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The Sharing Economy Will Benefit All, But Only If We Let It

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The House Energy and Commerce Committee is holding a hearing this week on “How the Sharing Economy Creates Jobs, Benefits Consumers and Raises Policy Questions.” These new Internet marketplace platforms are raising many new policy questions about U.S. labor law and competition.

A large part of the problem is that U.S. labor law remains guided by the National Labor Relations Act of 1935. A lot has changed since then. In 1935 the United States faced little international competition. The economy was dominated by large, stable companies that hired a lot of people. Many workers anticipated staying with their current employer for decades. Coincidentally, these traits also favor unionization.

Today’s global economy is characterized by international competition that we are losing in some respects. Companies are slashing fixed costs to avoid the very real threat of bankruptcy or acquisition. They can no longer make long-term commitments to their workers, who, in any case, anticipate working for many companies during their career. Labor law has strained to accommodate this.

Into this mix comes the rise of the Internet platforms that make up the sharing economy. Platforms such as Uber and Etsy create a great deal of value. Because their profits depend on matching users from at least two sides of a market, they are less likely than traditional companies to have or to be able to abuse market power. Moreover, threats involving data use and workers’ rights are not as great as people fear, and existing laws are more than adequate to deal with any actual harm.

Platforms further disrupt the traditional employer/employee and regulator/company relationships by putting consumers directly in touch with independent contractors who want to meet their needs. Although the needs can include a ride, a place to stay overnight, household tools, crafts, investors, and babysitters, the basic model is the same. In each case, it creates great value for all parties.

Consumers benefit from the ability to compare prices across more sources of supply and greater choice. They also benefit from lower prices as the savings from slashing the fixed costs borne by traditional businesses are passed on to them. Lower prices create more demand and more jobs. Workers also benefit because platforms allow anyone to act as an independent contractor and make it easy for them to find customers. This dramatically reduces the barriers to earning income.

So what do workers need in the sharing economy? The first need is flexibility. Workers should have the right to voluntarily waive their status as an employee and agree to work as an independent contractor. Denying them this right reduces employment and raises costs. Second, workers need ongoing training and support to advance and manage their careers. Some companies like Intuit are developing products to help this need, but more could be done. In particular, unions could move toward the model of the Freelancers Union by offering all workers help in finding training, health care, a savings plan, etc. Finally, the government could change outdated laws to extend the tax treatment of health insurance, retirement savings, and transportation costs to all workers, regardless of their employment status. The recent creation of exchanges that allow individuals to purchase health insurance on their own was a big step in this direction.

If we try to return the economy to the 1930s, 1950s, or even the 1970s, we will fail. The future demands that we be more flexible. But it also promises to make us richer and freer. Let’s hope policymakers listen.

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About the author

Joe Kennedy is a senior fellow at ITIF. For almost 30 years he has worked as an attorney and economist on a wide variety of public policy issues. His previous positions include chief economist with the U.S. Department of Commerce and general counsel for the U.S. Senate Permanent Subcommittee on Investigations. He is president of Kennedy Research, LLC, and the author of Ending Poverty: Changing Behavior, Guaranteeing Income, and Transforming Government (Rowman & Littlefield, 2008). Kennedy has a law degree and a master’s degree in agricultural and applied economics from the University of Minnesota and a Ph.D. in economics from George Washington University.