The cost of this medical coverage weighs more heavily on workers who earn less.Employer-Sponsored Healthcare Aggravates US Inequality
Capitalisn’t: The Gig Economy Isn’t What You Think It Is
- February 28, 2020
- CBR - Economics
Companies such as Uber, Lyft, and Doordash have brought the term “gig economy” into our lexicon. But what is the gig economy really? When you start digging into the data, you find it’s hard to define. On this episode of the Capitalisn’t podcast, hosts Kate Waldock and Luigi Zingales investigate the pros, cons, and myths of the gig economy.
Kate: So, Luigi, how do you interact with the gig economy?
Luigi: I think I’m pretty boring, because I probably use only Uber and Lyft. In preparing this episode, I discovered there is a thing called Fiverr. I don’t know how to pronounce it. Do you know that?
Kate: Yeah. I think it’s called just Fiverr.
Luigi: Fiverr? OK.
Kate: I don’t know if you’re supposed to Fiverr . . .
Luigi: You can even subcontract a love letter, for $5.
Kate: I think the $5 thing is sort of a myth, but I totally believe that you can subcontract love letters.
We actually used it, a really long time ago, when we were thinking about potentially starting a podcast, and we were looking for ideas for logos. I think we had contacted a couple of graphic designers, at the very early stage, on Fiverr. And maybe paid somewhere between $50, $100, for just some preliminary mock-ups.
Luigi: OK. So, that’s not too exploitative?
Kate: Well, a little bit, perhaps. But, yeah, the price was right.
Luigi: On today’s episode, the gig economy. How big is it? Has it been good for workers? And what sort of changes are on the horizon?
Kate: From Georgetown University, this is Kate Waldock.
Luigi: And from the University of Chicago, this is Luigi Zingales.
Kate: You’re listening to Capitalisn’t, a podcast about what’s working in capitalism today.
Luigi: And, most importantly, what isn’t.
Luigi: In order to put everybody on the same page, how do you define the gig economy?
Kate: This is a tough one, because based on the definition, the size of the economy itself can vary anywhere from 2 percent of the labor force to 50 percent of the labor force.
A Gallup poll calls gig economy workers anyone who’s working under an alternative work agreement, and that, in turn, can be split up into people who have multiple jobs, or people who have nonstandard jobs, like online platform workers and contractors and on-call workers and temp workers, and stuff like that. They estimate, based on a poll, that this is about 36 percent of the US workforce.
Luigi: Thirty-six percent?
Luigi: But, that includes a lot of traditional jobs that have been relabeled as gig economy?
Kate: Absolutely, and it includes anyone who has multiple jobs. So, those could just be multiple, regular jobs, or it could be that you have a full-time, salaried job, plus you babysit somebody’s kids once a week. That’s not really gig economy.
Luigi: What I think is novel and different about the gig economy is when you have a digital platform that coordinates a large amount of people doing a job. This is the case of Uber, it’s the case of Lyft, it’s the case of Airbnb, it’s the case of Fiverr, it’s the case of the Mechanical Turks on Amazon.
My understanding is that size of the economy is relatively small. Five years ago, Larry Katz and Alan Krueger thought that the gig economy had increased a lot, 5 percent vis-à-vis the baseline of roughly 10 percent. Last year, they revised their estimates, and they said the increase was only 1 percent. By the way, it’s mostly concentrated on the two coasts, so it’s not a broad phenomenon that’s taking over the entire labor force, it’s a marginal increase, mostly due to Uber and Lyft.
I think we should make a big distinction between the people who make some money on the side and people who are permanently employed in the gig economy. There’s not a big cost, overall, to have some people working on the side. In fact, this is a benefit, it provides flexibility. If this becomes the new form of employment, then there are a lot of discussions we need to have, because US regulation, in particular, is very much dependent on employment. In most countries, your health insurance and your pension do not depend on your employment. In the United States, they do. So, clearly, if the nature of employment is changing, we’d better change many of these regulations. If the nature of employment is not changing, then that’s a different story.
Kate: Yeah. Before we change the regulations, we should change the data that we have, right? We should try to get a better sense of how big this gig economy is. I don’t think that it actually shrank since 2005.
