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Deep dive on the gig economy

National

A victory by gig-economy companies in California to keep classifying their workers as contractors has given the industry a playbook to face rising labor movements nationwide.

Why it matters: The efforts to force the companies to treat their workers like full-time employees could annihilate their business models.

"We feel strongly that this is the right approach," Uber CEO Dara Khosrowshahi told financial analysts just two days after the victory in California.  

"And it's a priority for us to work with governments across the U.S. and the world to make this a reality." 

Flashback: Gig companies like Uber, Lyft, Postmates, Doordash and Instacart spent more than $200 million this year backing a California state proposition known as Prop 22 — that has enshrined their workers as contractors in exchange for some limited benefits, including funding that can be used for health insurance. 

They were fighting a new law in California, known as AB5, that changed rules on worker classification.

They won: 58% of California voters backed their gig-worker proposition.

Now the companies are working to export this approach to other states.

They're already begun to pour resources into states like Illinois. 

They recently also formed the the App-Based Work Alliance, an advocacy group focused on federal-level policy.

Between the lines: Years of worker discontent and activism collided with this year’s pandemic to lay bare just how vulnerable gig workers are, while also giving them access for the first time ever to some traditional benefits.  

That's boosted pro-labor efforts pushing for gig companies to reclassify workers as employees so they can receive full benefits and legal rights and protections.  

Earlier this year in May, California Attorney General Xavier Becerra (who’s been selected to be the next secretary of health and human services by President-elect Biden), filed a lawsuit against Uber and Lyft for allegedly misclassifying their ride-hailing drivers. He was joined by the city attorneys of San Francisco, San Diego and Los Angeles. 

States: 32 other states already use the same legal test to determine worker classification as California’s law, and some states are already introducing (or looking toward) even stricter measures.  

Congress: The PRO Act, a bill that would expand collective bargaining rights and allow the National Labor Relations Board to fine companies breaking laws, passed in the House, though it's unlikely to be taken up by a GOP-controlled Senate.  

White House: Both Biden and Vice President-elect Harris have expressed support for AB5, and their labor platform is strongly pro-union and endorses the PRO Act. 

The bottom line:  With their victory at the California voting booth, gig-economy companies hope 2020 will be a turning point in their efforts to thwart tougher rules.

1. A new gig economy playbook

They want to avoid stricter rules for their workers.

Illustration of a hand marking a grid full of people icons

Business

Deep Dive - Gig Economy 2020

Technology

Jobs

A victory by gig-economy companies in California to keep classifying their workers as contractors has given the industry <a class="gtmContentClick" data-vars-link-text="a playbook" data-vars-click-url="https://www.axios.com/uber-ceo-talks-exporting-prop-22-after-mixed-earnings-report-b6b02b0c-e71c-462e-b712-14393aec7fc2.html" data-vars-content-id="5208a378-e8e7-445c-ac37-ffdf9a546584" data-vars-headline="A new gig economy playbook" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/uber-ceo-talks-exporting-prop-22-after-mixed-earnings-report-b6b02b0c-e71c-462e-b712-14393aec7fc2.html" target="_self">a playbook</a> to face rising labor movements nationwide.Why it matters: The efforts to force the companies to treat their workers like full-time employees could annihilate their business models.

Top stories & latest news on the Federal Reserve, real-time data, plus the biggest shifts happening in the U.S. and global economy.

Economy

After a record economic expansion, the coronavirus pandemic sent the U.S. economy into a recession as unemployment soared to staggering heights. The country now faces urgent questions about how much stimulus is needed for reeling consumers and businesses, and what a recovery might look like.

Economy & Business

Uber planned to operate only in the San Francisco Bay Area, Los Angeles, Orange County and San Diego — employing just 45,000 drivers (instead of 200,000) — if California voters had rejected Prop 22 last month, according to communications it prepared to send drivers and riders that Axios obtained.  

Why it matters: Critics doubted Uber and Lyft’s seriousness when they threatened to suspend or greatly reduce their operations in California if forced to reclassify drivers as employees.  

Flashback: California's attorney general, along with three cities, sued Uber and Lyft in May to enforce a new state law that created stricter requirements to classify drivers as independent workers. 

Be smart: The gig companies are hoping to export Prop 22's model — independent contractors who receive some small benefits — to other states. 

The threat of fewer jobs as the result of classifying drivers as employees may be a convincing argument for some lawmakers. 

Lyft likely was planning a similar move, given president John Zimmer's comments last year warning that it would greatly downsize its operations if forced to employ drivers. 

2. Scoop: Uber's plans if Prop 22 failed

They would have cut their number of drivers by more than half.

Uber planned to operate only in the San Francisco Bay Area, Los Angeles, Orange County and San Diego — employing just 45,000 drivers (instead of 200,000) — if California voters had rejected Prop 22 last month, according to communications it prepared to send drivers and riders that Axios obtained. Why it matters: Critics doubted Uber and Lyft’s seriousness when they threatened to <a class="gtmContentClick" data-vars-link-text="suspend" data-vars-click-url="https://www.axios.com/uber-lyft-california-services-d9956c3e-478e-47dd-b30e-1dab3078a75c.html" data-vars-content-id="c6890b7b-a74d-42eb-8acf-c6eb3e1496dc" data-vars-headline="Scoop: Uber&#x27;s plans if Prop 22 failed" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/uber-lyft-california-services-d9956c3e-478e-47dd-b30e-1dab3078a75c.html" target="_self">suspend</a> or greatly reduce their operations in California if forced to reclassify drivers as employees.

