Who Shares the Risk?

The sharing economy is building its 21st-century technological breakthroughs atop a 19th-century social model.

Much of the early economic debate in the 2016 campaign could have been prerecorded 20 years ago (does free trade help or hurt the economy?) or even 30 years back (will cutting marginal tax rates boost growth?). But this week a spat finally erupted about the economy's future. The exchange began on Monday when Hillary Clinton noted that more Americans are generating income through services like Uber, Airbnb, and TaskRabbit that collectively have become known as the "sharing" or "gig" economy.

These new services, Clinton said, are "creating exciting opportunities and unleashing innovation but "¦ also raising hard questions about workplace protections and what a good job will look like in the future." That seemingly straightforward observation sent several of the GOP presidential contenders rushing to defend the new platforms against the threat of government intrusion. Rand Paul, the senator from Kentucky and Republican presidential candidate, delivered the snarkiest retort when he tweeted, "America shouldn't take advice on the sharing economy from someone who has been driven around in a limo for 30 years." Ouch.

An UBER application is shown as cars drive by in Washington, DC. (Andrew Caballero-Reynolds/AFP/Getty Images)

This initial exchange doesn't offer much optimism for a serious discussion through 2016 of how to balance the opportunities and risks these dynamic new companies are creating for workers. Which is why both sides would do well to consult Senator Mark Warner of Virginia. A centrist Democrat with his own tech credentials (he made his fortune in the cellular industry before entering politics), Warner has spent months quietly meeting with workers and executives from sharing-industry companies, as well as outside experts.

Warner is emerging less with specific answers than with questions he considers overdue for debate. He's impressed with the opportunities these platforms are creating for Americans to monetize their time and skills, and he's convinced that many of their workers welcome the flexibility these new options provide. But he's also wary of a model in which almost all the companies define their workers as independent contractors, not employees—thus denying those workers not only health insurance and pension benefits, but also unemployment insurance and vacation. "You don't want to stop the innovation that's taking place with a top-down model" of regulation, Warner told me recently. "But you don't want, if things go bad, all these people to be out there with no support."

The impact of the sharing economy is already considerable. About one-third of the workforce falls under the broadest definition of on-demand workers—which ranges from part-time to self-employed to temporary employees. Workers specifically earning money through sharing-economy platforms probably make up about 7 to 10 percent of the workforce. Even that group covers a wide range of activities, from a middle-aged driver working full-time for Uber to a young couple generating extra cash by renting their apartment on Airbnb twice a month.

In a study released last January, Uber said that almost two-fifths of its drivers rely on the service for their total income. That number would be lower for most other sharing platforms. But even so, it's clear that millions of Americans are using these options to keep their finances above water—and more likely will do so over time.

As that number rises, pressure will grow on the companies to reconsider the model in which they portray themselves not as employers, but rather as technology-enabled brokers between independent contractors and customers. So far, the new platforms have mostly defeated efforts to classify their workers as employees eligible for traditional workplace protections, but that wall is cracking. Last month, the California Labor Commission ruled that an Uber driver qualified as an employee (and deserved reimbursement for expenses). Some other prominent sharing firms have voluntarily reclassified their workers as employees.

Warner predicts that the sharing-economy companies themselves will ultimately prefer national standards defining protections for their workers, "rather than 200 different rules based on local ordinances or litigation." And those national standards, he says, will likely include contributions from both workers and the firms to some baseline of benefits. The unacceptable alternative, he says, is shifting "the whole burden" of retirement, health care, and disability for these workers to taxpayers through government programs.

A safety net for the fluid sharing economy wouldn't replicate the existing system structured mostly around full-time work for a single employer. Rather than each company directly administering health care or 401(k) plans for its workers, Warner says, firms could contribute to a pooled fund (an "hour bank") that jointly pays for benefits based on hours worked. They could also give vouchers to workers to purchase benefits on exchanges like those in the health care law.

The sharing economy is building an exciting 21st- century economic framework that marries convenience for consumers with new opportunities for workers. But that structure will collapse if it tries to resurrect a 19th-century social model that allows employers to avoid "sharing" any responsibility for protecting workers from the inescapable uncertainties of economic life.