Monday, August 24, 2015

The Evolution of the Employee

A while back, a friend of mine posted this graphic on Facebook. It’s a well-presented picture of the changing landscape for 21st Century participants in the economy. 

The next to bottom rung of this ladder resonated most with me.  For much of the last 15 years, I have earned compensation by virtue of results I have achieved.  No salary – just commissions or splits of revenue or profit.  So, rather than being paid for my time, I was subjected to the forces of the market without an employer as an intermediary.   

Sometimes it’s more than a little nerve wracking.  I spent five years as an intermediary representing private businesses for sale.  In a good year, I would get five or six paychecks. In a not-so-good year, three.  It’s hard to plan your future when you’re not sure what you’ll be making this year or next. 

On balance I like the flexibility of being an independent contractor.  But, I am a professional earning a good living.  At the other end of the pay scale, there are legitimate concerns.  Our social insurance system has been built around traditional employment.  In the sharing economy, workers are typically independent contractors.  For some, that’s not an appealing arrangement.

The online forum for Uber drivers ( captured this sentiment from a driver using the pseudonym Honkadonk, "Uber's whole game … is to make everything some weird frayed-line, grey area where nothing is their responsibility. It's ride share but Uber is "everyone's private driver". We're IC but we have rules, answer to bosses, and can be fired. We're illegal cabs but it's okay because we're not cabs. We earn $35/hr except we f---ing don’t.”

Well, he’s right of course and Uber isn’t the only example.  It is the basic nature of corporations to shift liability to third parties.  That’s why we need regulation.

But, how much regulation?  Smartphone apps and the Internet reduce the ‘friction cost’ of doing business.  It’s to everyone’s advantage to benefit from the efficiency that’s created.  The challenge is finding the right regulatory balance so as not to stifle innovation and the disruption that is native to the free enterprise system.

Plaintiffs’ lawyers and politicians continue to try to reinforce the fraying social contracts of the last century.  An article written for the website predicts that the National Labor Relations Board will soon tighten rules for independent contractors so that even franchise owners – the millionaires who own McDonalds franchises, for example – would be considered employees. 

We would be better served if we endeavored to place this new reality at the center of our values.  After all, market forces are unstoppable.  It’s not the consumers or the Uber drivers really being hurt by this new paradigm, it’s the entrenched interests of taxi companies, unions and regulators who have the most to fear.

We should be asking this question: how can we decouple the employee safety net of unemployment insurance, workers’ compensation and social security from the framework of full-time employment?  Like it or not, Obamacare has already done so for health insurance coverage. 

The Wall Street Journal’s Lauren Weber has suggested a new status – the‘dependent contractor’ to which we might extend some of the same benefits. 

For their part, Uber contracted with a Princeton economist to analyze the relative pay of Uber and taxi drivers in key markets.  The results show an Uber driver makes an average of $6 per hour more than the average taxi/chauffeur/limo driver.  Here is the chart they have published:

The Huffington Post followed up with an analysis of their own suggesting that the fallacy of Uber’s study is that it doesn’t consider that Uber drivers bear the cost of operating their own vehicles. 

Fair enough.  However, the line of thought that suggests that the sharing economy is sucking jobs from traditional 9-to-5 employment is off-base. 

In a survey of its drivers, 78% reported being satisfied working for the company.  The survey also revealed that many drivers (32%) consider their Uber gig as a fall back while they are looking for a better job.

Would we rather have them depending upon unemployment compensation?

Whatever it is that draws workers to this kind of work and consumers to this kind of service should be embraced not resisted.   The only question…



  1. It seems McDOnalds will lead.

    I had just finished reading an email about McDonalds purchasing 7000 machines to dispense with employees in the front end of their stores,

    "This is exactly what the left pushed for… Fast food chains were NEVER meant to be a place for someone to raise a family of 6. They were to be part time positions with some full-time advancements. Most fast food jobs were intended for school aged kids to learn how to be responsible, interact with people, and have a real job that offers a wage.
    The part time position was not intended as full time employment to support a family.
    McDonald’s recently came out with their answer to those that demand $15 per hr pay. Robots. Of course when this happens, like it did today in Los Angeles, the unskilled workers will lose their jobs."

  2. Jay Stafford
    The first goal is always to exploit the employee. Always. Uber's hourly data is missing the details that neuter its impact but of course the company gets a great pretense out of it or they wouldn't have published it. The guy who mows my lawn gets 35 bucks an hour tax-free. Sounds good, huh? What details did I omit in saying that? I have been in the union for decades. There is little to impress me with this new landscape except how long it will take to advance the learning curves of the employees who today swear by its novelty but tomorrow will damn its inhibition of their goals. Sigh, everybody has their learning curve and they must live it. That fact is not lost on employers, that's for sure.

    1. Thoughtful comment, Jay. Thanks. I might only suggest that the new landscape may not be about exploitation. It may be about creating economic opportunity in the face of a changing global economy. The union model of the last century has outlived its usefullness.