A point that Katz and Krueger make is that if you look at the administrative tax data, so a bunch of personal tax records, the number of people who claim to be sole proprietors, or working for themselves, is going up by a lot. And the number of people who are spending a lot of business expenses and are sole proprietors is relatively constant. So, the people who are actually running their own private businesses doesn’t seem to be explaining that increase.
So, there’s differing evidence, based on whether you’re looking at survey data, or whether you’re looking at tax data, and this whole thing is kind of a mess. We don’t have a great sense of how big the actual gig economy is, nor do we have a great definition of it.
What do you think about the contract worker, Luigi? So, forget about Uber and Lyft for now, but think about someone who . . . Let’s say, a janitor for a large company, who used to be an employee of that company and used to receive health-care benefits and retirement benefits from that company. Now, they were reassigned to a contract company that then contracts that person out to the original firm that they worked for. Do they count as gig economy workers?
Luigi: Again, it depends on what you’re concerned about. I would say that the janitors who are contracted out is just outsourcing, it’s not necessarily gig economy. To me, what makes the gig economy unique and special is that there is a centralized allocation of labor by a digital platform. That is what is unique, because as you said, the outsourcing of janitors, or the outsourcing of some services, is not something that started recently, it started in the ’90s. While it does pose some of the same problems of the gig economy, I think it does not pose some of the other problems of the gig economy.
One thing that they have in common that I think we should state upfront, because it’s very important, is the definition of who belongs to the firm, who is an employee of the firm. It is quite important in terms of sharing the rents that are produced inside the firm. So, a former student of mine wrote a very interesting paper about conglomerates, showing that depending on which kind of workers were working with you in the conglomerate, your own salary will change.
So, if you were, let’s say, a construction worker, working in a conglomerate with some finance people. That’s very hard to imagine. But then, your salary was higher than if you were a construction worker working with other construction workers, or with some other jobs that are not particularly well paid.
I think that’s an important consideration, because we know that even secretarial assistants at Goldman Sachs get paid much better than the typical secretarial assistants. So, this tends to increase income inequality.
Kate: Let me ask you another question. This is a true story. So, I’m trying to plan a wedding, and I want to hire a DJ. I was looking around on different platforms, and there’s an option to go with an online DJ service company, where there’s multiple DJs working for this company. Then, you can hire one of them, but it’s coordinated through a platform. Then, I found another DJ of seemingly similar quality on Craigslist. So, are both of those DJs gig economy workers? Or is it only the one on the platform?
Luigi: That’s a very good question. The disc jockey that has the ad on Craigslist is no different than the disc jockey I used to hire, in my old days, from a classified ad in the newspaper. On the other hand, when you have a disc jockey that is somewhat operated by a digital platform, that is doing more than just matching, in my view, demand and supply. It’s actually managing the process, and that is the distinctive feature of Uber and Lyft, and in my view, is that is the distinctive feature of the gig economy.
Kate: I think it’s cute that you call it a disc jockey. I haven’t heard that one for a while.
Yeah, this typology, how do you define the gig economy? Everyone has their own definition. I like a definition that’s been proposed by several economists, Abraham, Haltiwanger, Sandusky, and Spletzer, who first distinguish between people that are employees of other companies, which include temporary agency workers, they are still employees of the temp agency, versus people that are really classified as self-employed. They only put the gig economy workers within the self-employed category. The ones that they count as gig economy workers are independent contractors or freelancers, day laborers, and then platform workers.
I like that definition, but I think that, Luigi, it seems like in your personal definition, you’re only really counting platform workers as gig economy workers?
Luigi: Yeah, because this is the stuff that is really new, and in some sense, is substituting stuff that used to be done mostly through firms, through a marketplace. That’s the part that I find more interesting and challenging. What are the effects of the substitution?
Kate: I’m going to go with the Abraham et al. definition, which is that, for me, the gig economy includes self-employed people who are independent contractors or freelancers, day laborers, and platform workers.
