Mainstream economists have long acknowledged that the flexibility of the U.S. labor market – workers’ relative ease of changing jobs, along with employers’ parallel discretion to change the size, composition and tasks of their workforces – has paid dividends in terms of productivity and economic growth. But they also acknowledge the downside, the insecurity that follows from the lack of protection of jobs and the reality that workers bear much of the burden of buffering their families against the risks of unemployment, social dislocation, health catastrophe and old age.

The resulting tensions tend to play out in conflicts over issues ranging from the rights of labor to organize to access to health insurance to retirement savings. But some of the newest skirmishes arise from rapid changes in work itself, as the relationship between business and labor is being transformed by technology that allows for even more flexibility in work hours, work location and compensation arrangements.

Here, we look closely at one source of tension: whether and how to extend the benefits now provided to full-time employees to the growing, churning army of gig workers. It is an especially difficult one to manage because these new-style, part-time workers have widely varying preferences and labor in widely varying circumstances, making one-size-fits-all fixes elusive.

The Gig Revolution

“Gig workers,” everyone from the local handyperson who plows your driveway in winter to the copy editor who spared the authors of this article the embarrassment of errors in grammar, have always been part of the American labor force. Indeed, their status has been an ongoing source of struggle between business and labor interests since the Great Depression when federal and state laws granted a host of rights and benefits to full-time employees – and in the process increased the demand for “independent contractors” who lacked the regulatory baggage of the protected workforce. Just this past March the Department of Labor laid down fresh rules, likely to be disputed in the courts, that narrowed the definition of these contractors.

But the issue of who’s a gig worker and who’s not grew sharply in importance with the arrival of major digital platform businesses and the proliferation of startups seeking (in Mark Zuckerberg’s words) to move fast and break things. The past decade has seen an explosion in the market for temporary workers who provide a host of services through commercial platforms, but are not counted as employees.

Most notable is the startling pace of growth in local transportation network companies (such as Uber and Lyft) and delivery network companies (think DoorDash and Instacart). But the gig economy has grown rapidly along other dimensions as well, with freelancers working on sites like Task Rabbit and Upwork, and entrepreneurs dreaming up new demands for flexible work/workers every day.

Although data on gig work are challenging to collect, it’s plain to see that the numbers involved have gone through the roof. Andrew Garin and colleagues used tax data to count individuals earning income from platform companies. By 2021 gig workers composed approximately 3 percent of the U.S. workforce – about five million in total and 30 percent of all self-employed workers.

This tremendous growth was driven primarily by the pandemic, of course, when millions were laid off from full-time jobs even as the demand for platform workers to serve the stay-at-home economy more than doubled. Meanwhile, a survey of workers from the Pew Research Center in 2021 found that 9 percent of the workforce reported working for an online platform in the past year, with the yawning difference between these two sources (3 percent versus 9 percent) reflecting in part the minimum requirements for reporting gig earnings for tax purposes. The number of drivers who sometimes work for Uber and DoorDash is likely over one million each, while the combined revenues of these two platform companies alone are up roughly fivefold since 2017.

This shift has a variety of implications for the labor force, and for society more generally. One of the most important relates to the provision of employee benefits. Most American workers enjoy employer-sponsored benefits that provide some degree of protection against the costs of illness and loss of income due to injury, sickness, unemployment and retirement, but gig workers rarely do.

On first glance, the obvious fix would be to encourage (or mandate) provision of equivalent benefits.

The traditional model simply doesn’t work well for gig workers, however. For one thing, employers typically provide these benefits to their full-time workers only after some period of attachment to the firm. What’s more, many gig workers would not value these benefits because they already get them through their own full-time work or that of their spouses. And while gig workers generally wouldn’t say no to benefits, some of them would certainly balk if (as economists would predict) employers managed to shift the added cost to them by reducing their cash compensation.

The waters are further muddied by the real50 The Milken Institute Review ity that gig workers also value the flexibility of being able to vary their hours across both platforms and time on short notice. This makes it problematic to apply the traditional benefits model, raising questions such as who is sufficiently attached to the firm to qualify for benefits, and who provides benefits when workers put in hours on multiple platforms.

