The Virus of Nonemployment

ANGUS SIBLEY

Fellow of the Institute and Faculty of Actuaries (London)
Author of "Catholic Economics: Alternatives to the Jungle" (Liturgical Press, Collegeville, Minnesota, 2015)

We may ask . . . what could become our labor relations in the coming years: workers, supposedly independent, with the status of micro-entrepreneurs, working with, but in fact for, large firms that quite simply refuse to accept the role of employer.
Dominique Méda (1), Le salariat, ultime victime de la pandémie in Le Monde (Paris), 24 January 2021.

In our constant desire to have always more, we have sacrificed the agreeable aspects of work.
Tomáš Sedláček (2), Economics of Good and Evil (2011), page 217.

Exponential diffusion of diseases . . . and of practices

Exponential growth is a natural phenomenon that we find in many situations. Demography is a classic example. If a population is expanding, then normally, every year, the number of women of child-bearing age is greater. Therefore, other things being equal, every year more children are born. Year by year, the population increase increases.

Money in the bank behaves likewise; that is why we have compound interest. Deposit a thousand dollars and withdraw nothing for some years; then, every year, the interest earned is added to the capital. So, in each successive year, the capital earns a larger amount of interest. The deposit grows at a growing pace.

The coronavirus exhibits an extreme example of this process. A hundred carriers of the bug may infect 110 other people (+10%), who in turn infect another 121 (110 +10%), who go on to infect another 133 . . . Here we have a horrible case of ultra-rapid exponential expansion.

I need hardly add that the diffusion of content via social media can follow the same pattern, even more rapidly. With good reason, the term viral is employed in both these contexts.

It is perhaps less well known that the same principle applies to pseudo-employment on degraded terms. Imagine an organization such as a European newspaper publisher; let us call it Newsco. Hitherto it has followed the traditional practice of maintaining a staff of journalists who are genuine employees, with normal employment contracts providing regular remuneration plus the ancillary benefits that are customary in Europe: contributions to retirement plans and to statutory health insurance, compensation in the event of redundancy, etc. One day, Newsco's management decides that it will be more profitable to stop employing journalists in that way, and instead to treat them as independent contractors (freelances), paid for each article they contribute, but not qualifying for ancillary benefits or for a regular income. Real employment is replaced by what I shall call nonemployment.

This mode of paying for newspaper content is likely to be a good deal cheaper for the publisher. It may enable Newsco to earn higher profits while selling its papers more cheaply, thus undercutting, shall we say, five competitors which provide comparable content, starting a price war. The five may have to slash their costs and prices by going over to nonemployment. We may call this the first wave of work degradation.

Then, in turn, maybe ten publishers that are not in direct competition with Newsco, but that have similarities with the five hit by the first wave, may find themselves losing business to them, and be forced to cut their own costs; here comes the second wave. And so on. We have a 'spreading ripple' effect, leading to exponential growth in the number of publishers having to 'externalize' their employees. To put it bluntly, bad employment (nonemployment) drives out good.

Arguments for nonemployment

Nonemployment is especially prevalent in the 'sharing economy', where operators of online 'platforms' promote use of otherwise idle resources, e.g. car-sharing, use of private cars for delivery services, or short-term letting of unoccupied dwellings. Such platforms are favoured by economists because they can provide more efficient use of resources, and competition against established operators of hotels, taxis etc. Platforms are popular because they offer lower prices for consumers and potential profits for their operators. But, without adequate regulation, they tend to treat meanly those who work for them without being formally employed by them.

Some observers fear that the practise of devolving work to nonemployed contractors, which at present concerns quite small minorities of workers, threatens to become the norm. We could be facing a long-term 'epidemic', not so much of unemployment as of nonemployment; that is, paid work on meager and erratic terms. A recent International Labor Organization paper states that 75% of US crowdworkers earned less than the federal hourly minimum wage ($7.25).(3)

Certain economists and writers on management have argued in favour of a shift to outworking, since it prunes the production costs, and therefore the prices, of many goods and services, enabling us to consume more of them. But there is a self-contradiction here: the nonemployees may well find that lower prices in the shops fail to compensate for the decrease and destabilisation of their income. Some people will still have good, steady incomes and will indeed be able to consume more. But is that what we need? Scientists assure us that the human race is already seriously overconsuming the earth's resources.