Luigi: We can go with your definition, but you realize that a big chunk of that definition includes contract workers that have always been contract workers. So, if I hire a contractor to fix my house, as I used to hire one 20 years ago, basically their work is less changed. Maybe the only thing that’s changed is I check Angie’s List for the reputation of the contractor, and before I made a couple of phone calls to my friends to get references. That’s the major difference. But I don’t see that as necessarily problematic or game changing.
Kate: Well, this goes back to this issue of, is the gig economy a myth? After Katz and Krueger revised down their estimates of how much the gig economy has changed in the past 10 years, or at least the decade between 2005 and 2015, a lot of people started claiming that the gig economy isn’t actually real, that not that many people work in gig economy jobs, so this goes back to the measurement issue.
Kate: I think the key takeaway is that the gig economy, as you’re describing it, is growing, but it’s not a third of all workers. It’s not a quarter of all workers. It’s maybe . . . There was a baseline of several percent, maybe 10 percent, according to the Current Population Survey, of people working gig-type jobs, even before 2005, even before platforms existed. It seems like that number has grown a little bit, but not by a crazy amount.
Luigi: But again, it depends on what we consider the essence, because I can claim that the prospect is that Uberization of workers is spreading around the world. Think about what Amazon is doing. If I am a small firm supplying a product to Amazon, I end up being not very different from a gig worker. Because if I end up selling most or all of my supply to Amazon, they dictate all the terms. They end up financing my enterprise, buying all the products, telling me the time of shipping, telling me the characteristics, determining the marketing. So, what is the difference between an independent firm and a supplier of Amazon? It’s getting more and more nuanced, to say maybe it doesn’t even exist.
Kate: You’re right that it’s nuanced, for sure. But now, I feel like you’re blurring the lines between the issues of the gig economy and problems with outsourcing. They’re both issues in both arenas, but I think the problems of outsourcing are a different set of issues.
Luigi: No. What I see as central, and at the same time problematic, about the gig economy is the centralization of the allocation, which is gaining market power, especially if this is not an independent platform.
So, the difference between . . . Coming back to your example, the difference between the DJ . . . I cannot call it disc jockey, otherwise you think I’m too ancient. The difference between the DJ on Craigslist and the DJ on the platform is that Craigslist does not take a cut of the profit of the DJ, it does not tell the DJ what to do or not to do. The DJ is an independent worker announcing or advertising on Craigslist. The DJ working for a platform is like the supplier firms who work for Amazon, where Amazon the platform ends up having an enormous amount of power.
Kate: I just think that the problems you’re posing are incredibly hypothetical. You’re sounding like an economist. “The problem is you’re operating in a global marketplace.” Whereas the reality is that most people using these digital platforms are using them locally. They’re drivers, or they’re movers, or they’re delivery people, they’re DJs, right? They’re providing physical services.
You’re right, there are some people that are doing freelance graphic design on centralized platforms, and that’s something anyone can do around the world, but I think that the vast majority of these gig economy workers are not competing with other gig economy workers in China and India. At least, I don’t think that’s where their first order of problems are.
Let’s start talking about some of the pros and cons of the gig economy, then. The main cons seem to be concerns that gig economy workers are not receiving benefits that they ought to be receiving. In particular, health-care benefits, but also, to some extent, unemployment insurance, as well as a lack of incentive to really save for retirement.
There also seem to be a lot of pros associated with the gig economy. In particular, flexibility, and the ability to determine or offset low periods of wages. You can fill in a downturn by working on Uber a little bit, making up that extra money.
Luigi: I actually would like to distinguish between the intrinsic costs of the gig economy and costs that are due to the misdirected way in which regulation is done in the United States.
This is the fact that you don’t get health insurance if you are a gig worker, but you do if you’re not. It has nothing to do with the new technology, it has to do with the silly way in which health care is allocated in the United States. If you have a system of universal health care, for example, this problem would not exist. On the other hand, some of the problems of the gig economy exist even in countries where you have universal health care, and you have some form of retirement that’s not dependent, necessarily, on your workforce.
While the issues of retirement and health care are incredibly important, I think that could be more easily fixed with a decree of saying, “You need to provide this.” In some sense, my understanding is Uber and Lyft are going in this direction of trying to provide some of these benefits anyway. So, I don’t think that is the more novel or more challenging aspect.
