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the economy

How the Sharing, Gig Economy Is Taking Its Toll on America’s Workers

American workers are under siege, battered by mercenary business practices, eroded legal protections, and even new laws meant to help
but hurting instead. The long decline of unions has left the worker standing alone, powerless against employers that, over an equally long span, have come to be all-powerful corporations rather than shops on Main Street.

That leaves fighting back to grass roots, such as the demonstrations demanding pay raises from fast food businesses that began in New York City. Campaigns to raise the minimum wage have met with success in states and now cities are boosting the minimum (see "Minimum Wage Mania..."), but there are a number of other forces that are squeezing workers from all sides.

half a loaf

Part time work, which offers employers flexibility, has expanded as a permanent component of the labor force with 27.7 million in that category and showing no decline even as full-time jobs rise — almost 3.5 million more part-timers than before the 2008 crash. Some 6.5 million of them report that they want full-time but are unable to increase their hours.

keeping workers at arm's length

Businesses such as Uber that manage independents who drive their own cars in competition with cab drivers, and home and apartment owners that take in guests with bookings arranged by the likes of Airbnb, have been dubbed the "sharing" economy. The one takes business from cab drivers who have invested in costly certification, the other poses a threat to staffs at hotels and motels, and the investment in plant by their owners. These new Internet and smart phone-based business models have been met with resistance around the world, with cab drivers burning tires and clogging the streets of Paris in protest against UberPop, the company's lower cost variant.

But for our purposes, media attention has exposed what companies have been doing out of the public eye for years, and increasingly since the plunge of 2008: hiring workers as independent contractors. That, plus the scrambling of hours of work by employers, has come to be known as the "gig" economy, a jazz world term to describe musicians' intermittent bookings.

Contract workers receive a fee and from it must pay their own tax withholdings, payroll taxes, health insurance, and job expenses that are no longer reimbursed as with employees — gas and repairs and the vehicle itself in the case of Uber or Lyft, as examples. Companies sugar-coat the practice as giving people flexibility and independence but their motive is their own independence from vacation pay, sick day pay, unemployment insurance and costs now paid by the individual as contractor (who now pays both halves of Social Security and Medicare payroll taxes totaling 15.3%). And there's the added benefit that businesses can more easily hire and fire, like a bellows drawing in people such as software engineers for a project, and blowing them out when a project is done, with no notice and no severance.

Hundreds of workers are suing a FedEx subsidiary that treats them as independent contractors arguing that the company's strict rules about personal grooming, delivery times, and paperwork make them not independents but employees who are owed for overtime and the deductions taken from pay for uniforms, truck washing, and the scanners they had to buy for logging packages. The California Labor Commission has ruled that Uber's drivers are employees, not contractors, but Uber has won similar cases in five other states.

Taking it a step further, some businesses have found that they can require workers to become single-person franchisees or limited liability companies so as to shield the company entirely from labor statutes, liability for injuries, or any interpretation of an employee relationship. A worker typically buys a franchise from a company — paying $10,000 in the case of an outfit named CleanNet — to be assigned janitorial work cleaning offices. In Arizona and Utah a house builder had set up more than 1,000 construction workers as limited liability companies and switched them from payroll to independents from one day to the next.

avoiding the cliff

The Affordable Care Act added to the fragmentation of work with its stipulation that employers with 50 or more employees working more than 30 hours a week must offer to pay for their health insurance. The Act mindlessly set up a precipice instead of a graduated scale, such as ever larger companies paying an ever larger percentage toward insurance. Instead, adding a 50th employee suddenly triggers the sizable cost for all 49 preceding employees.

What should have been easily foreseen by the drafters of the legislation is that employers are cutting back workers to 30 hours, severely crimping their pay, forcing them to seek second jobs, and filling the difference with more under 30-hour part-timers.

free loading

Corporations have taken maximum advantage of the post-2008 downturn by turning unpaid internships into a near must on young people's résumés. Often the interns learn close to nothing, handling scutwork like photocopying, taking lunch orders and running errands. A clear violation of minimum wage laws, a federal appeals court nevertheless just ruled against interns who had worked at a movie studio for no pay. The practice is doubly reprehensible at a time when those interns are likely to be heavily in debt for their student loans and could use some assistance.

just-in-time

Working men and women, only trying to get by let alone get ahead, have a new adversary — software. Development companies are selling software packages to the fast food, retail and other fields that optimize the scheduling of part-time employees. Like the just-in-time inventory management pioneered by Japanese car companies in the 1970s, where parts are scheduled for delivery exactly when needed, software plots just who is needed and when, using past sales and traffic statistics.