From the Valley to D.C., Big Tech players like Facebook, Google and Amazon are under more scrutiny than ever as new technology develops and privacy and antitrust concerns grow in lockstep with companies’ ambitions.

Grocery delivery company Instacart became a critical service for many consumers overnight when cities and states across the U.S. quickly implemented stay-at-home orders to curb the spread of COVID-19.

Why it matters: The pandemic reportedly brought the company its first profits. 

The big picture: Demand for delivery services for food and groceries skyrocketed as part of a larger shift to e-commerce when Americans were asked to stay home when the pandemic set in back in March. 

Food delivery company DoorDash turned a profit in the April-June quarter, while Uber saw its delivery business surpass ride-hailing service, for example.  

 Small and medium-size grocery stores have increasingly joined Instacart's service as the industry has had to move online, says the company. 

Instacart works with more than 500 retailers and offers pickup from 3,300 stores. 

The company said in May it’s on track to process more than $35 billion in grocery sales this year, and in April it was expected to net a profit of $10 million for that month, The Information reported at the time. (Instacart declined to comment.)

The number of retailers and brands that advertise in Instacart's apps has grown fivefold over the last year, and the number of paid clicks in a single Q4 day is the same as it saw in all of 2019, the company tells Axios. 

Instacart has raised a total of $525 million in financing over two rounds this year and is now valued at $17.7 billion.  

Yes, but: The pandemic also intensified pushback from Instacart’s workforce of “shoppers,” who are independent contractors, over working conditions.  

By late March, some workers had organized strikes to push the company to give them free safety supplies like hand sanitizer and wipes, hazard pay, and extended sick leave, as the pandemic offered workers an opportunity for some leverage as Instacart’s service became so important to consumers.  

The company has also faced reports that some customers were baiting shoppers with large tips to accept their orders and then changing them, and that the spike in hiring new shoppers has made it more difficult to sign up for orders (and earn money).  

The big question: As with other delivery services, can Instacart sustain this? 

"Our business now has a new resting heart rate," Instacart president Nilam Ganenthiran said in a statement about the effects of the pandemic on the company. "It's inevitable that businesses will fluctuate as the world continues to grapple with COVID, but we believe the service we've built is enduring."

Editor's note: The story has been updated to correct Ganenthiran's quote to say "businesses" (instead of "business"). 

3. Instacart in the spotlight

The company reportedly had its first profitable month.

Illustration of a shopping basket on a grid with a push pin. 

Retail

Grocery delivery company Instacart became a critical service for many consumers overnight when cities and states across the U.S. quickly implemented stay-at-home orders to curb the spread of COVID-19.Why it matters: The pandemic <a class="gtmContentClick" data-vars-link-text="reportedly" data-vars-click-url="https://www.theinformation.com/articles/instacart-swings-to-first-profit-as-pandemic-fuels-surge-in-grocery-delivery" data-vars-content-id="a5a3bedc-295a-478f-98be-0cba085a8f9a" data-vars-headline="Instacart in the spotlight" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.theinformation.com/articles/instacart-swings-to-first-profit-as-pandemic-fuels-surge-in-grocery-delivery" target="_blank">reportedly</a> brought the company its first profits.

Data: Company filings; Chart: Andrew Witherspoon/Axios

While the pandemic decimated ride-hailing businesses, delivery companies saw their revenues boosted by the sudden increase in demand from consumers. 

Between the lines: Even among delivery companies, some benefited more than others, and only DoorDash turned a profit (though only for one quarter). 

4. One pandemic, two gig economies

Decimated ride-hailing businesses, delivery companies saw revenues boosted.

While the pandemic decimated ride-hailing businesses, delivery companies saw their revenues boosted by the sudden increase in demand from consumers. Between the lines: Even among delivery companies, some benefited more than others, and only DoorDash turned a profit (though only for one quarter).

Macro

Axios Macro

Gig workers rode out the deepest economic downturn on record with an imperfect but unprecedented safety net.

Why it matters: It could set the stage for how they could get access to the benefits afforded to other workers in normal times.

Flashback: Gig workers had been fighting for the right to collect unemployment benefits. 

It comes down to the worker classification issue. Without “employees,” gig companies don’t have to dole out money to funds that pay for unemployment benefits — making their workers ineligible to receive that benefit.

The issue exploded when the pandemic hit. Suddenly there was no demand for services like Uber and Lyft. App-based workers were afraid of contracting the virus. 

It left those workers with little to no income. And they had no access to the traditional unemployment system that a record number of people were turning to.

What happened: Pandemic Unemployment Assistance (PUA), created under the government stimulus package, let gig, freelance and self-employed workers (and others with limited work histories) collect unemployment.

