On this episode of The Great Antidote podcast with Juliette Sellgren, she is joined by guest Liya Palagashvili. In their discussion, Juliette and Liya cover the gig and sharing economy, independent contractors vs, employees, and the future of work regulation.
Liya Palagashvili is a Senior Research Fellow at the Mercatus Center at George Mason University. Her primary research interests include entrepreneurship, regulation, and the gig economy. She has published academic articles, book chapters, policy papers, and articles in media outlets such as the New York Times and Wall Street Journal. In 2016, she was named one of the Forbes’ “30 under 30” in Law & Policy. Palagashvili was an Assistant Professor of Economics at the State University of New York-Purchase and earned her Ph.D. in economics from George Mason University.
Juliette: Hi, welcome back. I’m glad to be speaking with Liya Palagashvili, a senior research fellow at the Mercatus Center at George Mason University. Her primary research interests include entrepreneurship, regulation, and the new economy. Welcome, Liya.
Liya Palagashvili: Thank you Juliet for having me on your show.
Juliette: So before we jump in I want to ask you a question that I ask all my guests, which is what is the most important thing that people my age or my generation should know that we don’t?
Liya Palagashvili: I think people in your generation or your age should know that they should embrace being startups and not large established companies. Now I’ll explain what I mean by that, which is actually what I thought when I was your age. I had this set plan that I was going to be a lawyer and I did everything that I could to go and try to be a lawyer. And I was pretty how should I say, inflexible to try different directions or to pivot into different areas. But over time, and because I did this I started to realize that I think it’s much better for someone younger and your age to be more like a startup in that a lot of startups pivot in different directions, they’re versatile. They might try different markets. They might fail a couple of times and then finally find their market. Airbnb, for example. I don’t know if many people know this, but they actually failed three times before they finally took off because they were trying to be in a different market. And you’ll hear that a lot with different startups. They’ll go one-directional to have one product, and then they realize actually like this wasn’t a great idea. And there was another opportunity comes up and then they shift to seizing that opportunity instead. On the other hand, established companies, they’re much less likely to change or to pivot into different directions. And they’ve had like an established thing that they do, an established product, and they’re also much slower on jumping on different opportunities. And so I think about young people, so to speak or people entering college as more of startups is that you kind of wants to say yes more times than no, you want to develop different skill sets, be a bit more versatile because you never know where that one avenue will lead you. Now that you’re working on podcasts, who knows in two years time maybe there’ll be an awesome opportunity. And because you’ve already developed this unique skillset you’ll be able to pivot into that avenue more so than others, for example. And that means, by the way, being embracing kind of not having a specific plan in mind, so to speak. Like I said, I started out with a strict, “I want to be a lawyer.” By the way, Don Boudreaux, who’ve you had on the show a couple of times, he and another George Mason University professor, Pete Boettke, they were great mentors for me and opening up a different avenue for me and showing me “Hey, you don’t have to be a lawyer. You can follow your curiosity into this other thing called economics.” And that’s how I got to where I was. I also had to make another change recently, which is I left a full-time tenure-track position because I thought I wanted to pivot into a different area, and I thought it made sense for me to do this to do this now.
Juliette: That’s cool. That’s really good advice. I will definitely keep that in mind because I’m going to college. This is very applicable.
Liya Palagashvili: Just be open to different opportunities. You just never know what avenue you take will lead you to down the line or down the road.
Juliette: So just curious, I don’t know if you know this off the top of your head, but what did Airbnb try to be before?
Liya Palagashvili: So they would try to just set up- the first thing that they tried was just to be extra rooms for when there were conferences in particular cities. That was at least one of them and they realized, I don’t remember exactly why that market didn’t really work out for some reason. Unfortunately, I don’t remember the exact details of what the other failures were, but the co-founders talk about “we tried this, we failed, we had other areas that we tried, we failed.” And then they finally took off with the modern version of Airbnb. But I don’t remember the particulars other than they try to be like an alternative conference hoteling first, and realized that wasn’t really their market.
