Both Social Security and unemployment insurance were designed in response to a series of economic and demographic changes that increased the financial insecurity of millions of Americans. As is often the case, it took a national crisis — the Great Depression — to push our political institutions to help the nation adapt to its transformation from an agrarian to an industrial society, and to provide a measure of financial security in a more economically volatile world.
We are now six years from the end of the Great Recession, the greatest national economic crisis since the Great Depression. But it is increasingly clear that as our society continues its transformation from an industrial to a knowledge-based economy, our public policies designed to promote economic security are failing to meet the needs of a growing number of our workers and their families.
Consider the changing employer-employee relationship. Recently, we have witnessed the birth and rapid growth of what some have called the “gig economy,” exemplified by the emergence of firms like Uber and TaskRabbit.
These firms rely almost exclusively on a pool of contingent labor that is paid on a fee for service or commission basis.
The technological developments that allow for service providers and customers to be directly connected have introduced considerable flexibility into the labor market. They also offer real value to consumers, who have flocked to these services and helped make firms like Uber, whose market capitalization was recently estimated to be $50 billion, very valuable.
But these developments also have had the effect of shifting the risks associated with employment from the employer to the employee. This highlights the growing disconnect between legacy economic security policies and the realities of today’s labor market. These policies rely on payroll taxes and the assumption that most employers are willing to permanently hire workers and pay their share of taxes to finance Social Security and unemployment insurance — which is frequently not the case.
Take unemployment insurance, for example. This system excludes independent contractors, leaving those reliant on the gig economy on their own in the event they are displaced from one or more of their jobs.
Gig economy workers are eligible for Social Security benefits, but they must pay a self-employment tax, which means they are paying both the employer and employee share of the tab.
Whether Uber drivers or other contingent workers should be classified as independent contractors remains an open legal question. Nevertheless, it is clear that attaching rights and benefits mainly to full-time payroll jobs is an increasingly problematic way to define eligibility for economic security programs. A more effective set of policies would broaden coverage and better reflect the reality facing millions of American workers and their families.
In a recent article in the journal Democracy, serial entrepreneur and venture capitalist Nick Hanauer and labor leader David Rolf called for what they termed a “21st century social contract” that would reform existing economic security policies by making them all as portable as Social Security, pro-rated for part-time employees, and universally available to all workers, whether independent contractors or payroll employees.
Reasonable people can disagree about how these policies should be reformed; however, the need for reforms that better align our safety net programs with economic reality is hard to dispute.
While the recent track record of our national political institutions does not inspire great confidence, adapting policies, much as they did following the Great Depression, would have a profound and positive impact on the lives of millions of Americans who are being denied protections and benefits that have been taken for granted by many of their friends, neighbors, and relatives for the past 80 years.