In economics, we talk of #externalities, especially where you produce benefits that your business can’t capture.
Classic example: Disneyland in California was rapidly surrounded by hotels, restaurants, and competing attractions benefiting from Disney’s visitors. Disney didn’t capture “rents” from all the businesses riding on its mousetails.
Disney responded by buying up tracts of land around Disneyworld; private property the size of San Francisco. Disney controls and profits from nearly everything in Disneyworld’s vicinity.
But you can do the opposite of recovering externalized revenue.
Many powerhouses in the gig economy do. Rent-a-driver services like Uber and Lyft, delivery services like Deliveroo, rent-a-person services like TaskRabbit.
Instead of capturing external benefits they generate for others, they push out their costs.
Mostly, they push those costs onto their workforce.
- They push capital costs onto the workforce. Instead of the company providing cars, trucks, motorcycles, bicycles, housecleaning tools, safety gear, the worker pays.
- Instead of the company paying big operating costs like fuel and insurance, the worker pays.
- Most stores hire enough staff to buffer variation in demand, to keep the store open even when nobody’s shopping. Instead, the gig economy businesses push demand variability risks onto their workers. Why pay wages for quiet times? Workers aren’t guaranteed weekly hours and salaries. So their wages fluctuate shift by shift, week to week.
- Worker income is often tied to piecework bonuses and tips, again shifting demand risk from the company to the worker.
The gig economy operators say they are transparent about costs so workers can make informed choices.
They argue they operate in a free and open labor market.
But there are problems with this.
- Individuals don’t have the buying power of a corporation.
- So insurance for driving, liability, health, life, parenting, and disability are much more expensive.
- Individuals don’t have the collective bargaining power of an employed workforce.
- So while they can beg, they can’t negotiate for better working conditions.
- Individuals don’t have access to relatively cheap capital funds.
- So workers have to save and borrow at consumer rates for transportation and tools.
- Individuals have limited ability to buffer dramatic schedule shifts and compensation gaps.
- So when workers absorb the company’s demand variability without pay, workers are hurt short term in their ability to fill those hours with other income and suffer long-term financial damage.
- Individuals don’t have the same accounting and IT infrastructure as the gigcos.
- So workers don’t have a full picture of their real costs or the ability to identify ways to lower them.
With these costs and risks falling on workers, this makes them vulnerable. Their living and life are precarious.
Back to externalities for a moment.
Sometimes pushing costs outside of your firm harms society.
Air pollution in big cities is one example. Households and businesses pollute everyone’s air without specific incentives.
The air is a common resource, important to everyone. So it made sense to use government power to change polluting behavior.
- In cities and states around the world, rules limit and penalize industrial waste.
- Fees and taxes incent better behavior. They make higher-polluting choices in cars, ships, heating, and architecture more expensive than less-polluting ones.
- Egregious pollution is criminal, resulting in businesses closed and executives jailed.
- And scientists measure everyday results so everyone can see our collective progress.
So the Los Angeles basin, home to Disneyland, once a world leader in smog death and injury, is once again safe to breathe and beautiful.
Two other examples of societal harm from pushing costs outside the firm:
- Drug dealers not responsible for the costs of sickness caused by their narcotics.
- Employers paying less than a living wage not responsible for workforces drawing too heavily on poverty safety-nets.
Let’s end our talk of the gig economy and the precariat by looking at next steps. How can society respond to companies shifting unwanted costs to their workforce?
- Labor actions are quick. Strikes and boycotts, informational pamphleteering, organizing trade associations and unions.
- Litigation. Suing gigcos to have gig workers receive the same protections and benefits as employees. Suing governments to change the laws.
- Fees and taxes. Shifting some of those costs and risks back to gigcos.
- Universal income. Taking risk off the shoulders of the very bottom of the workforce.
- Accounting. Insist gigcos measure and report the costs and risks they pass to their workers. Same for risks. And do it accurately, publicly, consistently, frequently. And aggregate teh results so all of society can track progress.
Sadly, we don’t seem to have regional or national government agencies that know, understand, and are committed to fix these problems. Same for most existing organized labor orgs. Or political parties. Or news media. Or good government watchdogs. Which stakeholders will pull the trigger first?