The more novel or more challenging aspect, in my view, is number one, a result of, again, regulation. You don’t do any training for these so-called 1099 workers. So, if I hire you in my firm, I have an incentive to train you to become better, and that gives you some sort of upward mobility. On the other hand, if I hire you through a platform as a contractor, not only do I not have the incentives to train you, because you can leave tomorrow, I cannot legally train you, because if I train you, I basically admit that you are an employee, and I get all the consequences of having an employee.
As a result, all these jobs are very good as temporary flexibility gigs, but they’re terrible if they are your lifetime employment, because there is no chance of progression in life. If you start being an Uber driver at age 20, you’re probably going to still be an Uber driver at age 50. That’s from, if you want, an efficiency point of view.
From an opportunity point of view, I think that companies have been very important in upward mobility. There were, in the past, some employees that started as bank tellers and ended up at the top of the bank. My wife’s aunt grew up in Alabama. She escaped Alabama as fast as she got her high school degree, and she went to Indiana. She started working as a bank teller in Indiana, and she ended up retiring as vice president of the bank and head of human resources, and was the first woman at the bank to be in that position. So, that is a phenomenal opportunity of upward mobility.
If you hire everybody on a temporary basis, you don’t have the incentives to train, and this upward mobility will disappear. It may be efficient to do that from the firm point of view, but then, as a society, we need to think about other instruments to provide that kind of upward mobility.
Kate: But now, I think this is where the definition of the gig economy becomes important again, because what sort of jobs are being gig-ified? If you really think that this is digital platform-type work, then mostly we would think of Uber and Lyft, and to some extent, Task Rabbit and Fiverr. It’s hard for me to imagine that those are jobs in which people would have received much training otherwise, right?
The counterfactual, really, is that you would have been, I don’t know, a cab driver with a medallion, or you would have been, let’s say, someone on Craigslist who was offering services to help people move. Now, you just have a more efficient platform for that.
So, it’s not clear to me that it’s really drawing people away from jobs that they would have gotten training in. In fact, I think that the flexibility argument actually means that, especially for drivers, compared to people with cabs, who are locked into the cab, because there’s this upfront cost of the medallion subsidies. Whereas, the flexibility of Lyft and Uber, you can do it for a couple months, and then stop doing it. I think, actually, that would give you more incentive to transition into another job, where you could then receive training and the upward mobility.
Luigi: I think that when it comes to cab drivers, you’re right. But, this is also getting spread for other jobs. The Fiverr that, now I’m finding out, we hired for an attempt to do a logo, it was a job that otherwise would be a design firm. In the design firm, you get trained. If you work on the spot like this, you don’t get trained. That’s a typical job where creating competition might reduce the incentives to train.
Kate: We discussed your views on health care, and I share those views. That if we just had a functioning health-care system like most other countries, then this would be a moot point. But what about the incentives to save? Do you think that we should be stepping in and trying to figure out ways to get gig economy workers to save more for retirement? Because the evidence seems to be that they are saving less.
Luigi: To the extent we believe that people are undersaving for retirement, and I think there is plenty of evidence in this direction, absolutely, yes. In a sense, why are we basically requiring people to save for retirement with a minimum in regular jobs? It’s because we don’t trust individuals to be so farsighted, and we know that if they’re not so farsighted, eventually they end up on the public dole, so we all have to pay the consequences. And so, we introduced regulation, which is to force a minimum amount of savings, in order to prevent a mass redistribution ex post.
If that rationale is valid, and I think it is, I don’t think that should be different for gig economy or non-gig economy workers, in the sense that one of the things that we have to be more careful about, in every form of government intervention, is not to create artificial differences between functionally equivalent forms of organization, because otherwise people will try to arbitrate among them. Making a big difference between being formally employed and not formally employed generates strong incentives to try to go around that, in every possible form or shape.
Technology has made it incredibly easier to do that. So now, we see more arbitrage than in the past. I think even in the past, people were trying, but now, they are succeeding in large numbers, and that becomes more of a public-policy problem.