One incremental solution is to define away part of the problem, tightening government regulations to reclassify some gig workers as traditional employees for purposes of labor protections, then let the labor market adjust on its own. This approach is embodied in recent legislation in some states, notably in California’s Assembly Bill 5, which by one estimate reclassified a half-million gig workers in a state labor market of 24 million.

But the driver-dependent platforms fought back, spending $205 million on a ballot initiative exempting drivers from AB5 that passed with 58 percent of the vote. In a compromise of sorts, the ballot measure did mandate a narrower set of protections, including the right to organize, minimum compensation and payment for on-the-job injuries.

Win or lose, though, the AB5 approach is problematic on at least two counts.

The traditional employer model is already eroding for unrelated reasons, and putting gig workers into a declining system does not appear to be a forward-looking option. Moreover, few gig workers fit the old stereotype of underemployed individuals making ends meet while looking for full-time jobs with benefits.

As discussed below, most gig workers are using this work to supplement their earnings, not as a main source of income. And the flexibility that these positions bring would be constrained by the rules of engagement for traditional employer-employee relationships.

The alternative is to introduce a new approach that addresses the problems that the new breed of gig worker faces in providing for their income, health and retirement security. One of the authors (Gruber) has proposed a new model, outlined below – one based on insights from a study surveying Uber drivers about their benefits preferences.

Judging by the survey data, gig workers value the flexibility of being able to vary their hours and timing of work, often by working for multiple platforms. This plainly makes it difficult to apply the traditional benefits model. (Details of the analysis of the driver survey are available in National Bureau of Economic Research Working Paper 29736.)

Square Pegs, Round Holes

Employers have been the dominant source of household benefits in the U.S. for more than 70 years – this is an American particularism driven on the one hand by Washington’s reluctance to create universal social programs unrelated to employment, and on the other by the aforementioned corporate efforts to make end runs around government wage controls during World War II. The system worked best in industries in which workers expected to stay a lifetime with a single employer (typically a manufacturer benefitting from ongoing, technologically driven productivity gains), who would be around for decades to honor their promises.

But benefits have become less generous, most notably in health insurance, where the breadth of coverage has shrunk and the number of workers under the shade of the insurance umbrella has fallen from 66 percent in 2001 to roughly 60 percent in 2021. Employer support of retirement plans is even spottier, with the near-disappearance of traditional employer-funded retirement annuities and their replacement with employee-funded 401(k) plans, which just 56 percent of workers choose to pay for. Note, too, that the adequacy of 401(k)s as support for retirement is dependent on the success of individuals’ own investment choices, which makes the approach inherently problematic.

This decline in the scope and adequacy of benefits has to date meant little to gig workers in the U.S. who have been classified as independent contractors and thus only have coverage in limited cases. Rideshare drivers in New York City do receive workers’ compensation, death benefits, vision benefits, dental insurance, telemedicine, legal assistance and accident support through Black Car Fund, a nonprofit created by New York State. Platform workers in California, for their part, receive occupational accident insurance protection and health care stipends under the mandate of the 2020 state voters’ initiative, and rideshare drivers in Washington State receive workers’ compensation, paid family and medical leave, unemployment insurance and sick pay under recently passed legislation. But coverage across industries, regions and types of benefits varies enormously.

This Swiss-cheese protection is plainly problematic. For example, retirement is not always in the control of employees: forced retirement contributes to the timing of jobleaving for over half of retirees. This is a big deal since less than 40 percent of workers felt that their retirement savings were “on track,” and one-fourth lacked any retirement savings whatsoever. Bootstrap solutions are improbable: a 2020 Pew survey of gig workers found that 30 percent had put away money for retirement only occasionally or never in the past 12 months.

Now, health insurance is available to all through Affordable Care Act (Obamacare) exchanges, for many at subsidized prices. But premiums can be as high as 8.5 percent of income – a level that probably explains why some 25 million Americans who don’t have employer coverage and aren’t eligible for means-tested Medicaid don’t buy coverage themselves. And the 8.5 percent income cap itself is in jeopardy since it depends on Congress’ reauthorization of the ACA subsidies.

