1099 Nation spreads its tentacles

Employees in every sense of the word — but without the benefits 

JULIO BELDI SPENT more than 10 years working in the seamy underside of the non-union construction industry.  Paid $17-$22 an hour for his work as a carpenter across New England, Beldi was compensated either in the form of a check with no deductions or with straight cash. Some of his employers treated him as an “independent contractor,” mailing a 1099 tax form at the end of the year. Most did not bother. Beldi received $18 an hour working on a veterans’ hospital in Rhode Island despite a law requiring a $50.69 hourly wage on the federally funded project. He also never got any benefits or overtime pay for routine work days of 10 and 12 hours. “Sometimes,” said Beldi, “no one in the crew got paid for one or two months,” as the owners promised back wages only after they had been reimbursed by the general contractors.

Mark Erlich.

Beldi functioned as an employee in every legal and common sense definition of the term, but never enjoyed the benefits of the status. He is one of millions of Americans whose employers operate outside or on the margins of conventional employment practices.  For the past 40 years, employers have pursued a strategy of shedding obligations to their employees as part of a broader outlook that views labor as one more risky liability to move off a balance sheet. For some, this has meant the purposeful misclassification of employees as independent contractors, a tactic adopted by Beldi’s disreputable construction contractors as well as more high-profile and celebrated firms such as FedEx and Uber.

A 2015 General Accounting Office report suggests that “alternative work arrangements”—an expansive phrase that includes part-time employees, independent contractors, free-lancers, temp agency workers, on-call, and contract workers—now constitute more than 40 percent of total reported employment. And the trend is only increasing. A recent study by economists Lawrence Katz and Alan Krueger concludes that an astonishing 94 percent of the net employment growth in the US from 2005 to 2015 occurred in these alternative work arrangements.

The incentive is simple. Employers save substantial amounts of money by labeling their workers as independent contractors. Federal and state tax payments are eliminated. Benefits become the responsibility of the lower-tier contractor and, in dangerous industries such as construction, costly workers compensation insurance premiums can be avoided. The Bureau of Labor Statistics calculates that average benefits—legally mandated and optional—for private sector workers make up 30.3 percent of total compensation. Wiping out that level of obligation can be the single largest cost-cutting measure an employer could ever adopt.

The post-World War II social compact, an understanding in which businesses traded increased productivity for a measure of economic and job security for labor, has fragmented. In his book The Fissured Workplace, David Weil describes how large businesses have moved from the direct employment and organization of their own workforces to a domestic and global supply chain system of subcontractors and vendors that has become responsible for the hiring and managing of the people who carry out the lead corporation’s mission. Companies have shifted financial burdens to their workers and eliminated the organizational headaches of managing employees while maintaining strong control over the goods and services they produce. A significant percentage of the nation’s largest and most influential employers have simply walked away from any economic, social, and cultural sense of responsibility for many of those who make their businesses function.

There has always been job insecurity and an underground economy but, in a new wrinkle, an ideological spin justifies and even rejoices in the increasingly precarious world of work. The old Marxist trope of the chains of wage slavery has been turned on its head. “Be a regular worker,” pronounced the founder of Japan’s largest temp staffing agency, “and be exploited for the rest of your life.” The loss of a sense of career, stable occupational identity, and access to public or employer-provided benefits has been supplanted by the opportunity to be flexible, independent, and entrepreneurial. It is not merely a different way to work; it is fulfilling and self-realizing. The leaders of a venture capital firm trumpet “the Rise of 1099 Nation” and “the structural shift in the way labor is procured, managed, and deployed” that saves employers money, allows businesses to unbundle, and, of course, provides a preferable lifestyle for their contract workers. The head of a San Francisco school that trains low-income people to embrace the vagaries of the gig economy says, “Everyone can be their own CEO.”