Kate: What would those look like, in reality? I mean, I’m picturing that, let’s say, an Uber driver . . . For every hour that they drive, they typically make, let’s say, $20. A state might impose regulations that dictate that Uber has to set aside a certain number of those dollars for their retirement, let’s say, $2 of those dollars. And that, if the employees contribute $1 willingly, then Uber will contribute another.
So, functionally, it might look like they end up only making $16 an hour. Is this the sort of regulation you envision?
Luigi: Yeah. If I’m an employee of a car-driving company, I probably have some form of additional retirement contribution, in part made by me, and in part matching funds by the company. I don’t know why this should be different if I drive by myself.
Kate: Yeah, I’m curious about how that would affect incentives to drive on Uber. I’m not sure that this has been studied very well.
Let’s talk about some of the good sides of the gig economy. Luigi, what do you think the possible pluses are?
Luigi: Oh, I think there are many, on two sides.
Let’s start from the workers’ side. For the workers’ side, I can have a lot of flexibility, both in terms of hours, and in terms of getting in and out of the labor force. I think that flexibility is very valuable, especially in a world where you have dual-career families, so, both the parents work, and in a world where you have aging parents at the same time in which you have kids. So, the obligation of taking care of all these people becomes quite overwhelming, and I think having some flexibility in this dimension is incredibly valuable.
The second part, that is more on the in-and-out aspect, is this can provide some insurance. A recent paper by a colleague of mine shows that once you have car-hailing services entering a city, you seem to have an increase in registration of firms and entrepreneurship. The interpretation is that when you have the opportunity to make some money in case things go poorly, it is a form of insurance, so you have more courage to take on the risk of becoming an entrepreneur, because you have a buffer in that dimension.
Then, of course, from the consumer point of view, I am a big user of both Uber and Lyft. They are very cheap and very convenient. I think that the combination of the two is pretty remarkable. Now, I fully appreciate that I get subsidized by Wall Street, because a significant fraction of the cost of Uber is paid by investors who are hoping to become monopolists in the future, and make up with a vengeance the money they are wasting now. But, I think that—
Kate: Well, now that they’re public, we’re the investors, right?
Luigi: Yeah, indirectly through a pension fund, yes, unfortunately.
Kate: Yeah. Yeah, I agree. This isn’t just speculation, particularly on the flexibility.
There’s a paper by Hall and Krueger, who was an author on the earlier study we were citing about the size of the gig economy. In this paper, they poll Uber drivers and ask them, “What do you like about driving Uber?” By far, the most common response is that it’s exactly that flexibility. It allows them to work whenever they want and however long they want.
Another interesting finding of that paper is that most of Uber’s drivers had full- or part-time employment before they joined Uber, and most of those people who had full- or part-time employment kept that employment, in some form, after they started working for Uber. So, they continued on in those positions. I think that this is good news, I think it’s great that workers have the option to supplement their salaries flexibly, and it doesn’t seem like the overwhelming evidence is that it’s crowding out their other jobs.
Also, to your point about the safety net provided by Uber, there’s another cool paper, this one by Fos, Hamdi, Kalda and Nickerson, that looks at people who use driving Uber as a safety net after a job loss. What they find is that people who have access to the ability to drive for Uber, they actually use less unemployment insurance, so they rely less on unemployment insurance. They take on less debt, and then they end up with fewer delinquencies. So, from the personal consumer credit perspective, it also seems to have benefits.
Luigi: Of course, all these studies have been sponsored by Uber.
Kate: No, I actually talked to one of the authors of that paper. He said they originally, maybe, were going to share some Uber-specific data with them. Note that they’re not using Uber-level data, they’re just using credit bureau data, and then the staggered introduction of Uber. But they ended up not getting it, and they were really upset about it. They were like, “Oh, we have good things to say about Uber, they should be willing to work with us.” But Uber was not cooperative.
Luigi: But all the other studies you mentioned, about the flexibility, et cetera, were done either by Uber employees or by Uber consultants or by people who had access to Uber data.
Kate: I don’t think Hall and Krueger were Uber employees, were they?
Luigi: Yeah. Jordan Hall is the chief economist of Uber.
Kate: Oh, he is?
