It’s Time To Retire The Labor Law

The emergence of Uber
UBER
and similar ride services and the pandemic-induced phenomenon of working from home are changing the way millions of Americans are thinking about work. It’s time for our public policies to change as well.

When the Fair Labor Standards Act was passed in 1938, members of Congress had a clear idea of what a “job” was. If you had a job, you went to a work site. You were supervised by a manager. All the time you spent there you were “on the job.” Even if a machinery malfunction resulted in down time, during which you were idle, you were still on the job.

From this mental image, time on the job was divided into “hours” and for each of those there was an hourly wage. From that point, it was an easy step to impose regulations. For hourly pay, Congress imposed a minimum wage. For work exceeding a certain number of hours a week, Congress demanded employers pay time-and-a-half for “over time.”

Even today, the Bureau of Labor Statistics collects data on the average hourly wage and the average weekly wage.

Work Has Changed but the Regulations Have Not

In time, however, a growing number of workers did things that didn’t fit the traditional concept of work. What about artists, composers and writers whose work is irregular and whose rate of compensation falls way below the statutory minimum? What about middle managers who take work home and who work nights and weekends? What about an entrepreneur who works for no pay at all while building a business?

To deal with an ever-changing labor market, Congress carved out a sphere for the “hourly worker,” for whom the wage and hour regulations continue to apply. Everyone else is exempt.

Even so, the concept of “employment” has continued to dominate federal regulation of the workplace. For example, if you are classified as an “employee” (even if you are “exempt”), you are subject to a different set of rules and regulations under employee benefits law and under the tax code than if you are an “independent contractor.”

There is no minimum wage for independent contractors. There is no time-and-a-half for over time. There are also other differences.

How Modern Work Differs

In today’s economy, anyone with a car and a cell phone can provide transportation services for anyone else with a cell phone. Uber acts as an aggregator and facilitator – doing what could in principle be done (and what sometimes is being done) between drivers and passengers acting on their own.

Uber driving is not continuous work. There is down time, and for many drivers the time spent waiting for the next customer can be considerable. However, most Uber drivers I talk to have other occupations. Many are students and they use their down time studying. Some have other employment (real estate agents, for example) and they can work for that second job on their laptop. Some use their laptop for leisure activities – which they wouldn’t be able to do in a normal job.

If you count “waiting time” for Uber drivers as time on the job, you might conclude that some Uber drivers are not earning the minimum wage. However, when you consider opportunities to study, work at other employment and engage in leisure activities, it is clear that being “on the job” is not an accurate description of a lot of Uber driver downtime.

Although some leftists in California and other states want to force Uber drivers to become employees, Uber driving is simply not “employment” in the traditional sense of that word. Uber driving is nothing more than a contract between consenting adults.

The concept of a “job” is also becoming less meaningful for people working from home. In addition to working for multiple employers, education and leisure activities, economist Devon Herrick notes that work from home can also be combined with child care and elder care.

About one-fifth of U.S. workers are family caregivers, and nearly a third have quit a job because of their care-giving responsibilities, according to a report from the Rosalynn Carter Institute. Others have cut back their hours. The Rand Corp. has estimated that caregivers lose half a trillion dollars in family income each year — an amount that’s almost certainly gone up since the report was released nearly a decade ago.

How the Law Should Change

Absent government regulation, I suspect a large number of workers (maybe most of them) would prefer to be independent contractors, and their current employers might prefer that as well.

In order for that to happen, three changes are needed.

First, employers, their employees and legislative bodies must recognize something economic research has been confirming for many decades: employee benefits are a dollar-for-dollar substitute for wages. Many advocates of forcing Uber drivers to become employees think that employee benefits (like health insurance) are going to materialize out of thin air. In fact, every dollar of new benefits is likely to result in a dollar reduction in take-home pay.

Second, public policy needs to be neutral with respect to the choice of being an employee or an independent contractor. Right now, the typical Uber driver gets five times more tax subsidy by obtaining health insurance in the (Obamacare) exchange than the government provides for the same plan purchased by an employer. On the other hand, the tax code is much more generous when it comes to pension and other employee savings options than it is for individuals who save on their own.

These arbitrary differences have no economic rationale. An efficient economy requires that work relationships be determined based on economic costs and benefits, not tax costs and benefits.

Under a neutral public policy, an employer would be able to make a contribution to a pension plan or give access to a health plan to an independent contractor just as easily as to an employee.

Finally, we need to treat labor contracts the same way we treat all commercial contracts, unless there is some compelling reason not to.

We don’t tell people selling their house or a used car that they cannot sell below a minimum price. We don’t tell people selling their home that if doing so takes more than 40 hours a week, the sales price has to be 50 percent higher.

People selling their labor services should enjoy just as much freedom of contract as they have in the sale of any other good or service.