Robert Reich Suffers From a Lack of Imagination

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President Bill Clinton's former Labor Secretary Robert Reich is worried about the sharing economy. In a recent column, he bemoaned the fact that the rise of services like Uber and Lyft have initiated a shift away from salaried employment towards more independent contractors. The cost of this, he argued, is the security and stability of the American workforce, stripped of the labor protections government has installed for the benefit of the salaried employee. These protections, including retirement benefits, health insurance, and minimum wage requirements, are in Reich's view necessary to a healthy economy, and he fears that a shift away from them will prove catastrophic to America's future.

Like so many prophets of doom before him, Reich suffers from a lack of imagination, and a belief that, simply because things have been done a certain way, they must continue to be done that way in order to avert existential peril. In fact, the sharing economy offers tremendous new opportunities for technological advancement, improved public policies, and human liberty in general.

To begin with, it will be helpful to define the term "employment." There is a near universal, although in my view unfounded, belief that the employer-employee relationship is somehow different from any other economic transaction. The purchase of labor is viewed as categorically distinct from the purchase of, say, eggs or iPhones or haircuts. I see no reason why this should be so.

What is employment, after all, but a voluntary, mutually beneficial arrangement between a buyer and a seller? If I walk into a bakery and buy a cake, I am essentially paying for the baker's labor. I am employing the baker to do work on my behalf, albeit on a short term basis. It would be insane, however, to claim that my purchase of a cake obligates me to pay for my baker's health insurance or retirement. It would be madness for the government to tell the baker she must charge a certain minimum price for her cakes.

How, then, does this relationship change if, instead of buying one cake, I contract with the baker to provide cakes exclusively to me for the next several years? The concept is the same; only the duration of the contract has changed, but under our current legal system, there is a world of difference. Is the baker who sells cakes to many customers (employers) based on short term contracts less free than the baker who is bound to a single employer (customer) for a long period of time?

The independent baker can take time off whenever she likes, at the cost of a day's business, but the long-term employee who takes liberties with time off risks losing the entire contract-a far more devastating cost. Reich worries about what happens to workers when demand falls or disasters strike, but this applies to small business owners as well. That doesn't mean we should complain about more people starting businesses, or discourage them from doing so.

People are always quick to call for greater income mobility, but labor mobility is a crucial component of that. The ability of workers to change jobs easily, as well as move from place to place, is important to a vibrant economy. It reduces frictional unemployment, and a greater ease of leaving a city or a state when conditions change makes for robust competition in public policy. For example, a city will be more reluctant to raise taxes on its citizens if they are easily able to take their business elsewhere, rather than chained to long-term employment contracts.

Regarding worker's benefits, it has been a long-acknowledged problem that these have remained so inseparable from employment for so long. Employer-sponsored health insurance only arose in the first place as a way to circumvent FDR's artificial wage controls during the Great Depression, and is responsible for many of the problems that plague our health care system today. Imagine how much better it would be if we could change jobs at will without having to fear losing our health insurance coverage or retirement accounts. Making employment benefits more portable could be one very positive outcome of a robust sharing economy.

It is true that independent contractors sacrifice something in terms of stability and security, but that cuts both ways. It benefits employers to have stable workers they can rely on, and because of that there will always be opportunities for those who prefer a salary. But the increased freedom and opportunity offered by more independent contractor jobs are at least as great as the drawbacks. Increased labor mobility will sever overly restrictive tethers between employers and employees, and introduce flexibility into formerly rigid markets. With this in mind, it's hard to see how giving workers more options can be a bad thing for our country's future.

Logan Albright is director of research at Free the People.

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