Luigi: And Alan Krueger was a consultant for Uber.
Kate: Oh, I didn’t realize that. OK, well . . .
Luigi: Yeah, but this exactly . . . I’m sorry, but this is exactly the problem that I’m worried about. The reason why we have overwhelming evidence of the benefits, and very scarce evidence of the costs, is that Uber and Lyft, but particularly Uber, has massively financed all this research, proving the benefits.
We economists are already in love with Uber because it’s a market, it’s technological, it’s cool, and because we have a lot of data. In addition to that, Uber finances economists, and gives them data to basically push the line of how great this is. There’s very little financing, and very little data availability to prove the opposite of this.
The very same colleague that wrote about the benefit for entrepreneurship wrote about the increase in the number of fatal accidents that take place every time a car-sharing service enters a town. He could not get the data from Uber for his life to try to check it. Why? Because this is something Uber does not want to talk about. So, there is a sample selection in the evidence of what we have in economics, and the sample selection is controlled by the very company who has an agenda to push this. That’s the reason why I’m so skeptical, and so contrarian, because I’m worried that we don’t have the full evidence.
Kate: I think that’s a really good point. I don’t like to speak ill of those who have passed on, but I didn’t realize that Alan Krueger was consulting for Uber. He’s one of the people who’s done a lot of the work in this area, and I’m a little bit . . . I don’t know, I would go back and look at those papers with a slightly different view, now that I know that.
Luigi: Yeah. I think it’s interesting to know how many people either receive data from Uber or would like to receive data from Uber. Clearly, if you speak evil of Uber, you’re not going to get the data. Not only the people who got the data or got consulting gigs, it’s also the people who self-censor themselves because they want to have some data in the future.
Not only the data of Uber, in the sense that if I speak evil of Uber, I’m not going to get the data from Uber, I’m not going to get the data from Lyft. Probably, I’m not going to get the data from any of these platforms, because they don’t want to assist me in criticizing the company. I think this is changing the discussion in economics. I’m very worried about this.
Kate: I agree.
Luigi: At least we do agree on something.
Kate: We agree on a lot.
Luigi: No, on this episode we disagree even on the definition of the gig economy.
Kate: That’s true.
Luigi: We disagree a lot.
Luigi: Ironically, you seem to be much more in favor of the gig economy than I am. Generally, it’s the other way around. The younger people tend to be very frustrated with the gig economy, and all the people like me, who take advantage of the gig economy . . . because, I have to admit, I take full advantage of it. They tend to be much more in favor, so I think we inverted our roles.
Most economics is dedicated to the work of markets. There is a small part of economics dedicated to what is called theory of the firm, where the issues of employment and et cetera come about. As economists, we tend to be biased in favor of markets all over the place, and we tend to ignore the issues that are associated with power within firms. The most extreme form is a famous paper by Alchian and Demsetz that says that firms don’t have any power whatsoever, except the normal contracting in the marketplace.
So much so, that I have a colleague that says, “Oh, I fired United Airlines, because I now take only American Airlines flights.” I said, “Oh, did United notice?” Because if I fire my employee, the employee will definitely notice. So, I would like to know whether United is actually crying. I think it’s very important to understand that there is a very important aspect of allocation of power within traditional firms, and then the new platforms are basically minimizing the rents of all the employees by putting them in constant competition, and that can have two types of problems.
The first one is, as I said, few incentives to specialize and invest to improve the quality of your work within that particular organization. The second is clearly a reduction of the rent appropriated by the less sophisticated part of the population, increasing the problem of income inequality. At a time where we’re very worried about income inequality, I think that is something we should definitely be concerned about.
Kate: Right. But this, again, goes back to the issue of how you define the gig economy. We had said earlier that contract workers are not part of what we’re including in the gig economy, in either of our definitions.
I think that contract workers are the ones who are most directly susceptible to the problems that you just described. The ability of a firm to carve out a certain subset of their employees for tasks that can be designated to a global marketplace, that is the problem with contract working. That, and on top, they can deprive those employees of benefits. I think that the contract work economy is hugely problematic, and that maybe deserves its own separate episode. But it’s worth noting that it’s distinct from what most people describe as the gig economy.
