Liya Palagashvili on the Gig Economy, Portable Benefits, and Changing Labor Regulations

Liya Palagashvili is a senior research fellow and director of the Labor Policy Project at the Mercatus Center. In Liya’s first appearance on the show she explains federal and state level changes to labor regulations, who makes up the gig economy workforce, the role women play in the independent workforce, the novel concept of portable benefits, and much more. 

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Read the full episode transcript:

This episode was recorded on October 29th, 2024

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to [email protected].

David Beckworth: Welcome to Macro Musings, where each week we pull back the curtain and take a closer look at the most important macroeconomic issues of the past, present, and future. I am your host, David Beckworth, a senior research fellow with the Mercatus Center at George Mason University, and I’m glad you’ve decided to join us. 

Our guest today is Liya Palagashvili. Liya is a senior research fellow and a director of the Labor Policy Project here at the Mercatus Center. Her work focuses on labor regulations, the gig economy, and the changing nature of work. Liya joins us today to discuss the future of work and its implications for the economy. Liya, welcome to the podcast.

Liya Palagashvili: Hi, David. Thanks so much for having me on your podcast.

Beckworth: It’s great to have you on. You are one of my more productive colleagues at Mercatus. Seems like you’re always testifying before the Senate, the House, even some state legislatures. I know you’ve been busy giving advice to some state governments on some of the work you’re doing on portable benefits. We’ll talk about that later, but you’re a very productive colleague here. You’re part of what we call the Applied Research Team. We’re scholars who work on policy issues, and then people come and ask us for advice when we give it to them.

To be clear, we’re not lobbyists. We are just giving our insights on how policy should best work. You’ve done a lot of great work on US labor markets, and I’m looking forward to talk about it today because I think it really matters to this show, to people who listen. Before we get into all that, tell us about yourself, and how did you become a labor economist?

Liya’s Background and Interest in Labor Economics

Palagashvili: I didn’t plan for it. I’m a daughter of immigrants. I myself am an immigrant. As you know, if you’re an immigrant, you have two options for careers. You can be a doctor or a lawyer. When I was growing up, my parents were like, “You’re going to be a doctor or a lawyer.” I didn’t want to be a doctor, so I was like, “I’m going to go to law school, and I’m going to be a lawyer.” I took a fantastic economics class in high school, a really, really good economics teacher, who then opened up my world to economics. Then the funny thing is that he actually got his master’s in economics from George Mason University.

When I was applying for colleges and stuff, he said, “Oh, if you like economics, you should go to George Mason University to study economics.” I said, “All right, let’s do that.” I applied. I got in. Then, as you know, at George Mason, we have Mercatus and an excellent team of good teacher economists. They got me involved in economics, helped me pave a career as an economist. I went into academia for a while. I was an assistant professor of economics at State University of New York in Purchase College. I used to live in New York City and commute up to White Plains to teach there.

Then after a while, I wanted to leave that because it was just a lot of teaching, and I wanted to focus on research and getting my research out to the right audiences. I made my way back to Mercatus, and now I’m here. Along the way, I was focusing on labor economics, I think, not 100% in, but it was one of the research portfolios I was doing. Then I just started to fall more and more in love with it and decided, okay, I’m going to just do this 100%.

Labor Policy Project and Labor Market Matters

Beckworth: You head the Labor Policy Project at Mercatus. You also have this great Substack titled Labor Market Matters, so I encourage folks to subscribe to it. We will have a link to it. Tell us about the project that you have there at Mercatus.

Palagashvili: Our project is wanting to focus on labor markets and how can we make labor markets dynamic and resilient. That can be resilient to different shocks. It could be globalization as a shock or technological shocks, or any of these different types of shocks. Part of the question is, how can we make labor markets resilient and then also dynamic? Dynamic is about thriving labor markets, job openings, and then maybe there’s job closures. That’s part of the whole dynamism of a good labor market. We want to see old jobs that don’t make sense or are less productive maybe closed down. The important part, are new jobs being generated, are new industries being generated, that would be a key to having a good labor market, is if we see dynamic and resilient labor markets, labor market mobility, new job opportunities, and such forth. The US is a particularly good labor market on that front. We are a very dynamic labor market. 