Juliette: Yeah, that’s so cool though, because I look around and people I know are taking part in this, which is exactly what we’re going to be talking about today. So before we kind of jump into the sharing economy and all of that, I kind of want to ask you what your story is as it relates to that? So a lot of people describe it as “any marketplace that uses the internet to connect distributed networks of individuals to share or exchange otherwise under utilized assets.” That’s kind of a complicated way of saying, if you have something you’re not using, you use the internet to use that as a business in a way to make money off of it. Can you tell us what defines the sector, but also what interested you about it?
Liya Palagashvili: Yes. So by the way, there are different ways to call this economy. I’m sure you’ve heard. So one is the “sharing economy“, which we think more so of the definition that you gave. There’s unutilized or under-utilized assets, like a car and then, or a second home that you’re not using that you can rent out. You can also think about it as you’ve heard people talk about it as the gig economy. And that is more of like Uber drivers in particular. Or maybe, I don’t know if you’ve heard of Handy, which is an app like Uber for household cleaners and maids. So you might think about that less as a sharing economy, but that’s more gig economy, so to speak. And I like to call it independent workers. These are the group of people we’re talking about as independent workers because it’s a bit more inclusive about the type of people who do this work. So it’s not just Uber drivers or DoorDash food delivers, but there’s a lot of different types of people who would call themselves independent workers. And they’re individuals who get their source of income from something besides a full-time traditional employment job. They’re not necessarily employees of a particular company, but they might be freelance musicians, or they might be a freelance graphic designers or consultants in different areas. And some professions that we think of like electricians, for example, a lot of them are contractors as well. Which are the same type of people, which is they’re not employed by a particular company, but they’re getting their income through these one-off goods or services that they’re producing. A lot of sellers go to etsy.com. I’m sure- I think you’ve heard of it too. And they’re all independent sellers making money off of Etsy. They’re not employees of Etsy in that they have this contract with Etsy where they have to perform certain services, but they’re independent sellers and they use the Etsy platform for how they make money. And so that’s kind of the workforce that I’m interested in studying. A lot of them are more entrepreneurial creatives. There was a great book talking about the rise of the creative class and it embodied exactly these type of people who don’t want to be tied into a 9 to 5 employment job who have a lot of different interests and areas that they want to explore. And as a result, they might want to be more independent workers. And maybe someone like you Juliette, want to try and see how a podcast takes off and you devote all of your time to this podcast and see “okay, can I make enough money off of this to make a living? And can I contract other services? Like, can I be a speaker as well?” So I just think it’s a fascinating workforce to study. It’s way beyond the “gig economy.” And if we look at the data, the gig economy defined as only those individuals who contract on these digital platforms like Uber or Handy, they’re only a sliver of the whole independent workforce, which encompasses all types of different freelancers I just gave you examples of. By the way, nannies, a lot of them are also independent workers.
Juliette: That’s so huge. That just kind of widened my perspective of this, I guess, because it seems, I always just think of Uber? But then I then just connected the fact- So I like sell my clothes on Depop because I like buying clothes.
Liya Palagashvili: Oh then you’re an entrepreneur then! An independent worker.
Juliette: Yeah! And I did not think of myself as that. I didn’t think of it like that, that I’m using the platform to connect with other people and to do business with other people. I didn’t realize that until right now. Thank you for that.
Liya Palagashvili: You’re an entrepreneur or independent worker as well. I dunno how you could also think about yourself. I guess freelancing is a bit more- its a little bit different. But yeah, you would be considered according to this research as someone who gets income through independent work. So yeah. You would be an independent worker.
Juliette: That’s cool. I’m a part of this economy. So I talked to Adam Thierer a few months ago about permissionless innovation. And I feel like this fits in really well because platform companies are a form of permissionless employment where companies match independent contractors or independent workers with consumers. There are other methods of doing this, but also these companies are born free in terms of regulation. They’re not born into a regulatory environment where it’s really harsh and there’s already a ton of rules. Can you talk about how permissionless innovation in that aspect of these companies and how it’s important, how it kind of changed, not necessarily change but on how it like characterizes them apart from other jobs, and other companies?
