- November 30, 2021
- Posted by: Erik
- Category: Newsletter
–A newsletter brought to you by EntreWorks Consulting, Arlington, VA
Welcome to the latest edition of EntreWorks Insights, a quarterly newsletter that reports on business trends, policy developments, and other issues affecting the business of economic and workforce development. You’re receiving this note because you’ve asked to subscribe or because you have some previous interest in the work of EntreWorks Consulting. If you wish to subscribe or be removed from this list, please send an email to info (at) entreworks.net. If you’re interested in the newsletter, please read on. Please feel free to share with friends, family, colleagues, and other loved ones. Comments and constructive criticism (and praise) are also welcome. You are also encouraged to visit the EntreWorks blog at http://entreworks.net/blog. Thanks for your interest.
Erik R. Pages
Volume 18, Number 2
HIGHLIGHTS: A New Gig Economy Social Safety Net?
What’s New at EntreWorks Consulting?
A New Gig Economy Social Safety Net? Lessons from the Pandemic
The COVID-19 pandemic has been a challenge for all of us, and it has transformed how we will live, work, and play going forward. Whether we like it or not, we’ve been in the midst of many experiments about how we are going to work in the future. Some of the biggest shifts relate to the independent or gig economy workforce, and that’s what I’m going to dig into below.
When COVID-19 first led to shutdowns in March 2020, governments around the world scrambled to bolster social safety nets. In the US, we passed the CARES Act, which governed much of our immediate response to the pandemic. Among other things, the CARES Act funded various emergency loan programs, expanded unemployment insurance (UI) benefits, and numerous other essential social programs. For the first time, the CARES Act, via the Public Unemployment Assistance Program (PUA), also expanded the ranks of “covered employees” to include many independent, contingent, and gig economy workers.
PUA was an important innovation in a number of respects. It represents one of the first times that we have experimented with social support programs targeted to the independent workforce. On many fronts, it worked well. It successfully targeted younger and more marginalized workers who would not have qualified for traditional UI benefits. The JP Morgan Chase Institute also found that PUA benefits were an essential hedge against lost income, even though the benefits were often paid after long delays.
We also know that there was huge demand for the PUA benefits, which the National Association of State Workforce Agencies referred to as a “claims tsunami.” In fact, they accounted for nearly half of all US claims for expanded UI benefits during the pandemic. While independent workers accounted for about half of all new claims, the total costs of these benefits represented about 12% of UI claim dollars. This lower dollar value likely reflects the lower pay received by this share of the workforce.
An Early Post-PUA Assessment
These PUA benefits ended in September 2021, and now is a good time to start assessing their impacts. The biggest takeaway is that PUA provided a much-needed lifeline for at-risk workers. Demand for the benefit far exceeded expectations. We also know that the program affected many marginalized workers who were not eligible for other benefits. This group includes younger workers, minority workers, and those with less established employment histories.
While PUA beneficiaries received lower levels of support, they have tended to claim benefits for a longer period than other UI recipients. This trend has generated some debate: are PUA recipients being discouraged from returning to work or are do they face higher barriers in their return to work? However, recent research suggests that the work disincentive impacts of extended PUA and UI benefits were limited.
So, while it is still too early for definitive conclusions, let me suggest a few take-aways:
1. Extended unemployment benefits for independent workers were essential lifelines during the unprecedented economic shocks of COVID-19.
2. The benefits supported people most in need, and who would have been shut out of traditional public benefit programs.
3. The PUA program worked well even though its rollout was challenging to both program managers and beneficiaries.
PUA and the Post-Pandemic Gig Economy
The PUA effort occurred during an unprecedented economic emergency, and, despite some growing pains, it appears to have worked fairly well. Going forward, we can expect demand for similar programs to be strong, even if we avoid another calamity akin to COVID-19.
Reams of economic data and analysis all confirm that the trend toward independent work is growing and will continue to grow. According to MBO Partners annual State of Independence Survey, 51 million Americans are now engaged in the gig economy. This number skyrocketed during the pandemic, jumping more than 34% in one year.
A large share of this growth undoubtedly resulted from necessity, as displaced workers were pushed into independent work. But, the biggest chunk of the growth was driven by opportunity and choice. In fact, more than 60% of those surveyed by MBO Partners define themselves as “independent by choice” and 68% view independent work as more secure than a traditional job. These people also seem happy with their choice, with 77% noting that they are “very satisfied” with independent work.