    2. Jay Stafford
      Well, everybody keeps saying that unions are outmoded but I can't see how that explains, say, the grassroots drive across the USA for 15 bucks an hour minimum wage. A whole lot of low-end workers suddenly got the religion. It's about time that workers stop hating unions as an excuse for their inertia and instead start showing some capacity for risk. Good for them. I accept that it will take time before observers are willing to acknowledge that what is happening there is indeed a collective bargaining at work. Perhaps this change is not the definition of "union model" to which you referred, but I can only maintain that employee collective bargaining in any form is better for them than taking no action at all, and if they truly had no option to bargain collectively, then I would cleverly argue the lack of option as exploitation. I like when people seek to leverage their value to improve their lot. In contrast, I cannot respect what Uber is doing to their workers. Pardon me that I say this, but when I read what that Uber "employee" wrote in the referenced article, I get the same vibes from that employer that I get when ISIS breaks all the "rules" of war. I see a militancy in the Uber business model. I don't want to see more of it. It's not right.
      Anyway, shifting gears, do you remember the analogy of the three-legged stool of retirement income? Pension, 401k, and Social Security? How many people noticed that Business boldly ignored the analogy and reframed the whole idea as a choice of either-or, and we saw defined benefit plans get replaced by defined contribution plans. Down to two legs. All the opinion articles and newspaper articles I would read over the years breathed not a word about any stool. That was a great piece of work and nobody complained that there ever was a three-legged stool. A 2014 online report stated:
      "According to the most recent survey by Towers Watson, in 1998, 90 percent of Fortune 100 companies offered a lifetime pension to their retirees. Now that number has almost completely flipped. By 2012, only 11% of these large companies offered pensions to new hires."
      Now, one might say that the changing economic climate necessitated removing one of the stool legs and all I can say in reply is that, through collective bargaining, my union has maintained both a pension plan and a 401k for its members. Our union members enjoy this three-legged tool in 2015 (!) while we know there are others who say unions are outmoded and there are others who criticize unions, and then there's that Uber driver's lament. Our truths co-exist and we get to pick from them.

    3. I was right there with you until you got to the ISIS comparison. I have a hard time equating Uber to ISIS. Not in the same league.

      I DO support the right to collective bargaining. And, if you can get your employer to continue to provide defined benefit pension plans, more power to you. I am actually receiving payments under such a plan. The amount doesn't cover my mortgage payment. Thank goodness for my 401K!

      Anyway, on the broader issue of the social contract, I offer this:

  3. Eric Hulbert
    Great points as usual John. Uber is such an interesting example and it may be highly influential in the evolution of the employment and regulation landscapes. Lots of very difficult questions to be answered, glad to hear some are debating them.

  4. Phillip Parker
    The "sharing economy" is the "share the scraps" economy.

  5. Mike Beard
    A very high percentage of USNA graduates actually operate in the realm of being an independent contractor when they assume roles at brokerages, and financial institutions, real estate, and some sales roles. I know several of my classmates have accumulated wealth within that system. the scraps are very large indeed.

  6. Phillip Parker
    Mike, most people are not USNA graduates. For them, being an independent contractor in name, if not in fact, is not such a rosy deal. Here's a link to today's Washing Post about how the NLRB is addressing this issue. Naturally, the business community is screaming bloody murder.
    2 days ago

    1. John Calia
      Speaking as an independent contractor (not an employer) I'm screaming bloody murder too. I've written to my Congressional reps about it. I don't want to be reclassified because the government thinks they know what's good for me.

    2. Phillip Parker
      John, are you flipping burgers or getting your jobs through a temp agency? I doubt it. At the professional level, you have clients, not an employer and I'm guessing you work under a consulting contract or agreement. I don't think you're in any danger of being re-classified under this ruling. As you point out, these new employer friendly work models may be advantageous to the well paid professionals, but to ordinary workers, they are just another challenge to financial security.

    3. John Calia
      I agree. In fact that's the central point of the blog. There is another pending matter before the NLRB that could classify nearly everyone, including franchise owners, as employees. I provided a link to the story in the blog post.

  7. Bruce Kallsen
    Business Insider ranks USNA as the best college based on starting salaries, with a starting salary of $80,700. Is this correct? Is that really a starting salary for an ensign?

  8. John McDowall
    I think characterizing the market changes being spearheaded by Uber et al aren't as dramatic a revolution as many people seem to think. It may be more accurate to characterize this as a "devolution" back to state that was the norm for most of human history. Before the Industrial Revolution (and indeed in many less-industrialized societies even today), everyone was an independent contractor. The farmer made decisions about what crops to grow, when to weed, etc. The blacksmith worked wither on commission or decided what goods to create based on what he thought he could sell.

    The very idea of an employer safety net is a very new concept in historical terms. And given all the issues it presents (loss of insurance / retirement with job changes, etc.) perhaps it's an experiment with at best mixed results. Perhaps shunting our personal responsibility to plan for our futures and to provide for our own needs onto third parties (employers, government) hasn't been such a good idea. If nothing else, it has dangerously diminished the notion of personal responsibility. It was 10 years ago in the aftermath of Hurricane Katrina that we saw residents of New Orleans standing around asking when someone else was going to help them get out of the way of the storm; many of them could not conceive of saving themselves. That is not the mark of a healthy society.

    And lest anyone think that all was darkness and misery before government and employers provided all these benefits, it should be recalled that in those days there was a robust civil society that alleviated many of life's ills. Mutual-aid societies and civic clubs abounded; many of them provided insurance and other forms of collective assistance to their members. If employers aren't providing those services, other organizations besides government can take (resume) that function in society.

    One other thing--about those "millionaires who own McDonalds franchises"--my cousin was one of those owners; she owned the McDonalds on the Newport naval station. She is hardly a millionaire. In fact, she got her start with one of those "dead-end" burger flipper jobs in high school and 20 years later owned her own place. She closed it because the regulations were just too stifling to make it worthwhile.