Luigi: But I actually disagree. I think that the contract work economy, in its traditional fashion, is not problematic. Why? Because there is nobody monopolizing the marketplace. The marketplace is simply available to everybody, you can put your name on Craigslist, and Craigslist has no stake, they’re not taking any cut, and so on and so forth.
That’s very different in a world from which, imagine that a platform aggregates all the contractors on one site. Imagine that you have a platform where all the plumbers are. So, if you want to have a plumber, the only way to get a plumber is to get to the plumbing platform. So, you find it very difficult to hire a plumber outside, so you end up paying a lot for a plumber. However, that money does not go straight to the plumber, it goes mostly to the platform, because they are in a monopoly situation.
With platforms, we are going toward a world in which the marketplace is owned by somebody. The marketplace itself should be, in a sense, the ultimate public good, where everybody can go, everybody can access in the usual place. Then, you have the benefits of the market economy. If you have an intermediary that monopolizes both sides of the market, thanks to the natural externalities, and extracts most of the rent, you have a monopolistic economy, which is very problematic.
Kate: Yeah, I don’t like monopolies, either. I just think that we’re talking about different issues. There’s no reason to believe that these platforms necessarily need to be monopolies. I mean, you could argue that Uber and Lyft are a duopoly, but if anything, they’re competing to the death. It’s benefiting consumers, because they’re underpricing, they’re constantly trying to underprice one another.
Then, in terms of a lot of the little other tasks that are in the gig economy, I seem to see competition all over the place. Just looking for DJs, there’s multiple gig economy DJ platforms. I don’t see any reason why that would change.
Yes, this is a concern, but I don’t think it’s a first-order concern.
Luigi: I think that you’re right, that now, in this moment, it’s not that bad. But I’m worried about the future. You’re right that Uber and Lyft are a duopoly. We also learned, very clearly, in our episode with Isaac, that it’s a duopoly by accident, in the sense that Uber was on the verge of crushing Lyft. If it wasn’t for the boycott campaign at the beginning of 2017, we would now be only with Uber. They are fighting, trying to determining who’s going to win, and then only one will survive, and we’re going to go to a monopoly. That’s the reason why Wall Street is financing aggressively, because they count on a monopoly to be there down the road.
I think that it’s true, at the moment, for the DJs, there are plenty, et cetera. But we’re going toward a world in which most of the activity will take place on Amazon. They will become themarketplace. I see that, again, as problematic.
Kate: Sure. When it comes to regulating monopolies, we need tougher antitrust. I don’t think that you’re ever going to find any disagreement from me on that one.
Luigi: OK, Kate. Is the gig economy capital-is, or capitalisn’t?
Kate: I think that the biggest capitalisn’t associated with the gig economy is that we don’t know enough about the gig economy. It doesn’t seem like the current population survey is really measuring the gig economy well. As you noted, a lot of what we do seem to know about the gig economy seems to be biased by the availability of data and the influence of people who are working for gig economy platforms. We can’t even define it properly, regulators can’t even define it properly. This just seems to me like the first hurdle that we need to pass, is just to know more and to have better data about what the gig economy really is.
But to the extent that we believe the gig economy is the use of online platforms that allow people more flexible work schedules and allow them to buffer negative income shocks, I think that, actually, there are more merits to the gig economy than we think. But I think that the contract economy is a huge problem, and that’s what we should really be worried about, even though it doesn’t seem like it’s a huge fraction of the US labor force right now.
What do you think, Luigi?
Luigi: First of all, you talk like a true economist. “We need more data, we need more work.”
Kate: It’s true.
Luigi: It’s true. I actually think it’s both.
On the one hand, there are some aspects that are capitalism at its best, in a sense of providing new services in a very efficient way and providing flexibility to people. I think that is capitalism at its best. On the other hand, there are some important clouds we need to be aware of, and one cloud is the risk of future monopolies and the consequence that this might have. The other cloud is the fact that there is a lot of arbitrage of regulation that takes place in this process, and I think that we need to make sure that this gig economy is not just a gigantic shadow economy but is a thriving new way to exploit new technology.
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