For the individual employee this can create havoc. With days and hours constantly shifted by impersonal algorithms, they are made to juggle the rest of their lives with husbands, day care and schooling of children, meals, sleep, and simply trying to coincide with each other at home.

The worst extreme of treating employees as movable pieces on a game board is "on call" or "on demand" scheduling whereby the employee must be available at all times to suddenly head for work because of a no-show or unexpected demand. With a few states excepted (e.g, New York, California), employers are not even required to pay a minimum to a worker called in and then immediately sent home because demand has subsided.

City workers with long commutes (because inner city rents are too high for their pay level) are let go or cannot find work at on-demand shops because they cannot get to work fast enough. Certain store chains require employees to call in hours before coming to work, when they can be told that work has been cancelled that day because store traffic is weak. These practices create unpredictable income that makes it difficult for families to pay their bills or do any sort of financial planning.

There has been some progress in fighting the multiple-front assault on workers. The New York attorney general is investigating the scheduling practices of thirteen major retailers. Starbucks was called out in an exposé that showed how its automatic scheduling based on sales data causes chaos in the lives of its baristas, giving short notice of working hours and sending workers home with short pay when sales are weak.

Overtime Underpay

Companies such as your cable operator give their installers smart phones. The catch is that they are to give out the number to all customers and tell them "Call me anytime if you have a question or a problem", such as when they are having dinner with their family or getting ready for bed. No one is paid extra for this time — or the intrusion on their privacy.

Amazon workers lose as much as 20 non-paid minutes a day standing on line waiting to be inspected as they leave warehouses at the end of their shift. The Supreme Court heard their case and decided that they should be paid nothing for the approximately 120 hours they spend on line each year.

Employers are free to pay nothing for overtime to a worker who earns more than $455 a week. Beyond that — which equates to $23,660 a year — an employee is considered to be a "manager", and paid well enough not to expect extra pay for whatever extra time must be spent at work. The boss can freely assign a list of chores that run well beyond the week's 40 hours with the employee helpless to object to not being paid for fear of being let go.

The President is about to follow through on a promise of over a year ago — as we reported then — to greatly expand the range in which an employee must be paid for overtime work. He will call for the $455 a week, beyond which an employee is no longer eligible for overtime pay, to be raised to $970. The White House estimates that 5 million workers will be freed from the exploitation of their time without compensation. The Economic Policy Institute thinks it could be closer to 15 million.

Businesses are incensed. "Free raises for everyone...another form of income redistribution", fumes a Wall Street Journal editorial. It is viewed as yet another example of Obama using executive orders to create law, except that he is empowered to set overtime rules by the 1938 Fair Labor Standards Act, just as George W. Bush did when he revised the rules in 2004. Bush favored business by lowering the bar to today's $455 a week. And he gave business owners extraordinary latitude to classify work. A supermarket employee who normally unpacked shipments but was made to spend 5% of his or her hours on tallying inventory, say, could be classified entirely as “administrative” and denied overtime altogether.

The new level of $970 a week equates to about $50,400 a year — true manager pay — which about matches the threshold that was set in 1975 when adjusted for inflation, and which incredibly has not been set anywhere near that ever since. The clear indication that the law has been used corruptly by successive lowerings of the overtime cutoff is that a mere 12% of salaried workers are eligible for overtime today, with the rest considered "managers". That compares with 65% in 1975 and 18% just ten years ago.

As with the Obamacare cutoff, business owners interviewed in news accounts say they will simply shift people into part-time to avoid overtime and will hire other part-timers to fill in. But others say it's cheaper to pay overtime than to hire, train and manage more people, and the change could beneficially cause owners to manage employee time more efficiently.

ways to go

The Fair Labor Standards Act dates from 1938 and is mostly unsuited to labor practices and abuse that have emerged in the 21st century. Needed is an extensive review of how law can dovetail with the new realities of part-time, sharing, on call, just-in-time work to prevent the lopsided disempowerment of Americans trying to make a living. But we are saddled with a Congress that seems incognizant of the realities outside the chambers of the Capitol building and on the take from industry to remain oblivious and cloistered. Meanwhile, states and cities are commendably going their own way as if considering Congress insular, retrograde, and irrelevant.

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