Liya Palagashvili: Yes, definitely. It’s a good question by the way, Juliette. So one thing to color, this is I was actually a co-principal investigator in a John Templeton foundation-funded grant where we got to interview across the U.S. Different technology startups CEOs specifically about this question of regulations and about this question of working with independent workers and independent contractors. And we did over a hundred interviews with CEOs across technology, startup CEOs across the U.S. So it was awesome. And it was like a really great way to get insight on what are the particular things, what are the particular regulations or whatever, what are the particular challenges facing technology startups from the perspective of technology, startups themselves? And one of the things that we learned is a lot of technology startups do work with independent contractors and they need to be able to do so because- and it circles back to the first question that you asked me about what is it that most people your age should know which is technology, especially in their formative early years, they’re still trying to find their market and they might need to pivot and change directions or they might need to fire a bunch of people all at once, for example. And so it’s really important for them to work with a flexible labor supply. And that came across in all of these interviews. And by the way, we also hosted a survey out of NYU law, and we had close to 500 technology startup CEOs as part of the survey, and they also answered that one of the most important things is they need flexible labor in their early years because they need to be able to pivot and make changes depending on what’s going on in the environment. Right? So we had one startup from the interviews just like “I had to shut down my entire group in California and we had to move to Florida and I couldn’t, and I had to work with one person in Florida. Then we had to shut it down and then pivot into a different market and go back to California.” And you have a lot of these changes and they need to be able to adapt to these changes. And they say it’s really important, and vital for them to be able to work with independent contractors, independent workers in their early years, because, in that sense, it’s easier to ask them to either bring in more people right away. It’s easier and faster to hire and also easier to get rid of them.
If all of a sudden you’re crushed and you need to close your business down for a little while, or to pivot, like I said, into a different market or to make all of these different adjustments. And we asked the startups in our survey as well how essential is the use of independent workers or independent contractors? Is there a legal definition for your business models? And we had close to 60% say absolutely essential/indispensable, and that’s close to 500 participants who answered that question. And so one other thing, I think I strayed off a little bit from your original question, but I was just reminded of this with promotional and permissionless innovation. That we did these great fieldwork interviews and this survey as well, but one of the things they also mentioned is how important it was for them to be able to grow when they didn’t have very strict regulations in their industries. And when we did our analysis, after we found that those startups that were able to grow the most, a lot of them are in software. They’re in less regulated industry. So software, by the way, in the U.S. Is very unregulated, unless you’re talking about software specifically for finance or software specifically for med tech. And then those in med tech and in finance- clean tech for example, was another technology startup industry where a lot of entrepreneurs expressed that it was difficult for them to grow because of the regulations. And on top of that, a lot of technology startups, they need what’s called venture capital funding to be able to take off and to grow. And when we interviewed venture capitalists they also said “we’re not we stay away from investing in startups in regulated industries.” So it’s kind of crushing to startups who are trying to kind of take off in more regulated industries because it’s more difficult from the regulations. A direct impact. And then there’s an indirect impact, which is they need money to be able to survive. It’s one of the most important things for startups is financing and funding from venture capitalists. And most venture capitalists are like, “yep, we stay away from those industries like med tech or fin tech or clean tech and others.”So it makes it a lot more difficult for those companies to be able to do permissionless innovation.
Juliette: I know it’s hard to try to make a verb out of that.
Liya Palagashvili: Im thinking, how do I do that?
Juliette: It must like crush innovation in general, too. Permissionless innovation is one thing, and that’s like super beneficial to companies to startups, but then also when you take into account companies and startups that are trying to come into the market in places that are completely and totally regulated, that must just completely destroy any chance of new things changes in a certain industry. Which is just kind of sad.
Liya Palagashvili: Yeah. I actually have- you reminded me of a specific example. There was a startup entrepreneur. He had a lot of great resources I should say came out of a good accelerator program was trying to innovate in the legal tech or a law tech space, which is very, very highly regulated, and just ended up failing in that space because every idea that he had, that they were trying to innovate or to try to change or disrupt in different ways, they just got crushed by the industry regulations. And he ended up telling us that they had to pivot completely out of legal tech. And now they work with paralegals instead, which there are a lot fewer regulations working with paralegals than with lawyers. So that’s just one example of it looked like it could have taken off because they had the right team, great ideas, a lot of great resources, great, like venture capital backing. And It was crushing to hear the CEO be like, “yeah, but you know, every time we tried something, we would just get crushed entirely by the legal industry.” And then they ended up exiting that industry. And as a result, we don’t get much innovtion in the legal tech industry Maybe it does need more innovation.
