National Journal

This article is from the archive of our partner National Journal

Lately, questions about the future of the sharing economy have come from all corners of the country—from the political stump, from the courts, from the emerging sector itself. Last month, in the first major economic speech of her presidential campaign, Hillary Clinton spoke directly about the sharing economy—both its pluses and its perils. "This 'on-demand' or so-called 'gig economy' is creating exciting opportunities and unleashing innovation," the Democratic front-runner said. "But it's also raising hard questions about workplace protections and what a good job will look like in the future."

Meanwhile, a California court is set to decide on August 6 whether drivers can move forward with a class-action lawsuit against Uber, the ride-sharing company, in their effort to be considered employees rather than independent contractors. A smattering of companies in this modest but growing sector of the economy are rethinking their practice of relying on freelancers instead of on more traditional employees—not for morality's sake but for the bottom line.

And so, it seems fair to suspect: The sharing economy is on the cusp of maturity.

It emerged for real around 2008, when the popularity of smartphones and apps allowed consumers to summon a service or buy a product with a finger's swipe. This technological breakthrough also empowered regular folks to sell—that is, to share—a good or a service by means of an online middleman that promoted its use and took a cut.

The concept wasn't original. Contractors and freelancers have found work for years as janitors, Web designers, consultants, and the like. What's new is that, during the Great Recession, companies built their business model on the idea of no longer needing to hire full-time workers, with all the costs that entails. Even as the economy has recovered, the sharing-economy sector has continued to thrive.

Its allure flows in part from its origins as a freewheeling segment of the economy, one that offers flexibility to its workers and suppliers. The point was to employ technology to help people earn money from assets that would otherwise go to waste—cars, beds, used clothes, spare time. Think of companies such as TaskRabbit, which connects freelance workers to household projects or personal chores, or Airbnb, which enables people to rent out rooms, apartments, or vacation homes. Drivers for the ride-sharing services, Uber and Lyft, can work at night, on weekends, or during the day, fitting it in around other jobs or family responsibilities.

The sharing economy is still small. It accounts for just 1 or 2 percent of the American labor force, according to New York University business professor Arun Sundararajan. Also counting independent workers who don't labor directly for the likes of Uber, the federal General Accountability Office recently estimated the proportion at anywhere from 5 percent to more than a third of American workers, depending on how the category of contractors and freelancers is defined.

But by all accounts, these numbers are growing. Uber, Lyft, Postmates—the groceries-and-everything delivery service—and Airbnb have recently attracted gobs of startup funding. They're seen as bright spots in the tech economy, as a way to make age-old services—taxi rides, mail delivery, laundry, vacation rentals—seem shiny and new.

The sharing economy, at its best, is attractive to idealists as a means of discouraging an obsession with owning material things. To pessimists, however, it's a sign that too many Americans can no longer afford nice things of their own.

Indeed, there's a dark side to the sharing economy, in the dismissive, even shabby, way it treats its workers. Contractors don't receive the same protections as regular, traditional employees—no benefits, sick time, vacation days, pensions, workman's compensation, or unemployment insurance. The work can slow down or dry up, and the worker bears all of the risk. The sharing economy is most problematic for workers who rely on it for their entire livelihoods.

"I wouldn't say that these companies should go away—I'm all in favor of flexibility for workers," says Rebecca Smith, deputy director of the National Employment Law Project, which has studied how freelancers are treated. "But they have to deliver core labor standards so workers can make a living."

One strategy for helping these independent workers is simply for the IRS to add more categories to its classification of workers. Now, the choices are two. A worker is considered either an employee, one who files a W-2 form with the federal tax return, or else a contractor or freelancer, who files a 1099 form. Companies in the sharing economy have typically leaned on 1099, or freelance, workers for most of their workforces.

But these classifications no longer capture the diversity of workers in today's economy, according to NYU's Sundararajan. "Neither [category] captures the reality of what is happening today," he says. "We are entering this phase where there is a continuum." A larger number of classifications could identify part-time workers and help them obtain government benefits such as unemployment insurance and workman's comp.

Another way to help independent workers is to rethink the social safety net, untethering it from a person's place of employment. Sara Horowitz, founder of the Freelancers Union, would like to work with a city on a pilot project to test what a safety net might look like. Sen. Mark Warner, a business-minded Virginia Democrat, has suggested that sharing-economy employers contribute to a pooled fund that would help pay for independent workers' health insurance and other benefits, based on how many hours they work. Seattle venture-capitalist Nick Hanauer and David Rolf, a Service Employees International Union executive, recently published detailed proposals, similar to Warner's, to create a single, portable account—much like Social Security—that would give freelance workers access to benefits of all types.

For these go-it-alone workers, a stronger economy should only strengthen their leverage. As the unemployment rate drops and labor markets tighten, the companies will need to work harder to attract and keep employees. An office-cleaning startup, Managed by Q, decided from the first to hire only true employees, rather than contractors, because they were more engaged and productive—adding to the company's profits and its ability to grow quickly. A few other companies, fearing the possibility of regulation in states and cities across the country, are following suit

Given the political and legal pressures, it seems unlikely that the sharing economy will continue to function as is. The challenge is to find a balance between offering workers greater protection and continuing to encourage new companies to innovate in the goods and services they provide.

"The work will not go away," says Shannon Liss-Riordan, a Boston labor lawyer who represents workers suing Uber and other companies in the sharing economy. "The question is how the companies are going to handle it from the workers' perspective."

This article is from the archive of our partner National Journal and part of our Next Economy coverage.

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