explain why below, but let me first get to what is more productive. 

The major problem is that customers are unable to buy and businesses are unable to produce because of the responses to the coronavirus. Sometimes transactions are impossible, but there are times where buying and selling is simply made more costly by the pandemic and the government responses. So government support for the economy should address these problems directly.

For buyers, government officials should recognize that buying is hard and costly for them. So policies should include improving their abilities to buy during this time. Sales tax holidays, especially on healthcare, food, and transportation would be helpful. 

Waivers of postal fees would make e-commerce cheaper. And temporary support for fixed costs, such as mortgages, would free money for other things. Tax breaks for the gig economy would lower service costs and provide new employment opportunities. And tax credits for durables like home improvements would lower costs of social distancing.

But the better opportunities for government impact are on the business side because small business affects both the supply of services and the incomes of consumers.

For small business policy, my American Enterprise Institute colleagues Glenn Hubbard and Michael Strain have done the most thoughtful work that I have seen. They note that the problems for small businesses are that they do not have enough business activity to meet payroll and other bills. This means that “(t)he goal should be to replace a large portion of the revenue (not just the payroll expenses) those businesses would have generated in the absence of being shut down due to the coronavirus.” 

They suggest policies to replace 80 percent of the small business revenue loss. How? By providing grants in the form of government-backed commercial loans that are forgiven if the business continues and maintains payroll, subject to workers being allowed to quit if they find better opportunities. 

What else might work? Tax breaks that lower business costs. These can be breaks in payroll taxes, marginal income tax rates, equipment purchases, permitting, etc., including tax holidays. Rollback of current business losses would trigger tax refunds that improve businesses finances. 

One of the least useful ideas for small businesses is interest-free loans. These might be great for large businesses who are largely managing their financial positions. But such loans fail to address the basic small business problem of keeping the doors open when customers aren’t buying.

Finally, why doesn’t traditional stimulus work, even in other times of economic downturn? Traditional spending-based stimulus assumes that the economic problem is that people want to build things, but not buy them. That’s not a very good assumption. Especially today, where the problems are the higher cost of buying, or perhaps the impossibility of buying with social distancing, and the higher costs of doing businesses. Keeping businesses in business is the key to supporting the economy. 

Weekend Reads

Eric Fruits —  8 June 2018

Innovation dies in darkness. Well, actually, it thrives in the light, according to this new research:

We find that after a patent library opens, local patenting increases by 17% relative to control regions that have Federal Depository Libraries. … [T]]he library boost ceases to be present after the introduction of the Internet. We find that library opening is also associated with an increase in local business formation and job creation [especially for small business -ed.], which suggests that the impact of libraries is not limited to patenting outcomes.

Patent-Libraries

Don’t drink the Kool-Aid of bad data. Have a SPRITE. From the article published by self-described “data thugs“.

Scientific publications have not traditionally been accompanied by data, either during the peer review process or when published. Concern has arisen that the literature in many fields may contain inaccuracies or errors that cannot be detected without inspecting the original data. Here, we introduce SPRITE (Sample Parameter Reconstruction via Interative TEchniques), a heuristic method for reconstructing plausible samples from descriptive statistics of granular data, allowing reviewers, editors, readers, and future researchers to gain insights into the possible distributions of item values in the original data set.

Gig economy, it’s a good thing: 6.9% of all workers are independent contractors; 79% of them prefer their arrangement over a traditional job.

Gig economy, it’s a bad thing. Maybe.

[C]ensus divisions with relatively weak wage inflation also tend to have more “low-wage” informal FTE—that is, more hours of informal work performed at a wage that is less than formal pay.

Broetry. It’s a LinkedIn thing. I don’t get it.

 

 

Today, thirty-nine different companies and policy experts from a wide swath of the political spectrum signed a letter urging lawmakers to create a “portable benefits” platform that will enable sharing economy companies to continue innovating while simultaneously providing desirable social safety net benefits to workers. This is well timed, as there is a growing consensus among lawmakers (such as Senator Warner) that “something must be done” to provide benefits to workers in the so-called “gig economy.”

