More and more businesses are exploiting what is known as the “1099 worker loophole”—hiring workers as “independent contractors” instead of as regularly employed workers. In some cases, companies have laid off all or most of their regular workers and then hired them back, but as independent contractors.
In some cases, companies have laid off all or most of their regular workers.
Merck, one of the world’s largest pharmaceutical companies, has been a pioneer of this strategy. In 2008, when it came under pressure to cut costs, it sold its Philadelphia factory to a company that fired all 400 employees and then rehired them as independent contractors. Merck then contracted with the company to carry on making antibiotics for them, using the exact same employees.
And it’s not just Merck. Arizona public-relations firm LP&G fired 88 percent of its staff and then rehired them as freelancers working out of their homes, with no benefits. And Out magazine, the most-read gay monthly in the U.S., laid off its entire editorial staff and then rehired most of them as freelancers, with lower salaries and no benefits.
By hiring contractors instead of regularly employed workers, businesses can reduce labor costs by as much as 30 percent, according to the Bureau of Labor Statistics. That’s because they don’t have to provide health care, Social Security, paid sick leave, or even workers’ compensation after an injury.
Now from Silicon Valley comes an intensification of this economic trend: the so-called “gig economy.” Companies like Uber, Airbnb, and Upwork are allegedly liberating workers to become “micro-entrepreneurs,” who are “able to seamlessly integrate work with life,” as TaskRabbit founder Leah Busque put it in the Huffington Post. In reality, these workers have ever smaller part-time jobs (called “gigs” and “micro-gigs”), with low wages and no benefits or job guarantee, while the companies profit handsomely.
The gig economy treats a worker’s labor like just another ore to be fed into the company machine. Workers are paid only for the exact minutes they are producing a report, or designing a logo, or cleaning someone’s house. It’s as if a star quarterback got paid only when throwing a touchdown pass, or a chef was paid by the meal. There’s no annual or monthly salary. It takes us back to the days of the piecemeal, patchwork economy, which was more prevalent in previous centuries.
These new ways of working are crying out for regulation.
The prototype for the new digital company is Upwork, which is based in San Francisco. Its mere 250 regular employees use technology to oversee 10 million contractors and freelancers all over the world. A vast range of workers can be found on Upwork, including architects, engineers, lawyers, website and app designers, translators, software developers, and logo and graphic designers. U.S. workers bid for jobs alongside workers from India, Thailand, Philippines, and elsewhere. The workers auction themselves off, underbidding each other in a global race to the bottom. Upwork represents a new low in globalization, taking the logic of NAFTA and free trade, and intensifying it on a virtual shop floor.
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