Juliette: Even though a lot of these startups- I mean, that example, obviously not one of these that I’m thinking about right now- but startups that are born into a low regulatory environment that is regulators, special interest groups, try to crush that out immediately. And you can see that over and over again in Virginia, for example, Uber and Lyft were banned in like 2014, I think, by the DMV. And they’re still banned in a lot of places where there are caps and things like that because it challenges the old system. Can you tell us about what the biggest opponents are to this model of economy of companies and maybe some examples of what they’ve tried to do to stop these companies?
Liya Palagashvili: Yes. That’s a great question. So let me put it in two different waves of the regulations that are impacting more sharing economy or gig economies, gig economy companies in particular. So the first wave is exactly what you said, which is that they try to do it more on a local level with industry regulations around taxis, for example. So I lived in New York City and that was a huge market for Uber and similar to what happened in different states and different cities in 2015, mayor de Blasio essentially tried to ban Uber completely from New York City. Part of the issue as you pointed out is that there was a large, special interest group in New York City, which is the taxi medallion owners. And you saw the huge impact that Uber had on taxi medallions in New York because you saw the price of taxi medallions just- fall is the wrong word because it’s not strong enough- but it just collapsed when Uber entered and took off. So as a result, you had this group of people that are like, “look, we’ve invested in taxi, medallions. They were really expensive.” I mean, the price of taxi medallions is over a million per medallion. And then the price just crushed, or collapsed, I should say, after Uber entered and really started to take off there. So during that time, like 2014, 2015, 2016, even 2017, all across the U.S., you had these types of developments where city level, sometimes state level, they would try to go in and use the existing regulations, especially around,for-hire vehicles or taxis to try to crush Uber, Lyft, Vias. It all over the U.S. So ultimately it didn’t. Now we’ve come to terms with this, and it’s not really a big fight that they’re having anymore. So you might say like the ride-sharing companies kind of won that particular battle, but now we’re seeing a whole different battle. This is the second wave, which is, it’s not about the taxi medallions or the city regulations around for-hire vehicles and taxis. Now the battle is on these independent workers, these gig economy workers, right? And their labor classification. So in the U.S. As a worker, you can fit into two groups of people. You’re either classified as an employee,or you’re classified as what’s called an independent contractor legally. And Juliette, these are the type of people we were talking about.
Like you, for example, you would be an independent worker if you’re getting income from something, besides working for an employer. So a lot of the Uber drivers and many other different people on these platforms, like the Etsy sellers, are all legally classified as independent contractors and there are rules right now in the U.S. that try to prohibit greater use of independent contractors by creating a stricter definition. So for example, in California in 2019, they passed what’s called California Assembly Bill Five, or for shorter California AB5 is how you’ll see it in a newspaper outlets. And what they did there is created a much stricter definition of what it means to be an independent contractor. And the intention from the rule was that a lot of these independent contractors would be then reclassified as employees which would be great. The idea is that it would be great because these employees would have more benefits, access to health insurance, access to things like paid leave, sick leave, and so on. Whereas independent workers, they don’t have access to those type of employee benefits. So that was the intention of the role. But what the result was was that a lot of these independent workers in California, neither became employees nor were able to continue working as independent workers. Now, I know you did a podcast with Don Boudreaux. I listened to it where he talks about intention does not equal results. So this might be a great example of exactly what Don Boudreaux was talking about in that podcast, which is the intention was to get more independent contractors to become employees. But the result was that a lot of companies stopped working with their independent contractors altogether. So they neither continued to have their source of income as independent contractors or independent workers nor were they reclassified as employees. It was pretty devastating. The New York Times did a profile of 200 freelance writers from Vox Media and they were all fired and they cited California’s AB5 as the rule fired as independent workers cause they were freelancers. And then the Los Angeles times did an interesting profile of all the creative workers. So remember, as we talked about, a lot of the creatives work as freelancers, like freelance musicians, freelance singers, freelance artists. And they did a whole profile of all the different types of members of the creative community who are all harmed by AB5. Now, this was such harm that California ended up exempting a lot of these groups of people later. So, you know, they ended up exempting the music industry, for example.
