Raw Deal

“What seems like innovation in the sharing economy hides a darker truth: a business model that erodes workers’ rights, manipulates laws, and pushes the economy toward collapse.”

1. The Sharing Economy's False Freedom

The sharing economy markets itself as a revolution, promising freedom and self-sufficiency for participants. Companies like Airbnb and Uber are hailed for bypassing traditional regulations and middlemen, supposedly creating a better system for consumers and sellers. However, this idealized image fades upon closer scrutiny.

Airbnb, for example, began as a way for individuals to earn extra income by renting out spare rooms. Over time, it morphed into a platform dominated by landlords and professional property managers exploiting the system for profit. Some evict legitimate tenants to prioritize short-term rentals, undermining housing stability. Though cities impose restrictions, Airbnb avoids accountability by claiming to act solely as an intermediary.

This laissez-faire approach is not about freedom but profiteering. Companies exploit legal loopholes to enrich themselves, neglecting the social costs. The result is a sharing economy cloaked in ideals but functioning as raw capitalism.

Examples

• Airbnb avoids hotel taxes under the guise of being a booking platform.
• Landlords evict tenants to maximize short-term rental incomes.
• Regulations banning rentals under 30 days are routinely bypassed.

2. Risky Business Practices Harm Consumers and Workers

Companies like Uber not only exploit loopholes but also put consumers and workers at risk. By misclassifying workers as "contractors," firms evade paying benefits and contributions like social security. This status leaves workers vulnerable and unprotected.

Uber also neglects safety concerns, allowing nearly anyone to drive without stringent background checks. This has led to high-profile cases of assault and other crimes committed by drivers. When incidents occur, Uber distances itself by claiming it’s merely a tech company connecting parties.

These practices suppress costs but harm local governments by depriving them of licensing fees and taxes. The public and policymakers have yet to unite strongly enough to demand accountability, enabling these damaging practices to persist.

Examples

• Uber drivers labeled as "contractors" miss out on retirement and healthcare benefits.
• Lax screening led to incidents of assault involving drivers.
• Cities lose revenue as Uber sidesteps taxi license regulations.

3. The Disappearance of Stable Employment

The shift toward hiring independent contractors, known as the 1099-economy, strips workers of stability and benefits. Companies save large sums by labeling workers as contractors, who then bear their own expenses for taxes, healthcare, and retirement.

Some businesses take things further by firing employees outright and rehiring them as contractors. For example, Out magazine used this tactic to slash costs. Even tech companies like Google maintain a dual-class workforce, separating full-time employees from lower-paid “perma-temps” who do the same work without benefits.

This trend erodes the middle class as fewer people have the security to invest in homes, education, or consumer goods. Without strong consumer spending, the foundation of the economy weakens.

Examples

• The LGBT magazine Out cut costs by rehiring staff as contractors.
• Google categorizes shuttle bus drivers as contractors.
• Temp workers in the U.S. lack the protections seen in Germany or Brazil.

4. Workers Compete for Crumbs

New platforms such as TaskRabbit define a grim trend: workers fighting over low-paying jobs in a competitive, auction-like process. By underbidding one another, people accept wages below what their labor and time are worth.

This race to the bottom thrives in places with weak job markets. Workers often overlook hidden costs like commuting or time spent searching for tasks, further reducing actual earnings. Moreover, these jobs contribute to an untaxed informal economy, where legal protections and financial justice are absent.

Such high levels of informal activity weaken local economies, deny governments tax revenue, and make exploitation more common.

Examples

• TaskRabbit encourages workers to compete for the lowest possible bids.
• Window cleaners charging very low fees diminish the value of their labor.
• In 2012, the U.S. underground economy reached $2 trillion.

5. Automation Threatens High-Skilled Jobs More Than Manual Labor

Contrary to popular belief, it’s not blue-collar jobs most at risk from automation—it’s higher-skilled roles. Robots excel at expensive tasks like legal document review or medical diagnostics, which companies are now automating at growing rates.

Blue-collar jobs remain safer due to the steep costs of automating physical human labor. Unfortunately, the narrative about job-stealing robots overshadows the more immediate threat: weakening labor regulations and unions, which undermines workers’ rights in all sectors.

New unions like the Freelancers Union offer little solace. Their stance against traditional labor protections is arguably aiding the dismantling of workplace rights instead of strengthening them.

Examples

• Algorithms now scan legal documents instead of paralegals.
• Robots handle tasks like sorting and delivering medications.
• Freelancers Union promotes reduced government involvement in labor rights.

6. Breaking the Consumer-Worker Link

The sharing economy disrupts the important feedback loop between wages and consumption. When workers earn less, they buy less, creating economic stagnation. Prosperity depends on paying workers enough to afford the goods they produce and consume.

Henry Ford grasped this concept over a century ago, ensuring his workers could buy the cars they built. By contrast, today’s wage suppression damages the consumer economy. Production outstrips demand, leading to instability or even a full collapse, which the author dubs an "economic singularity."

The outcome: fewer people afford goods, surplus grows, and the system spirals downward.

Examples

• Declining wages mean fewer people can buy U.S. goods worth $16.8 trillion.
• Japan's decade-long depression illustrates the dangers of suppressed spending.
• 1930s-era U.S. policies helped keep goods circulating by supporting workers.

7. Germany and Other Success Stories Offer Hope

Countries like Germany show that balancing workers' needs with businesses’ interests can keep an economy healthy. Germany uses flexible measures such as reduced work hours to avoid layoffs in tough times. All employees share the burden equally until business recovers.

Other European nations also protect contractors by offering benefits and wages similar to employees. Such measures preserve stability for workers while preventing companies from exploiting legal loopholes to the detriment of the economy.

Adopting similar policies in the United States could stabilize the workforce and reinvigorate the consumer-driven economy.

Examples

• Germany’s workforce shares reduced hours instead of cutting jobs in downturns.
• Brazilian laws require temps to receive equal pay or be promoted to employee status.
• The Netherlands supports both full-time and part-time workers uniformly.

8. The Long-Term Costs of "Cheap" Labor

Businesses like Wal-Mart rely on government assistance programs to indirectly underwrite their low wages. While this allows companies to save money, taxpayers ultimately carry the cost.

In 2013, government aid programs supporting Wal-Mart employees totaled $6.2 billion. If this model expands, the financial burden on public funds will intensify, creating broader systemic issues for the economy.

Balanced policies could protect workers while ensuring companies don’t shift costs onto society.

Examples

• Wal-Mart uses public aid systems to supplement low-pay jobs.
• U.S. taxpayers cover costs when companies underpay staff.
• European models prevent such reliance through wage standards.

9. A Better Way Forward Is Possible

The U.S. shares a precarious crossroads: continue down the path of inequity with further erosion of worker rights, or establish a new social contract that balances wages and stability for all.

Small steps toward reform, like requiring employers to pay social security for contractors, would cause minimal inconvenience while fostering fairness. Systemic practices like Germany’s shared-hours approach could mitigate job insecurity without layoffs.

Rebuilding job security and fair wages could revitalize the middle class while avoiding the impending crisis of unchecked economic disparity.

Examples

• A new social contract could transform the United States into a more balanced economy.
• $2 per hour in employer-paid social security could stabilize freelance jobs.
• Long-term solutions alleviate burdens for taxpayers and workers alike.

Takeaways

1. Support or advocate for regulations that clearly define worker status, ensuring contractors and employees receive fair protections.
2. Explore like-minded solidarity economy alternatives, such as barter-based platforms or local lending libraries.
3. Demand transparency and accountability from companies before supporting sharing economy services to encourage ethical practices.