And I want to contrast that to something like in Italy, where labor markets are not dynamic. There’s not many job opportunities. It’s quite difficult to get a job in Italy. If you have a job, you’re good for life because you can’t get fired there. If you were to try to change industries, or you were looking for a new job as a young person or as an immigrant moving to Italy, it would be very difficult to find a job there because labor market mobility is very low in Italy. Not a lot of job opportunities and openings, especially for the young and the youth. That’s the contrast to the US labor market, where if you’re a young person, or you’re an immigrant or someone who doesn’t have a lot of experience, there’s still job opportunities and work for you in many different sectors and industries, and there’s growth. Again, contrasting that to the Italian labor market.

Beckworth: Part of that means that labor markets can fire people. They can hire people. It comes at a cost, but it’s a cost we want because we want the dynamism. I recall the pandemic. There was a lot of criticism during the time that in the US we don’t have good systems in place to deal with this type of challenge, where they praised the Europeans. Oh, the Europeans, they’re going to give money directly to the firms. They’re going to keep the employees on the job even if they’re not working and the firms can pay. In the US, we didn’t have that.

We have an unemployment insurance system. Lo and behold, a lot of people quit their jobs in the US, and they looked for new opportunities, this great resignation, a lot more dynamism. What people initially thought was this burden of the US system ended up being a blessing because a lot of people rethought what they want to do with their lives. They became more entrepreneurial. I love this perspective of dynamism that you share. 

I think it really is useful for someone like me in this podcast, where we focus a lot on Federal Reserve, business cycles. We get caught up on what was the employment report this week? What’s unemployment? What’s the JOLTS data? We get hung up on the data month to month. Really, we want to pull back and see the bigger dynamic in nature. Are people finding jobs? Are they quitting and looking for jobs? Are there opportunities? I think the work that you’re doing really is pushing that, really pushing this flexibility thing. 

Another example, Liya, that comes to mind is the famous China shock. I know it’s contested. There’s some people who have different views on this. One of the concerns that was brought up in that literature is that when globalization did hit, we had this “China shock.” A lot of people in these manufacturing towns, they lost their jobs, but they wouldn’t move. They didn’t pack up and go to where there were jobs in other parts of the country. That was part of the challenge, is why was there declining labor mobility? What you’re working on is a program that’s going to promote labor mobility, make sure if there are shocks in particular areas, they can move. We’re going to get to it in a bit, this portable benefits idea and some other things that I think you really are working on hard and really, really useful.

Independent Contractors and the Gig Economy

It’s great to have you on board here. Let’s begin by talking about some of the work that you’ve done on independent contractors and the gig economy. The gig economy is a hot buzzword. I’m not sure I fully understand it, so I’m glad to have you here to help me out. You had a great article in your Substack titled “A Fresh Look at the Independent Workforce with the New BLS Data.” Before we get into that article, maybe define what is an independent worker?

Palagashvili: Independent worker, think freelancer, freelance graphic designer, freelance writer. Think contractor like a plumber or your electrician, or a music teacher you might hire to give piano lessons to your children. Think about a seller on Etsy, maybe making and selling pottery, or a driver in the gig economy platforms, like Uber and Lyft, or even the traditional drivers who are taxi drivers and truck drivers are all independent contractors, independent workers, or self-employed Substackers or YouTube channel influencers. 

David, you had Joey Politano on your podcast a couple of weeks ago, and he’s saying he has been self-employed for the last two years, and he makes all of his income through Substack. That’s incredible. He doesn’t need a company to provide him a job. He gets his money directly from all of us as consumers. That’s who we’re talking about. It’s all of these various different types of workers who are making either their primary source of income, so like Joey, or a secondary source of income from outside this traditional W-2 employer and payrolled worker arrangement. That’s the type of workers we’re talking about. It’s pretty diverse. 

