Opinion

Gig Companies Got a Bailout. Now It’s Time for Them to Pay Unemployment Insurance

By Heather Boushey
April 10, 2020 at 5:00 am ET

The historic $2.2 trillion coronavirus emergency relief package enacted late last week will keep incomes flowing for the now millions of unemployed Americans. The recent economic shutdown was induced when the president, Congress and governors began asking — and in some cases, are now demanding — that people stay home and shutter businesses. In other words, they put the economy on ice so it can be ramped back up after the public health crisis subsides.

As a result of these restrictions, including social distancing measures, gig workers such as Airbnb hosts or Uber and Lyft drivers were among the first to lose income. As early as the week ending March 16, U.S. consumers spent 21 percent less on Uber rides and 19 percent less on Lyft rides compared with the previous week. Soon after, for the first time in U.S. history, independent contractors were made eligible for unemployment benefits — even if they hadn’t paid into the system. 

In other words, the U.S. government bailed out gig economy employers.

Including gig workers in the relief package lessens the economic pain for them and their families and puts the U.S. economy on the path toward quicker recovery. Gig work plays an important and growing role in our economy, and many gig workers lack other sources of income. But an important question arises: Is it fair that companies such as Airbnb, Uber and Lyft receive benefits for a system they intentionally didn’t pay into?

Unemployment insurance works by employers paying a tax on every worker on their payroll. That builds up a trust fund to pay out benefits when workers are laid off. The tax rate is relatively small. According to the Department of Labor, the average state-level tax on the wages that employers pay is less than half a percent, and states tend to only tax the first $7,000 in wages. The tax rate is higher for those employers that lay off workers; thus, the employers whose workers use the system the most pay the highest taxes. 

Gig economy employers have never paid into the unemployment insurance trust funds. A gig worker is paid by the task: a ride, a room for the night, a delivery from the grocery store. Companies like Airbnb, Uber and Lyft have argued they aren’t employers. Instead, they argue that their app is simply a matching tool, making it possible for people who need goods or services to find people who want to offer them.

Indeed, many of these employers have fought hard to not have their workers classified as employees. In doing so, they’ve not only avoided paying unemployment insurance, they’ve also failed to pay Social Security, workers’ compensation and — particularly notable amid a public health crisis — workers’ health insurance. 

Last fall when legislators in California debated Assembly Bill 5, which classified gig workers as employees, Uber and Lyft conducted an aggressive public campaign to stop the legislation. In an op-ed, Uber CEO Dara Khosrowshahi and Lyft co-founders Logan Green and John Zimmer wrote, “It’s also no secret that a change to the employment classification of ride-share drivers would pose a risk to our businesses.” Uber and Lyft also enlisted drivers and lobbyists to speak out against the bill, which, according to one analysis, would only cost them $3,625 per driver per year in California. 

It’s no wonder that on March 23, Khosrowshahi wrote a letter to President Donald Trump and congressional leaders arguing that any economic stimulus should include “protections and benefits for independent workers, not just employees.” Airbnb penned a letter of its own and marshalled its workers to encourage lawmakers to include people who earn income by renting property on Airbnb in any unemployment protections. 

Make no mistake: Congress made the right decision to include gig workers in the Coronavirus Aid, Relief, and Economic Security Act. An unemployed Uber driver who earned $700 a week prior to the crisis is now eligible for 50 percent of their state’s average benefit, plus an additional $600 the federal law provides for up to four months.

But the time has come for gig economy employers to pay into the system they’re now benefiting from. This isn’t just about fairness — it’s about making our economy more resilient against future shocks. That happens when billion-dollar companies such as Airbnb, Uber and Lyft contribute to the social insurance systems that underpin our economy.

 

Heather Boushey is the president and CEO of the Washington Center for Equitable Growth and the author of “Unbound: How Inequality Constricts Our Economy and What We Can Do About It.” 

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