It is also argued that the move toward outsourcing of work to individual subcontractors is healthy, because the workers concerned may have, in certain ways, more freedom. Some (especially younger) people prefer to avoid traditional employment; their ambition is to succeed in self-employment. In libertarian circles there is a dislike in principle of the employer-worker relationship, and this attitude is not new. In both Britain and America, historically, employment has often been disparaged, on the view that ideally we should all be self-employed free agents.(4)

That proposition is dubious. It is certainly true that some people prefer to be self-employed and are able thus to earn a decent living. But we do not all want to be micro-entrepreneurs, as the French say; we are not all capable of making a success of that way of life. Plenty of attempts at self-employment fail miserably. In any case, many enterprises cannot function effectively with most of their work done by individual outsiders.

Workers' revenge

What remedies are there for the contagious disease of nonemployment? The first is the law. In California, the Assembly Bill 5 of 2019 (AB5) requires companies to reclassify some 'independent contractors' as employees, in particular contractors performing tasks that form part of the company's normal business. But this law provoked strong objections by many employers, so in 2020 a further law (Assembly Bill 2257) was passed, which exempted many kinds of work from the provisions of AB5. Moreover, the taxi-platform firms Uber and Lyft, among the main targets of AB5, backed a public referendum (Proposition 22) calling for their exemption, and this won majority support. The partial failure of AB5 highlights the difficulties of restricting nonemployment, due partly to the public's desire for lower prices, but probably more to the lobbying power of large firms.

In the case of Aslam v. Uber, the Supreme Court of the United Kingdom ruled unanimously, in February 2021, that taxi drivers working for Uber must be classified as 'workers', a term that in UK law designates an intermediate status between employees and contractors. The general secretary of the Trades Union Congress, Frances O'Grady, commented that this ruling is an important win for 'gig economy' workers and for common decency. Sham self-employment exploits people and lets companies dodge paying their fair share of tax.(5)

In France, the Cour de Cassation (highest court of appeal) held in 2020 that the 'independent' status of an Uber driver was fictif, that is to say, in reality non-existent, even fraudulent.(6) But the application of this ruling to contractors in general seems to be in doubt, the government preferring a compromise embracing some reforms to contractor status. This apparently reflects the view that nonemployment should be tolerated, subject to certain conditions, as a means of encouraging business start-ups and reducing unemployment. Libertarian economists have often encouraged the notion that if we want more jobs we must accept worse jobs; and this notion dies hard, even though certain countries such as Germany and Switzerland, that have relatively high quality of employment, also have generally low unemployment.(7)

Enhancing the status of hard-pressed workers depends, as usual, largely upon solidarity among them. The French union CGT has pressed for and obtained the reclassification of some hotel chambermaids as employees. The Independent Workers of Great Britain union was active in pursuing the case of Aslam v. Uber. In the USA, although the National Labor Relations Board ruled in 2019 that Uber drivers cannot join labor unions, the association Rideshare Drivers United provides a forum for drivers seeking to press for better conditions.

A widespread basic trend

The trend towards nonemployment is part of a wider, disturbing trend described by my profession as the Great Risk Transfer(8): that is, the widespread tendency of commercial and financial enterprises to divert risks from themselves to their workers or customers. Thus, nonemployment makes workers, rather than the firms for which they work, bear the risk of downturns in business. Needless to say, some of the firms concerned are large, profitable entities that are much better able than their workers to bear such risk.

This trend reflects a tendency that has been present in classical and neoclassical economics ever since the eighteenth century: the belief that economic policy should favour us consumers, in absolute priority to us workers. Thus Adam Smith wrote that the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumers.(9) He called for the abolition of craftsmen's guilds, observing that the consequent increase in competition would reduce the profits of the masters as well as the wages of the workmen . . . But the public would be a gainer, the work of all artificers coming in this way much cheaper to market.(10)

Orthodox economics works on the premise that we would rather be happy shoppers than happy workers. Too many of us work miserably so that the rest of us may consume wastefully. How can this make sense, when we are ruining our environment by overconsumption?

1. Dominique Méda, professor of sociology at Université Paris Dauphine, is a prominent writer on economic and social matters.

2. Tomáš Sedláček, a leading Czech economist, published Ekonomie dobra a zla (Economics of Good and Evil), a best-seller in his country, in 2009. An English translation by Douglas Arellanes was published by Oxford University Press in 2011.

3. See Job Quality in the platform economy (ILO, 2018).

4. Eric Foner, The Story of American Freedom (Norton, New York, 1998), pages 9ff.

5. Sarah Butler, Uber drivers entitled to workers' rights in The Guardian (London), 19 February 2021.

6. Arrêt no. 374 of 4 March 2020.

7. See www.oecd.org/employment/job-quality.htm

8. For further information on this theme see www.actuaries.org.uk

9. Adam Smith, The Wealth of Nations (1776), book IV, chap. 8.

10. Ibid., book I, chap. 10, part 2.