I was actually on a panel talking about this, and I had a question. The person asked me, “What does a typical profile of an independent worker look like?” I responded. I said, “That’s a trick question. There’s no typical profile of an independent worker because it could be, again, like a student, a full-time student, who’s driving on Uber or Lyft as a side job. Or it could be someone who is a professional freelance writer or a Substacker, electrician, and so forth. It’s a very, very diverse and broad workforce.

Beckworth: When I was reading your articles, I was surprised to learn that there’s always been this group of independent workers. In my mind, I’m thinking the gig economy, Uber, Lyft, DoorDash, social media influencers like you said, Joey on Substack. You noted construction workers, electricians, plumbers, the tutors, the nannies, the independent consultants in finance and law. There’s always been this group, but I guess it’s gotten a lot more attention because of the opportunities, and I would say the enhanced flexibility, that these online-related opportunities present. Now, you gave an example of your father in one of your articles. How was he an independent contractor?

Palagashvili: He’s a driver. He works with first mile, last mile, different types of companies that offer first mile, last mile solutions, basically. When we first moved to the US, he did like the employee thing for a while. Then he was like, “No, I want to do my own thing. I want to be an independent contractor.” He was also a truck driver. He’s always been in the outside of the W-2 payroll arrangements. He also runs a side business. You do get people like my father who genuinely don’t want a W-2 job. Part of it is a personal thing or personality, maybe.

Other times, which I’ll talk about later, we see a lot of women go into this workforce because they are moms. They’re juggling working and being primary caregivers for their children. There’s many different reasons. For my dad, it was a strong, strong preference not to do the strict, structured workforce. By the way, he came from the Soviet Union, where that was all you had an opportunity to do. You had to work at the strict job, and everything was structured. There was no self-employment opportunities. That was illegal. I think he came to the US, did the W-2 payroll job, but he was like, “Hold on, I can be an entrepreneur here too.” For him, he does driving. He also has a small side business that he works on with selling cars and shipping them abroad. For him, it’s just an ability to manage his own schedule and work that he wants to do and then work on many different things at the same time.

Beckworth: I love your dad’s story because he goes from being in a communistic system to a capitalistic system. He wants to live the American dream, right? He wants to be his own man, do his own thing.

Palagashvili: Yes.

Beckworth: You mentioned Joey Politano. He’s living the American dream. He’s literally putting up a shingle and doing his own business, his own writing. My family, our engagement with these independent contractors would be, well, for me, obviously, would be like Uber drivers. I have a lot of Uber driver experiences when I travel a lot with this job. You always hear great stories. I always love to talk with Uber drivers and great conversations. Sometimes, like you said, it’s individuals who want part-time work. Sometimes they’re foreigners who’ve come in and don’t have opportunities to do other things, or maybe they just want to have the freedom.

Recently, I saw it firsthand from the producer’s side. My two children over Christmas break did DoorDash to earn extra money over the holidays. They’re both going on trips with their schools, and they needed several thousand more dollars. They spent their holidays working really hard doing DoorDash. It’s really interesting to see them do that. Then the last example from my family would be my wife. She does some wood art as a hobby, and she’s put her stuff online. She’d also be an independent contractor. It’s really exciting.

Palagashvili: Yes. Is she putting it on Etsy?

Beckworth: Yes. She’s doing it on Etsy. She’s also put it on some other site. I forget the name, but yes, she’s definitely on Etsy. She’s having fun with this. 

Palagashvili: Yes. Those are great examples, David. It just shows how prevalent they are in our life, that you have two children doing DoorDash, supplementary, and your wife who’s on Etsy. Actually, Etsy is interesting because, year after year, I look at their annual reports, over 85% of the owners on Etsy are all women. Always. It’s very female-dominated, we own the stores, we want to do the things and sell on Etsy. 