Juliette: Wait, wait. So they didn’t get rid of the rule, but people are exempted?
Liya Palagashvili: Yeah. They exempted some roles. Exactly.
Juliette: So it still sucks for the people that aren’t exempted.
Liya Palagashvili: Exactly. And I would say the people who aren’t exempted are the ones who don’t have a lot of like lobbying power or a lot of influence, I should say. So for example, the music industry is huge in California. So they were able to lobby and kind of push a lot to get their industry exempt, but there are a lot of different industries and roles that weren’t exempt. So instead of getting rid of the rule completely, you have groups of different individuals and different industries and different roles. Sometimes it doesn’t really make sense which roles got exempt and which didn’t. There are some roles where say like a landscape architect got exempt, but a regular architect didn’t. And so you’ve got these weird things going on in the roles because different types of people will lobby or ask for exemptions, but the rule is still there.
Juliette: This just frustrates me because it seems like it’s not only for the company, it’s not only a benefit for the company. It’s also a benefit for the worker to have this sort of relationship with the person that is paying you with your employer, not even employer, but like you’re connecting media, like Uber is to driver type of thing. Can you talk about the appeal of this sort of job to workers? I’m frustrated now.
Liya Palagashvili: Yeah. So as your question eluded to a lot of workers who go into this space want to go into this space because of the flexibility of a work schedule. So traditional employment, typically you have to work at particular hours or at particular quantities, which is, let’s say you have to work or a typical workday schedule is 9 to 5. You have to go in 9 to 5 and you might have to work 48 hours in a given week. And so traditional employment arrangements, typically they have more inflexible schedules, but independent workers say that the number one, like the primary benefit of working as independent workers is that they get the flexibility that they want and that’s what they need in their lives, maybe for personal reasons, maybe for other reasons. And every survey that you’ll read about independent workers, you’ll see that the flexibility is why they go into that job. They’re like, “Oh, we can have flexible hours.” You know you can work 10 hours a week if needed or you can work irregular hours as needed sometimes you’ll have- there’s some studies about women working as independent workers in particular because some of them are primary caregivers. And so it’s hard to work a 9 to 5 schedule because you might have to work a schedule around your children or in different ways that might make it difficult for these women to be able to show up 9 to 5. And so there was a great survey that came out; It was on 2000 women in the United States who were using independent work as their primary source of income and 96% of them, so almost all of them, said the main reason they chose this type of work is because of the flexibility it gave them. And we see this, like I said, across all different types of surveys. They [independent workers] say the main benefit is the flexibility. The Bureau of Labor Statistics, by the way, they did a survey too, and they do it of independent contractors or independent workers who don’t have traditional employment and almost 80% of them, I think the actual statistic is 79% of them, prefer their arrangements over having a traditional job. And again, they said the primary benefit is flexibility.
Juliette: So you’ve written a lot about women in this economy. Can you kind of tell us more about the benefits to them and also just how it changes the possibilities of everything?
Liya Palagashvili: Yeah. So we don’t actually think of women as independent workers, because when we think about the gig economy, we’re thinking about Uber or door dash, and a lot of those workers are male. But actually there was a study that showed if you take out the transportation sector entirely- so ignore the Uber drivers and the Doordash- women actually comprise a greater share of the independent workforce of those individuals who are getting income from digital platforms. And I want to point out to some of the work that they do. A lot of them are professional freelancers on platforms, such as Upwork or freelancer.com. Some of them do graphic designing. Some of them even provide paralegal services, that came up on the top of our list when we looked across these platforms. There are other women who are on platforms, such as care.com, which that platform I think it’s 95% are women. And that one is women as independent dog walkers as nannies or personal care aides. We talked about Etsy. So that is 85% year after year, greater than 85% are women on that platform as well. And so when you imagine the so-called gig economy or the independent workforce, it’s much more broad than like I said, Uber or Doordash. And when you take out that transportation sector, we actually see women again, participating more in the gig economy. And I think it has something to do with, and this is part of what our new research paper came out. Excuse me, it’s part of what we found in our new research paper that just came out, which is that it’s about the flexibility element to it. And one of the things we found in the paper too, is even before the gig economy conquered America in recent years research studies have shown that women have always gone into these alternative labor arrangements for the specific reason of needing greater flexibility in order to participate in the labor force. And by the way, in our new research study, we actually asked that question, what can account for why women participate more in some platforms versus others,? You know, something beyond industry. And we found that women tend to go into independent work platforms where there is greater flexibility. And so it gets back to the point I was just making, which is that women really value this flexibility element. And so as a result we see women engage in this type of independent work opportunities.