Undoubtedly, the freedom to be your own boss can be attractive and even exhilarating, but for most of those trying to earn a living in the world of alternative work arrangements, it is not a lifestyle choice but a matter of the terms of engagement unilaterally imposed by employers. Those terms come at a high cost. Working outside the umbrella of the statutory protections that accompany being an employee means an individual has lost the right to minimum wage and overtime pay, unemployment insurance, workers compensation, anti-discrimination laws, and the ability to form a union—just some of the many components of today’s growing chasm of economic inequality.

The tentacles of the “1099 Nation” have spread far beyond construction into technology, warehousing, retail, hospitality, manufacturing, and virtually every other sector of our society.  The cornucopia of new terms preceding the definition of our coming economy—innovation, gig, knowledge, information, sharing, on-demand—are meant to add luster to the prized state of “solopreneurship” and diminish anxieties about job security, access to health care, and retirement planning.

As if these wholesale redefinitions of occupations and employment relations were not sufficiently concerning, the world of work will be fundamentally transformed in years to come through the continuing introduction of automation, robotics, and artificial intelligence. A McKinsey Global report suggests that about half of all work activities—physical and cognitive—have the technical potential to be automated with current levels of technology. The report estimates that, by 2030, anywhere from 75 to 375 million workers around the world will need to switch occupational categories.

Even the most sanguine technology cheerleaders recognize the potential for disruption. While assuring their readers that new and different jobs will be created, the McKinsey authors delicately propose that it should be a priority to develop policies for “transition and income support for workers caught in the crosscurrents of automation.” Future-of-work pundits promote concepts such as a guaranteed basic income, negative income taxes, hybrid definitions of employment, and training, training, and more training.

In the context of a society in which benefits are tied to the workplace, a broad-based acceptance of the concept of “presumption of employment”—the notion that a worker who is hired to perform a service is presumed to be an employee unless there are clear and unmistakable indications of an independent relationship to the employer—would provide more workers with a minimum set of protections.

Affirming the notion of joint employer relations—a system of legal accountability of top-tier companies for the practices of their lower-tier contractors—would place responsibility on the decision-makers who truly define the terms of employment. Providing financial resources to state and federal regulatory agencies to crack down on misclassification could transform the landscape as well as provide needed public revenues. Most important, reversing the decline of union density and reforming labor laws to remove the shackles from union organizing would allow more workers to have the organizational power and voice to address the new challenges in the workplace.

Policy makers are struggling to catch up with the rapid changes that are outpacing existing regulatory frameworks. Every month finds a new ruling or piece of legislation that reflects a wide range of value biases on the subject of contingent work. In December, the European Union’s Court of Justice ruled that Uber is a transport company—not merely a digital service—and its drivers are, therefore, subject to national employment laws. In February, a northern California district court ruled that a driver for Grubhub, a meal delivery service, was an independent contractor. Congress’ new tax bill rewards independent contractors with tax breaks unavailable to their waged employee counterparts and the Trump National Labor Relations Board signaled its intention to reverse an Obama-era decision that had expanded the concept of joint employer liability.

Fortunately, Julio Beldi’s story has a happy ending. Now 49 years old, he joined the Carpenters Union in Boston several years ago and is pleased to receive benefits and be treated as an employee. He works an eight-hour day and receives premium pay when his jobs run overtime. “Before I felt sad because I didn’t get to see my dad,” says his teen-aged daughter, Jennifer. “Now I have lots of chances to be with him.”

Like Beldi, other citizens have not necessarily embraced the happy talk of workplace liberation. In 2016 polling by Hart Research Associates, 67 percent of the voters surveyed indicated they had heard about misclassification as an employer strategy to cut costs and 78 percent said that it was better to be an employee than an independent contractor.

It is clear that the disruptive impact of independent contracting, fissuring, deindustrialization, automation, the global economy, and the fracturing of the post-war social compact have been among the causes of the current state of political unrest and volatility in the United States and Europe. It seems equally clear that concerns about economic insecurity and increasingly precarious work formations will define much of our politics in the future.

Meet the Author
Mark Erlich is a fellow at the Harvard Labor and Worklife Program and retired head of the New England Regional Council of Carpenters.  He is a member of the board of MassINC, which publishes CommonWealth.