Really, also my dad and even probably David, you and I, make some income outside of the W-2 arrangement as well. If someone asks me to do a presentation, they usually offer me some money. That’s also my supplementary income outside of a traditional W-2 arrangement. Just to put some numbers on it, over a third of Americans actually engage in independent work in some way or another, whether it’s primary or supplementary source of income. Last year, 2023, that added up to 63 million workers who are either full-time freelancers or just using it as a side job. Obviously, the independent workers who are secondary earners comprise a much larger fraction of the workforce than the primary earners.

For some estimates on the primary earners, we get a huge range from the new BLS data. They found that there are about 12 million workers, so about 8% of total US employment that do independent work as their primary source of income. That’s at the low end. On the high end, there was a Gallup survey that found that it’s 45 million workers, so about 28% of the workforce that are using independent work as a primary source of income. Now, you get these ranges because there’s a debate about who to include as part of the workforce.

The BLS data wouldn’t include your wife or anyone selling. They don’t include the Etsy owners or the sellers. The other surveys, like Gallup, will include all types of nontraditional work arrangements. Now, the BLS is strict in their definition. They want someone using it for labor activities or labor services, and selling is not always considered that. You get narrow categories. Also, the BLS data doesn’t do a good job of capturing the new forms of work, like the Substackers and the YouTube influencers. That survey that they released in November, that was a very thoughtful survey on independent workers, it still didn’t do a good job of capturing the new forms of work, like the Substackers, the TikTok influencers, and so forth.

That’s just to give you some numbers on how big of the workforce we’re talking. Really, year after year, a third of Americans are using independent work as some source of income, whether primary or supplementary, and it’s growing. I think part of the reason the gig economy is a hot topic, is because we can directly see the gig economy, like workers, because we’re directly interacting with our Uber drivers or with DoorDash. That’s the hot topic issue of hold on, this is growing. Are these workers employees? Are they independent contractors? It gets a lot of policy attention. The gig economy itself, like Uber, DoorDash, and so forth, they actually only are 10% of the overall independent contractor workforce. It’s tiny, compared to all the other types of workers who are part of this workforce.

Beckworth: It’s exciting, nonetheless, even if they’re only a small percent of overall—

Palagashvili: They are.

Beckworth: —because it’s an added opportunity, right?

Palagashvili: Yes.

Beckworth: I think of my children, they earned probably a lot more than they could have if they’ve gone and worked at Macy’s over Christmas, or something like that. They enjoyed it. They enjoyed driving around and delivering food and meeting people. I don’t know if you’ve seen this, but DoorDash has these specials: If you do it at a certain time, you get more money and go to certain places. They enjoyed the challenge of it, I guess. It’s a great opportunity. 

Independent Work as a Buffer from Shocks

I think more generally, and going back to Macro Musings, we have a macroeconomy and shocks hit it, we want shock absorbers, we want places for people to go. If you lose your job, it’s great to know that there are these opportunities. It may not be a perfect replacement, but at least you can go drive your car or go do some online work temporarily. Maybe it becomes your mainstream of income, maybe it doesn’t. Man, I would think a growing independent workforce and just the technology, what the internet allows, provides an additional buffer to shocks that hit the economy.

Palagashvili: David, that’s exactly right because there’s tons of studies that actually look like when we do go into a recession and the unemployment is high, people jump to self-employment or independent forms of work as a way to make income when they got laid off. Having these opportunities allows people not to go from making 100 to zero. But because they got laid off from their job, they’re now to zero, but it gives them an opportunity, like you said, to have a buffer. They have other opportunities to make income and to have something that they can rely on when they’ve lost their job or they’ve been laid off for recession.

There’s just, we do see that happening with independent workforces, or the self-employed workforce broadly, is when there is a recession or unemployment is high, we see spikes up in self-employment, and independent workers, freelancers, and so forth. One way to think about it is like a buffer to, 10% of someone’s workforce got laid off, oh, but hold on, Uber is still operating, or I can still tutor as a music teacher. That’s an opportunity to continue maybe doing these various things as well. 