Given these shortfalls, there is a strong argument for strengthening benefits for gig workers. But how?

As Gruber confirmed using internal Uber data provided by the company, depending on a single employer to organize and/or pay for benefits, is obviously tricky. Among the sample of workers who were active on the Uber platform at the start of a quarter, only 22 percent worked 20+ hours for Uber for four consecutive weeks, while only 13 percent worked 30+ hours for four consecutive weeks. Moreover, less than 5 percent of these workers worked 20+ hours every week in a quarter, and only 2 percent worked 30+ hours every week in a quarter.

What Do Gig Workers Want?

The natural starting point for building a benefit structure for gig workers is to get a better understanding of their circumstances on the job as well as their own preferences. Gruber worked with Uber to survey their drivers in the summer of 2021. The survey universe consisted of all active drivers outside of California; drivers were offered a $10 Amazon gift card as an incentive to participate.

There was a 0.34 percent response rate, yielding 1,063 responses. This is a very low response rate, so the results should not be interpreted as the last word but rather as an informal indicator of where gig workers see their interests. The respondents were then weighted to match the characteristics of the overall driver population. Compared to the total U.S. workforce, the sample was more male, more nonwhite, and included both fewer low-educated (high school dropout) and highly educated (graduate degree) individuals.

We surveyed drivers on a variety of topics including their backgrounds, their sources of work and earnings, and their priorities for benefits. We considered four types of benefits: health insurance, retirement accounts, sick leave and savings accounts that could be tapped for short-term needs. To measure the intensity of preferences, we used an “unfolding” survey method to sequentially measure the value that drivers place on a dollar of benefits versus a dollar of cash compensation.

Their responses proved to be quite informative. Eight findings are particularly relevant – though once again it is important to remember the results represent the views of the small share of drivers who responded.

1. Uber drivers work for multiple apps. Some 75 percent have worked with at least one other platform company, and more than 40 percent have worked with at least two others.

2. Drivers largely use the work to complement other sources of income. Almost half of our sample earn less than $5,000 per year from platform work, yet more than threequarters have family incomes exceeding $20,000. Only one-fifth earn more than half their income from driving, while almost onethird earn less than 5 percent behind the wheel.

3. Drivers typically – but far from universally – purchase or are entitled to benefits from another source. About 77 percent have health insurance. And 47 percent have retirement savings accounts, almost all from employment outside of gig work.

4. Fewer than half of those surveyed have $1,000 in liquid assets available for emergencies. More than one-third said that they had less than $400 available.

5. Drivers value benefits highly. Almost 30 percent value an additional dollar contribution to their retirement accounts or flexible savings accounts at more than $1. Even after accounting for the tax advantage of benefits, around half of drivers would rather have an extra dollar in retirement contributions than an extra dollar in cash.

6. Retirement accounts and flexible savings accounts are higher priorities than other benefits, including health insurance. That is likely because the majority have health insurance from other sources. Among those without coverage, health insurance is valued similarly to retirement contributions.

7. Only one-quarter of drivers would prefer a savings account that lets them flexibly remove the money. Meanwhile, almost one-quarter would prefer not to have that choice. There is even substantial enthusiasm for a “save more tomorrow” option that allows workers to devote a share of earnings from high-earning weeks toward retirement savings. Indeed, if such contributions were matched by the platforms (as is the case for a minority of full-time workers), 80 percent would opt for it.

8. Drivers’ priorities are all over the place. Some 40 percent value retirement benefits most highly, but more than 20 percent put health benefits at the top of their lists, and more than 35 percent value sick leave pay most highly. Every single ranking of these three benefits is preferred by at least 8 percent of the sample, and no single combination is preferred by more than 25 percent.

Getting from Here to There

One way or another, a successful benefits model needs to honor both gig workers’ desire for work flexibility and wishes for benefits protection. Here’s one approach.