A New Social Safety Net?
In late 2021, we stand at a point where we know that the independent or gig economy is here to stay. More people are choosing this type of work, and most appear to be happy with their choices. But, all independent workers remain at risk with a tattered safety net that offers little security in cases of emergency or god forbid, another pandemic-like economic shock.
This has been our economic reality for a long time, but it doesn’t have to be that way. Our pandemic experience with PUA shows that these programs are in high demand and that they work. We also know that the US is unique among advanced economies in failing to provide adequate benefits and support to independent workers.
Perhaps even more importantly, we know that providing a better safety net for gig economy workers is good for the overall economy. At the most basic level, a majority of gig economy workers, according to the Aspen Institute Gig Economy Data Hub, choose independent work and prefer this option to traditional employment. We should not underestimate the importance of supporting employment options that increase work and life satisfaction. In addition, growing evidence suggests that the gig economy provides an important boost to the entrepreneurial economy. The effect appears to be related to the role of gig economy platforms, like Uber or Lyft, in offering an opportunity to supplement income while developing a new business. This impact seems to be strongest in locations with more challenging socioeconomic conditions. This latter finding aligns with the PUA experience of providing targeted benefits to younger and more at-risk workers.
This evidence suggests that we’ll continue to see a boom in independent work, as it better accords with our current lifestyle and work preferences and it also has other economic benefits as well. So, why do we don’t we make this work more sustainable and less risky?
This will require several steps. First, we should consider a permanent program similar to that offered by the PUA experiment. This is somewhat easier said than done, since the we’ll need to find a way to pay for this program expansion. Traditional UI benefits are funded by employers, so this source of funds is not available for independent workers. In addition, this move will require changes in employment law to define eligibility and the scale and scope of benefits.
To put it bluntly, these are challenging tasks. Yet they likely cannot be avoided if the move to independent work continues its current pace. We’re already seeing some states start to address this issue of defining (or redefining) employment. These early efforts, such as California’s AB-5 law, have had mixed results to date, but other state policy experiments are underway. Over the longer term, I suspect that states and localities who effectively address these safety net issues will have a competitive advantage in the ongoing war for talent. In fact, they may be a better incentive than the cash relocation payments now being offered in places like Vermont, Tulsa, and Northwest Arkansas, among others.
Second, we will need to improve our ability to track the independent workforce. At the broadest level, we need to better understand the size of this workforce. We have lots of data sources, but they vary greatly in how they identify independent workers. Clearer guidelines and definitions are needed.
We’ll also need to improve how we measure independent work itself. This issue proved to be a major barrier in accessing PUA support. Many freelancers were not able to effectively document their past incomes, making it nearly impossible to verify their eligibility for PUA benefits. Fixing this issue will require new rules and regulations, but it will also involve innovations that help independent workers track hours, income, and work activities. Groups like the Workers Lab and Freelancers Union are testing promising new approaches and technologies here.
Finally, social safety net innovations should not be limited to unemployment benefits. They should also include support for insurance and retirement benefits as well. According to the Pew Trusts, only 21.9% of non-traditional workers have access to workplace savings plan. Real economic security depends on the ability to save for retirement or emergencies, and independent workers need fair access to these opportunities as well.
Our pandemic experience with the PUA program suggests that we can build a more robust and resilient safety net for all workers. It’s time we did so.
What’s New at EntreWorks Consulting?
This is the 60th issue of the EntreWorks Insights newsletter! We’ve been at this for a while—since May 2004 to be exact. If you have interest, you can access our newsletter archives here.
With COVID-19 subsiding (we hope!), business is picking up and we’re ready to hit the road again. We’re completing work on a number of interesting projects, including a regional workforce analysis for the Delta Regional Authority and support for inclusive entrepreneurship ecosystem development in Rhode Island. We also published a recent Issue Brief on community benchmarking which can be found at the CEDS Central website. We’re using some of these lessons in an ongoing benchmarking study for the Louisiana-based Rapides Foundation as well.
We recently upgraded our website and we encourage you to check it out. The new website also includes new platforms for the EntreWorks Insights newsletter and the EntreWorks blog at http://entreworks.net/blog. In addition, you can still access blog updates at our Facebook and LinkedIn pages. Recent posts have examined supply chain developments, inclusive entrepreneurship, and America’s hidden workforce.
Best wishes for a joyous holiday season. We look forward to connecting in person at some point in 2022!
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