In total, the thirty-nine signatories to the letter are pushing for changes to existing law based on a set of principles holding that benefits should be:

  1. Independent;
  2. Flexible and pro-rated;
  3. Portable;
  4. Universal; and
  5. Supportive of innovation

In a nutshell, this would effectively mean that there is some form of benefits available to gig economy workers that follows them around and is accessible regardless of who employs them (or, ostensibly, whether they are employed at all).

Looking past the text of the letter, this would likely entail a package of changes to existing law that would allow individual workers to utilize some form of privately created platform for managing the benefits that are normally obtained in a traditional employee-employer relationship. Such benefits would include, for instance, workers’ compensation, unemployment, disability, professional development, and retirement. A chief advantage of a portable benefits platform is that–much as in an underlying justification of the ACA–workers would no longer be tied to particular companies in order to enjoy these traditionally employer-based benefits.

Although platform-based work facilitated by smartphone apps is cutting edge, there is historical precedent for this approach to the provision of benefits. Unions have long relied upon multi-employer plans for providing benefits, and the healthcare industry developed portable health savings accounts as a means to free individuals from employer-bound health insurance plans. And the industry has been seeking fully private solutions to these sorts of problems for some time. For instance, Uber recently partnered with Stride Health to provide health insurance benefits to verified drivers.

There will, of course, be some necessary legislative changes in order to make these portable benefits platforms a reality. First, there probably needs to be a provision in the tax code that allows for workers’ contributions to their own plans to receive the same tax-favored treatment that traditional employer-based benefits receive (or, even better, the political give-away would need to be removed from employer-based benefits). Additionally, companies would need to be able to make optional matching contributions with a similar tax treatment. And lurking in the background of all of this is the specter of a large number of employer obligations. Thus, a necessary quid pro quo to get sharing economy companies to pay into these platforms will be some form of safe harbor shielding them from further obligations.

This is a win for both companies and workers. The truth is that our labor market is very fractured–labor force participation rates are at a low, and those who are working remain chronically underemployed. Coupled with this reality, the technology that enables work is becoming ever more flexible and, as shown by their expressed preferences, individuals are clearly interested in the gig economy as a means of easily obtaining work as needed. A portable benefits platform could provide the sort of support to make flexible work a viable alternative to employee status.

And for many employers–sharing economy and non-sharing economy alike–removing antiquated legal strictures from the employment relationship promises a number of increased efficiencies. Particularly in the context of sharing economy companies, this will include the ability to exert some form of control over platform workers without being sucked into an onerous employer-employee relationship.

For instance, Instacart recently moved a number of its platform workers to part-time employee status. Although the decision was very likely multi-faceted, a big part of it had to be Instacart’s desire to give training and guidance to the shoppers who provided services to the platform’s consumers (for instance, instructing them on the best sequence in which to pick groceries in order to ensure maximum freshness). However, to provide any modest degree of oversight would likely mean that Instacart would move from empowering contractors to directing employees, and thereby run into a thicket of labor laws.

Yet why should this particular employee classification be necessary? Platform-based work is a revolutionary way to defeat the traditional transaction costs that justified large, centrally-organized firms. Companies like Uber and Instacart enable what otherwise would have been fallow resources–spare labor, unused cars, and the like–to be fitted to consumer demand.

Moreover, forcing rigid employee classifications upon sharing economy workers will only reintroduce inefficiency into the worker-company relationship. Instead of allowing workers to sign on just for the amount of work they are willing to do, and allowing consumers just to purchase the amount of work they desire, an employee classification essentially requires companies to purchase labor in blocks of hours. At scale, this necessarily introduces allocation and pricing errors into the system. If a smart safe harbor is included in any legislative push for a portable benefits platform, companies could have much more flexibility in directing platform workers.

I am excited to see this development emerging from the industry and from policy makers, and I look forward to the response of our lawmakers (although, this being election season, I don’t expect too much from that response — at least not yet). There is understably a lot of concern about the welfare of workers in the new economy. But it’s important not to lose the innovative new ways of working, producing, and consuming that the modern digital economy affords by resorting to ill-fitted legal regimes from the past.