Government-sponsored benefits platforms. Each state would maintain a Gig Worker Benefits Platform (GWBP) that can host benefits. Following the approach of the ACA exchanges, these platforms could be run by the states, or the federal government could set up a default model that is available to each state.

States would set rules for eligibility for using the benefits platforms, for example, including gig employers who meet a minimum level of payroll or sales (or both) in the state. It may make sense to limit access to just workers who make use of the platform at some minimum level – for example, including regular rideshare drivers but excluding individuals who very occasionally sell something on Etsy.

An interesting question here is how to treat the large number of self-employed workers who don’t work for one of the platforms. In principle, it would make sense to allow them to use the platforms to manage and fund their own benefits. But this would create complications that, while surmountable, might be better addressed down the road.

Regardless, one important lesson from snafus in the implementation of the ACA exchanges is clear: the benefits platforms must function well from Day One. Initial failure could delegitimize the effort.

Mandatory minimum contributions. Platform companies should be required to make some minimum contribution to the GWBPs that is linked to the number and incomes of their gig workers. This would allow the GWBPs to cover the expected costs of the mandated injury benefits described below.

Worker contributions. Platforms should be required to facilitate workers’ contributions with automatic deductions from compensation, adding matching contributions if they choose. But platform companies would not designate how contributions would be divided across benefits since workers would often be pooling contributions from multiple platforms.

Injury benefits. All gig workers who earn above workers’ compensation (WC) minimums 56 The Milken Institute Review in their states would be eligible for medical and indemnity benefits, which would parallel state WC programs. Qualification for this benefit would follow WC rules for traditional work.

Worker options. Enrollees should be able to freely allocate their contributions to one of three options:

• Purchases on health insurance exchanges. Participants with gig income that is sufficiently low to qualify them for Medicaid coverage or zero-dollar ACA premium coverage could explore whether these options are still available after including their other income.
• Contributions to retirement savings. The GWBPs would create and act as custodians for individual retirement accounts. Gig workers who already have IRAs could link these new IRAs with their existing accounts.
• Contributions to emergency savings. Individuals could deposit funds in designated accounts that could be withdrawn for emergencies. States could limit the use of these accounts to emergencies by a variety of means. For example, by restricting withdrawals, with a sort of “vesting” provision that makes funds available only gradually. Or states could set up limits on balances in emergency savings accounts, beyond which funds would automatically be rolled into retirement accounts.

Wall Street’s Role

As a practical matter, states would need to partner with financial providers like mutual fund groups for both the IRA and short-term savings options, with preferences for one or more providers with rock-bottom fees and competitive product offerings. The states already have some parallel experience here with so-called 529 college savings accounts to draw upon.

Taxes

A potent incentive to providing benefits in traditional employment is that they defer income taxation or eliminate it entirely. Tax status could thus become an issue for the GWBPs. Among the factors to consider:

• Retirement contributions from the beneficiaries themselves should be tax-favored under existing law. Employer contributions would be taxable, but that would be offset by the tax deduction as the individual contributes to their IRA.
• Unless Congress passed enabling legislation, emergency savings would receive no tax preference over ordinary income.
• Contributions toward health insurance from the platform companies might or might not be tax-favored under existing arcane rules. Workers’ own contributions should be deductible from income taxes under the self-employed health insurance deduction now on the books. But legislation resolving uncertainties would be useful.

• Note that for the vast majority of gig workers, the tax issue is more apparent than real since their incomes (and therefore their marginal tax rates) are very low.

Threading the Needle

Gig work – and gig workers – show no sign of going away. In some cases, its rise simply reflects business’ efforts to avoid taxation and regulation, and in others, the frustration of workers who can’t find the full-time jobs they want. But more often it is a product of the flexibility of the U.S. labor market to respond to changing technology and changing demand, with payoffs for both businesses and workers.

None of the stakeholders are likely to be entirely satisfied with any specific proposal to adapt public policy to the new realities of gig work. It seems clear, though, that the least we can do is give gig workers some of the protections automatically conferred on the traditional labor force. And a platform for delivering benefits that has minimal impact on the efficiency and flexibility of gig labor seems a fine place to begin.