Juliette: Kind of back to the California example when they imposed these rules- first, how did that impact women? Particularly women who are choosing this line of work because of the flexibility and the freedom that they get from it?
Liya Palagashvili: So there’s two ways. Okay. So first is that you make it more difficult to be an independent, or to be classified as an independent contractor. And so it makes it more difficult for organizations to work with you. For example, let’s think about those examples of Etsy or care.com. So to the extent that specific platforms like Etsy or care.com provide flexible work to those who need it and extend opportunities to women who would otherwise be unable to take on traditional employment, then those type of challenges like the ones you mentioned in California,they could,disproportionately hinder women’s participation on these platforms and in the labor force in general. So what that means is, again, if they’re unable to take on these work, if they’re unable to work on these platforms, we might not see them participate in the labor force at all, because they’re unable to take on traditional employment. Now I want to bring you back to that study I mentioned earlier about the 2000 women as independent workers in the U.S. That study actually found that a quarter of those women had recently voluntarily left their full-time employment. And so they don’t want to go back because they needed a different way to work. And that’s why they ended up finding independent work opportunities through different digital platforms, for example. So if you take away those independent work opportunities for those women, they might not go back and be able to work in traditional employment if that makes sense.
Juliette: Yeah, that does make sense. Ok. So these sorts of regulations and these sorts of rules are imposed in order to provide workplace protections and all that stuff like healthcare paid, leave, all that stuff. And that was kind of the goal and the intention, and then it didn’t happen, but regardless of the fact that it didn’t happen, I’m glad that some people are exempted. I wish everyone was exempted because the consequences of that are bad for the workers, bad for the companies and therefore bad for the consumers. But I guess the intention kind of gets at something that could be a problem in the future? The fact that there aren’t that many benefits, which gives you freedom, but at the same time, it could be an obstacle in the future for these sorts of companies and in this sector. So what are some possible solutions to address this?
Liya Palagashvili: So great question, Juliette, it gets to the heart of the problem. So I’m glad you asked this. So, as we mentioned earlier, the main intention or reason for these type of rules is that there’s a growing independent workforce. These independent workers, they’re not part of employment-based regulations or employment-based season employment regulations. So they don’t have access paid leave, sick leave insurance, health insurance from employers and so on. So as this workforce continues to grow and grow, you might get more and more people who are outside of employment base regulation. So the challenge is then, okay, well, you’re going to have this group of people who don’t have unemployment insurance and all of these various things. I think a different direction to solve some of these challenges is to think about what’s called portable benefits solutions or portable shared benefits is sometimes how they’re referred to or flexible benefits. That would mean kind of rethinking the whole idea of how benefits are now tied to employment, and to think about different solutions of how to give workers access to benefits that are not tied to employment. And the reason I say this might be a good idea is because when we survey independent workers that’s also what they would like. So most independent workers don’t want to be employees for the reasons that we just talked about, but our recent study also found that 80% of independent workers would actually like some access to some sort of benefits. And they emphasize that these benefits are not tied to one particular employer that are not tied to a particular job, and it can follow you wherever you go. So it’s not like you have to change your health insurance every time you change a job, or you might not have access to something just because you’ve changed your job.
