Let the giggers fight inflation

Politicians and activists who tout the importance of work-life balance shouldn’t impose rigidity on them

COMMENT | TODD G. BUCHHOLZ | Gig-economy firms and workers – or “giggers” – are like magicians and alchemists, only their tricks are real. Although physicists assure us that new matter cannot be created, the gig economy conjures up new supplies of stuff, thereby making the overall economy more flexible and pushing back against inflation. It is a shame that so many governments fail to recognise this and try to stomp on giggers, much as medieval popes did to heretics and wizards.

Giggers deserve credit for creating a new form of supply-side economics. For over a hundred years, economics textbooks have taught students about the “production function,” which shows that output depends on inputs such as land, labour, capital, and technology. But giggers have re-jiggered the model, finding ways to increase the supply of inputs.

Wait, how can giggers create more land? Are we talking about reclamation, like when fourteenth-century Holland diked up swamps – “God created the world,” the adage goes, “but the Dutch created the Netherlands” – or when modern China constructs artificial islands in the South China Sea? No, we’re talking about making use of idle resources.

An empty room in someone’s house does not add to GDP. But if that room is made available to rent through platforms like Airbnb and Vrbo, the supply of real estate grows. Likewise, a car can remain parked in a garage, outside the production function. But if the owner flips a switch marked Uber or Lyft, the supply of mobile capital increases.

These micro-moves can dissuade conventional companies from raising prices. Airbnb has effectively added over 20% to the number of hotel rooms in major cities, while Uber and Lyft have intensified competitive pressure on taxis and limousines. In an era when monetary mischief can fuel inflation, giggers’ flexibility provides shock absorbers for the economy.

Airbnb, Uber, and Lyft – along with food-delivery firms like DoorDash and Grubhub – are familiar examples. But the giggers are not confined to garages and bedrooms.

For example, before the advent of apps, one might have seen yellow Caterpillar earth movers and excavators sitting idle at construction sites, waiting to be put into action. Such heavy machinery would have to be reserved in advance and delivered to the site, say, a week before it was scheduled to be used. Nowadays, however, companies like Dozr lease out heavy equipment on a moment’s notice, to be used even in off-hours. After all, steamrollers don’t complain to the union foreman if they pave for more than 14 hours straight.

In agriculture, the FarmPost app enables farmers to find the day workers they need – a far more efficient approach than circling a big-box parking lot in a pickup truck, hoping to spot available farm hands. The list goes on.

Ultimately, flexibility brings forth more supply – and that includes labour. One-third of American workers take part in some form of independent labour, and over 90% of independent contractors say they do not want a traditional arrangement.

In the United States, however, the Department of Labor and many state legislatures seem not to like this sort of magic. Bureaucrats prefer stasis over kinesis: it’s easier to keep tabs on a full-time employee than someone who chooses to be an independent contractor in the morning, a retiree at noon, and a part-time employee when the sun goes down. Regulatory agencies have been cracking down on giggers and their business partners, especially in populous states like California and New York.

California’s economy used to be symbolised by free spirits hula-hooping on the beach. Today, a better metaphor is a straitjacket. In 2019, the governor signed California Assembly Bill 5 (AB5), which reclassified giggers – including freelance artists and writers – as traditional employees. Vox Media immediately laid off 200 of them.

Since then, the rules have been shaved down to exempt some professionals. Nonetheless, a recent study showed that self-employment jobs have fallen by 10.5%, without boosting full-time opportunities. California now “boasts” the highest jobless rate among all 50 US states and Washington, DC. If this were Harry Potter, AB5 would amount to Voldemort-style dark magic.

California is not alone. The New York City Council appears determined to strangle the gig economy, making life worse for residents and visitors alike in the process. Amid the chaos of the COVID-19 pandemic, the Council passed sweeping new rules for food-delivery services, making it harder for city-dwellers to order food at a time when they were afraid to step into elevators, let alone grocery stores. And last year, it implemented new rules for short-term rentals, which have since wiped out over 80% of Airbnb listings in the city. Add to that the conversion of many hotels into migrant shelters, and the number of available rooms in New York City has collapsed by 20%. With hotel prices soaring to Ritz-like heights, even affluent tourists struggle to afford a room.

How ironic that politicians and activists who tout the importance of work-life balance impose rigidity on individuals and the economy. Far from squashing the giggers, regulators should be loosening compensation regulations, in order to encourage companies to offer benefits to them.

Ultimately, chasing giggers is like hunting wizards: unwise and outdated. It is time for regulators to embrace the gig magic – or risk turning gold into lead.

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Todd G. Buchholz, a former White House director of economic policy under President George H.W. Bush and managing director of the Tiger hedge fund, is the recipient of the Harvard Department of Economics’ Allyn Young Teaching Prize. He is the author of New Ideas from Dead Economists (Plume, 2021) and The Price of Prosperity (Harper, 2016), and a co-author of the musical Glory Ride.

Copyright: Project Syndicate, 2024.

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