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Labor Department Should Not Block the Flexible Future of Work

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Labor Department Should Not Block the Flexible Future of Work

November 25, 2015

“Freedom, flexibility, and mobility.” This is how Secretary of Labor (2001-2009) Elaine L. Chao described the future of work at an American Action Forum conference last week. While calls for a $15 an hour minimum wage or paid parental leave receive far more attention from the press, Chao’s push for an individualized labor force is the real path to a 21st Century workplace.

The U.S. Department of Labor’s outdated policies are major impediments to a modern workforce. Chao pointed out that the Labor Department administers over 180 laws, some of which, such as the 77-year-old Fair Labor Standards Act, date back to the Great Depression. Even the Occupational Health and Safety Administration is now 45 years old. It is difficult to promote Chao’s principles when employers and their employees are forced to comprehend 64,000 restrictions from DOL. 

Even under this colossal level of Washington control, it is challenging to revise updated labor regulations. DOL not only has to find political support and go through the regulatory reform process, but it also has to take steps to educate and persuade business owners. Stability and regulatory certainty are critical for established business owners, which is why some prefer the outdated status quo when many of their employees and new competitors desire updated regulations. 

Last week I gave testimony to the Joint Economic Committee on how federal policymakers can embrace millennials’ version of the American Dream. Echoing Chao’s sentiments, another witness, Rep. Elise Stefanik (R-NY), used the term “flexibility” five times during her prepared testimony. This emphasis was intentional. Stefanik has met with countless young entrepreneurs and workers to hear their concerns. She has also heard from stakeholders of the main symbol of the new economy—Uber.

The growing peer-to-peer economy that Uber epitomizes creates many opportunities for workers. Advances in technology have greatly reduced transaction costs and increasingly those with goods or services to provide can become their own bosses. People are taking advantage of this additional way to make extra money, as 55 percent of drivers who partner with Uber work less than 15 hours a week and two-thirds have a separate full-time job. Many people who drive with Uber also drive with Lyft, its main competitor. 

When 600 Uber driver-partners were asked the question, “If both were available to you, at this point in your life, would you rather have a steady 9-to-5 job with some benefits and a set salary or a job where you choose your own schedule and be your own boss?,” 73 percent said that they prefer flexibility over the traditional employment model. This new model does not fit into what many policymakers consider the 9-to-5 employee ideal, and regulators are making it more difficult for flexible work opportunities to grow. 

DOL recently issued an administrator’s interpretation, effective immediately, to clarify the definition of an independent contractor. This interpretation downplays the employer’s lack of control over workers’ hours as a factor in determining employment status. DOL states that “most workers are employees,” not contractors. 

There is no surefire way to determine worker status. That is why DOL has a six-part test that, in addition to control over workers’ hours, considers aspects such as the permanency of the work relationship and how integral the work is to a company’s business model. Uber does not tell its partners when, where, or how much to work, but now they could be considered employees rather than independent contractors.

While labor regulations for contractors are fairly minimal, employees must be paid the federal minimum wage, overtime, and benefits. In the case of people who partner with Uber, the company would likely be responsible for paying the costs associated with driving, too. This distinction is costly—DOL’s Employment Cost Index shows that providing benefits adds around 30 percent to the cost of employing a worker.

When MyClean (the Uber of housecleaning) moved from independent contractors to full-time employees, its labor costs increased 40 percent, according to its CEO.  A similar company, Homejoy, shut down this year due to labor classification disputes.  

Even though this new interpretation will have profound effects on the economy, it did not have to go before the public for comments. Interpretations are able to escape the formal rulemaking process and fall into the growing category of what Competitive Enterprise Institute economist Clyde Wayne Crews calls “regulatory dark matter.” 

The current uncertainty in how governments will respond to the worker-classification question puts peer-to-peer firms in a difficult situation. Offering access to healthcare and other benefit portals is something Uber and its competitors are interested in pursuing. These offerings are ways to compete for the best talent, but Uber’s role does not change—it is still a technology company that helps to match independent drivers with rides and facilitates the payment process. 

As Mercatus Center research fellow Christopher Koopman, a panelist at the AAF event, explained to me, “There is pressure for companies like Uber and Lyft to provide more benefits and perks to drivers. But the more of these things they provide, the easier it becomes for someone to claim their drivers are employees rather than contractors.”

It is difficult for regulators to embrace the changing economy. Politicians on the campaign trail often talk about the need for regulatory reform, but if the cases of President Bush and President Obama are any indicator, their rhetoric will not be enough to change federal policy. 

However, despite a lack of reform, one major shift has happened since the 2012 race that cannot be discounted—the rise of the peer-to-peer economy. Some workers finally have a way to satisfy their desires to work on their own terms. It is now up to DOL to facilitate workers’ desires for freedom, flexibility, and mobility, not stand in the way.  

 

Jared Meyer is a fellow at the Manhattan Institute. He is the coauthor with Diana Furchtgott-Roth of Disinherited: How Washington Is Betraying America's Young. Follow Jared on Twitter here.

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