So I think the future of work and the future of benefits should move towards that direction where we decouple benefits from employment. And just think about how we can create idea incentives or ways to get more portable benefits solutions. So I have some ideas about this. Things like subsidies that currently exist in the U.S. That tie health insurance benefits to employers. So that’s one way that we incentivize more employment-based benefits. But I want to point to something else that’s an easy, low-hanging fruit solution that can be done tomorrow. And this wouldn’t necessarily be like the perfect portable benefit, but it is a step in the right direction. Which is right now companies like Uber, their drivers are independent contractors, but they can’t legally give benefits to these contractors. If they give benefits to their contractors, like if they offer them some sort of health insurance or other things that look like employee benefits the IRS and other government agencies will see that move, and they’ll say they might use that as a factor to turn the entire business model around and say, “okay, you’ve provided them benefits. Therefore they should be classified as employees, not as independent contractors.” So in this way, they punish gig economy companies like Uber or Handy, for example, or Lyft for giving benefits to independent workers. And this is something that’s a bipartisan effort, right? It’s acknowledged by both the left and the right, that this is a real issue that companies, if they give benefits, then they’re kind of punished for giving benefits. So one easy, low-hanging fruit solution, I think is to get rid of this specific factor. It’s called the employee benefits factor. The IRS and these other government agencies need to get rid of this factor. If they get rid of it, some of these gig economy platforms have directly said “if this has gone, we’ll start giving benefits in different ways to companies.” The CEO of Uber has said this. Handy, just another gig economy platform has been working on doing this in New York state for a while, where they want to set up a portable benefits fund in New York state. But again, the problem is they have to get around this legal barrier which punishes them if they give benefits to their independent contractors.
Juliette: It’s so frustrating that it’s so difficult for these people in these startups, and these companies to just have the relationship with each other that they want that’s the most beneficial for everyone. And it seems so silly it frustrates me. But I was thinking about how quickly these companies can come about, especially just thinking about how Uber was created in 2009. So now it’s huge, but it just started in 2009. It’s been not that long. And same thing for AirBnb (2008). Does the speed at which these industries change and grow and pop up make it harder to regulate? And could that be a part of the problem?
Liya Palagashvili: So this is discussed a lot in the research and among policy makers and scholars. That technological innovations are growing much faster, and are developing in at a greater pace than regulations can keep up. And so, as a result, I think Juliette, what you’re pointing to is that they’re able to innovate, and by the time that regulations get around to it, they’re already too big and they might not be able to regulate in the way that they could have if the company was smaller. So Uber is a great example of this and what happened in New York city too. By the time the regulators- again, regulations are often very slow to move. And as you pointed out, tech companies grow really fast. Uber just started in 2009. And by the time I was living in New York in 2014, they’ve already changed the entire landscape in New York City. To the point that by 2015, mayor de Blasio was like, “wait, what’s going on? We need to be on them.” So that was huge. They only started the company in 2009 and they conquered New York City by 2014 when I was there. So what ended up happening is by the time that Uber was huge – this was 2015, July 2015 – they had a huge market already. They had a lot of resources and what they were able to do is use that big market, which is a consumer base to, in a sense, fight off regulation. So Uber in 2015, when de Blasio tried to push this new role to effectively ban them, they were able to send out a mass email to all of their users in New York, because they were able to grab a whole consumer base. Almost all – I don’t know how much, exactly the percentage – but a large portion of New York used Uber at this time, and everyone was like, “Oh, no, I can’t believe this is happening.” So they ended up sending thousands of emails to the city council, ended up tweeting, making calls, and being like, “what’s going on?” So in this way, it’s weird, but Uber grew so fast that they were able to mobilize their consumer base to fight off the regulations for them. If that makes sense.
Juliette: Yeah. That does make sense. What are some of the arguments that people make to try to crack down on these companies or to change the model that these companies and their workers are operating under?