Companies like Uber lobbied for it. Some argue the separate program validates gig platform claims that workers aren’t employees. (If they were, they wouldn’t need an unemployment program separate from the traditional one.) 

The big picture: States have countered in the past that gig and freelance workers couldn't be served by an unemployment insurance program. 

“Now that argument is gone," Michele Evermore, a policy analyst at the National Employment Law Project, tells Axios. 

 Yes, but: The program has been plagued by problems.

Delays: Notoriously low-tech and underfunded state labor departments rushed to build out a process for these workers. It was still weeks before they could apply and longer before they were paid.

Underpayment: A recent government watchdog report said the majority of states have paid out the lowest amount required to these workers — rather than the pay they were eligible for based on what they earned in normal times. 

Overpayment: Some states accidentally paid these workers too much because of administrative errors — and now they’re trying to recoup as much as thousands of dollars, as the New York Times reported this week.

Plus: It’s unclear exactly how many are collecting PUA — let alone how many gig workers have tapped the program. Numbers reported weekly by the Labor Department are inflated for a slew of reasons, including a number of fraudulent claims.

What they’re saying: “States should proactively figure this out and set up rules, rather than have an ad hoc ‘we get we should be covering you, but we have no idea when you’re unemployed and how much you’ve earned,'” Evermore says.

“How long do you have to sit there with your app driving around before you can declare yourself unemployed?”

What to watch: The safety net is weeks away from being yanked out from underneath them.  

The program is one of two set to lapse on Dec. 26 — unless Congress passes another coronavirus aid bill that extends unemployment coverage.

5. The gig worker pandemic safety net

Illustration of a briefcase in the middle of a net

Gig workers rode out the deepest economic downturn on record with an imperfect but unprecedented safety net.Why it matters: It could set the stage for how they could get access to the benefits afforded to other workers in normal times.

The gig economy isn’t new, but a well-timed rebrand after the Great Recession is responsible for people thinking it is. In fact, reliable economic data on what is broadly known as self-employment goes back about 80 years. 

Why it matters: The rising popularity of the gig economy descriptor — as a catchall for any employees who are "not permanently attached" — is directly related to structural changes in the labor market creating a new way of working that wasn’t even possible before technological advances of the past decade. 

What they're saying: Martha Bird, a business anthropologist at the ADP Innovation Lab, tells Axios there is debate about when gig was first used in the context of work, but it is derived from gig carriages used by jazz musicians in New Orleans.  

Bird also traces the word back to the early English whirligig, a spinning children's toy, which is connected to something having a hub and then moving. 

The big picture: A 2019 Moody’s report, citing data from the New York Federal Reserve Bank, noted that the self-employed segment of the workforce has been growing faster than total employment for the past decade. People started prioritizing independent work more over that time period and also using it for supplemental income even when they had full-time jobs. 

The evolution of the gig economy has brought employment protection issues with it. The pandemic also shined a bright light on the government’s role in providing benefits to unemployed gig workers. Both developments correspond with an increase in the number of people trying to figure out what this segment of the economy really is. 

Looking at the past five years of Google Trends data, “gig economy” began to rise as a search term in 2018-2019, with a big spike beginning this March as pandemic-related jobless claims reached catastrophic levels.

Still, searching for the term "freelance" is much more prevalent, as is the word part-time. 

The bottom line:  ADP's Bird warns against romanticizing the gig worker or viewing the subset as homogeneous. 

“There’s a lot of diversity of experiences that are nested in this term. I think we really need to be mindful in using these terms to characterize really what is essentially a diverse workforce.”  

6. Reinvention can’t erase history

The definition of the gig economy has evolved alongside the workforce it represents.

Photo illustration of a hand scribbling over an old photo of a shoe shine boy. 

Photo illustration: Aïda Amer/Axios. Photo: Library of Congress

The gig economy isn’t new, but a well-timed rebrand after the Great Recession is responsible for people thinking it is. In fact, reliable economic data on what is broadly known as self-employment goes back about 80 years. Why it matters: The rising popularity of the gig economy descriptor — as a catchall for any employees who are &quot;not permanently attached&quot; — is directly related to structural changes in the labor market creating a new way of working that wasn’t even possible before technological advances of the past decade.

Finish Line

Axios Finish Line

There’s a small, but growing number of companies that are attempting to flout the Uber, Lyft and Instacart model and redefine the gig economy.

Why it matters: Gig work is rapidly spreading through the labor market, but there are ways to bring more stability to these jobs.

One of the key arguments from companies like Uber and Instacart is that their models offer flexibility, but workers don’t have to be contractors to reap those benefits, says Will Coleman, CEO of Alto, a ride-sharing startup that employs all of its drivers with full benefits.

“It’s a false trade-off,” he says. “At least half of our employees drive part-time, and many have other jobs.”

7. Rethinking the gig model

Companies are trying new approaches to gig jobs.

There’s a small, but growing number of companies that are attempting to flout the Uber, Lyft and Instacart model and redefine the gig economy.Why it matters: Gig work is rapidly spreading through the labor market, but there are ways to bring more stability to these jobs.