Liya Palagashvili: So the main argument is that, like we were talking about earlier, they think the drivers should be employees or that the housecleaners should be employees or- I’m blanking on other gig economy platforms right now. Cause those are the two I’ve been focusing on. And so the argument that they’re pushing forward is that these companies are misclassifying workers as independent contractors when they should be classified as employees. And it’s not, by the way, it’s not only Uber. Amazon, for example, has a huge market and delivering, and a lot of the delivery workers are also independent contractors. The arguments are also, I should say, that Amazon drivers and delivers are also independent contractors, but they’re misclassified and they should be employees. So that’s really the main argument about how these business models should change. A group of scholars and policymakers, I should say, and others believe that the business model should change to make those, all of those workers employees. But I think what they miss is that those business models they rely on the flexibility of a labor supply because they’re on demand and it’s hard to be an on-demand company if you don’t have a flexible labor supply. I think another paper looked at exactly this type of flexible labor supply and found that it was essential for these business models to be on demand. And there’s a reason that they don’t schedule them 9 to 5, for example, or put them in different shifts. And I think that’s missing. Also, the fact that some of these drivers and a lot of these different workers who are independent workers really don’t look like employees. Because you can open up your app and work whenever you want, you can work however many hours that you need or that you want, and you can also work for multiple different companies and oftentimes competitors. I don’t know if you’ve ever sat in an Uber where they might have the Uber app and the lift up Lyft app on at the same time? Or they have both stickers on their windshields. In New York city, for example, this is huge. And there were like four different ride sharing companies in New York, and I remember getting in a car and I asked the person, I always ask the driver was like, “Oh, do you work for multiple different platforms?” Almost all of them said yes, by the way. And there’s also other evidence besides my anecdotal evidence of this. But I do remember at one time this driver was said, “I work for all four.” And he was like, Uber, Lyft, Juno, and Via. Juno doesn’t exist anymore and Via, I’m not sure if it’s in the DC area, but it’s definitely in New York and in Chicago. And so they don’t look like a typical employee because not many employees would be allowed to go work for their competitors, if that makes sense. So they really don’t legally look like an employee and they might not perfectly look like an independent contractor. And I think that’s where the tension is in these discussions.
Juliette: Thank you for all of this. So to conclude, what is one thing you believed at one time in your life that you later changed your position on and why?
Liya Palagashvili: So I think when I was probably your age and also through college, as well as after I graduated college. I was always anxious. Like I had anxiety over making sure that I was consistently good at everything I did and that if I wasn’t consistently good at everything I was given that it would determine whether I would be successful or not. And so I really thought that for a long time, like you had to crush every single opportunity that you had. Otherwise, it would mean the end of the world because there are huge network effects too. Like someone will be like, “Oh, I had, you know, Liya came and presented and she did a terrible job” and therefore I wouldn’t be invited to present again. And so I had very strong beliefs that failure was never an option and that I always had to be consistently good. And I think over time I learned that- and I think it was after I failed at particular things- I learned that one, it’s not that bad as I thought I would and all the anxiety maybe wasn’t warranted. And two, that in those moments I failed is when I grew the most because being bad at something-or I remember I did a really bad presentation once and I was like, “that’s it, that’s never happening again.” And in that moment, I dedicated a lot of time on preparation, like public speaking training and a variety of different things. So just think that’s something I’ve changed my mind on. Which is that I don’t have to be consistently good, and in those moments where I did bad they turned out to be great opportunities for growth and learning.
Juliette: That’s so cool. Okay. I will definitely keep that in mind. I feel like I learned so much from these questions, which is very helpful for me,
Liya Palagashvili: But you should also know, by the way, I know that people often give advice. It’s very easy to give advice because a lot of people neither internalize the costs or benefits of giving the advice. And also that a lot of advice is tied to particular experiences that people had. So you should also take a grain of salt with the advice that you get, including my own.
Juliette: Yeah. I never thought about it like that, but that’s a really good way to put it because it makes a lot of sense to me.
Liya Palagashvili: Or different advice too, from people, because I think it’s a lot of times it’s tied to the experiences people had. Like mine, for example, are tied to my experiences that I had, but someone could have had a different set of experiences, and you might hear something different because that’s what they got out of their experiences.
Juliette: Yeah. Plus every person is different. The way that you react in a certain situation or the way you perceive something completely different from other people. Well not entirely completely different, but it can be. Well, that’s all we have time for today. Liya, thank you again for all of this and for all your time, your insight and for your advice and your advice about advice. Id also like to thank everyone who listens subscribes and shares the Great antidote podcast. If you’d like to be on the podcast, or if you have a guest in mind, please feel free to reach out to me at [email protected] Bye