One other thing I will say about that too, is, there’s some great research studies and data that actually looked at personal bank accounts of workers who participated in freelancing, and gig economy, the Ubers and other types of independent work. One of the biggest motivators for workers going into this type of work is that they had either a job that they lost in the quarter before or some sort of income decline or asset deterioration in the quarter before, then they pick up independent work. Then they follow what’s going on in the bank statements, and they find that those assets, then they’re able to make that money back up. Then, after a while, they see them jump back to finding a W-2 job. They act like a lily pad for in between sometimes, for workers who lose their full-time job, or maybe leave them for other reasons, use this as a temporary job, and then jump back to full-time W-2 jobs, maybe a year or two later.

I love these studies that came out because they’re literally seeing in the bank statements what’s happening. They see the drop in the main source of income, the W-2 job. Then the next quarter, they are able to recuperate some of those, the money or the assets that they’ve lost, by using independent contractor work or traditional freelancing jobs. Then a year or two later, they continue following them and see W-2 jobs back on their bank statements.

Beckworth: Liya, I’m going to have to give you honorary membership to the Monetary Policy Team at Mercatus because the work that you’re doing is making the Fed’s job easier. You’re promoting these programs, more labor market flexibility—and the Fed’s job is a dual mandate, right? Full employment and price stability.

Palagashvili: Yes.

Beckworth: The more of these buffers we have, the easier it is. You didn’t know it, Liya, but you’re actually on the Monetary Policy Team at Mercatus, too, with the work that you’re doing.

Palagashvili: I am. I’m happy to join.

Beckworth: Now, again, your Substack article from which we’re drawing this conversation is titled “A Fresh Look at the Independent Workforce with the New BLS Data.” It draws upon a BLS report called the Contingent and Alternative Work Supplement, or CWS. I was delighted to read that you actually have consulted and made suggestions to improve that. Is that correct?

Palagashvili: Yes. I’m on the Data Users Advisory Committee for the Bureau of Labor Statistics. We meet twice a year, and we go through different types of measurements. Sometimes it’s productivity measurements, sometimes it’s inflation, sometimes it’s labor, specific metrics, like how do we measure the independent workforce. We gave advice from a user standpoint on what they could be collecting, what they shouldn’t be collecting that’s not relevant, and just provide guidance and feedback to the Bureau of Labor Statistics. I’ve been a committee member since 2019.

I found the experience is awesome because, one, we get to have a deep dive into all the different labor market metrics, like productivity and inflation metrics that they’re thinking through. It’s very thoughtful about how do we want to measure this, how do we think forward, and so forth. I was particularly honored that I got to provide some feedback on this new CWS, which is the Contingent and Alternative Work Arrangement Supplement, to the monthly CPS. They run it irregularly. I think the last time they surveyed it was in 2018, for the independent contractor workforce, alternative work arrangements workforce, and then they did it again in 2023.

That data was just released in November. One of the key takeaways from the new data is that the independent workforce is growing for workers who are doing it as a primary source of income. Some of the top industries are professional and business services, construction, and financial activities. Then, interesting demographic data that we’re able to look back through the survey since 1995 and found that we continue to see older workers take up independent work arrangements. 

That makes sense too, because if you look at their literature and research on older workers, as they near toward retirement, or even after retirement, they actually want to find flexible ways to make money because they’re not going to be able to do 9:00 to 5:00, and not many employers might be able to offer these part-time or ad hoc arrangements in their typical jobs. They become independent contractors or independent workers. Some of them are substitute teachers. Some of them are even picking up a little bit of the gig economy platforms. We saw a little bit of that in the data as well. Yes, we see a lot of older workers in the platform. 

Women and Independent Work

Then one other group, this is a group that I study a lot, is women. They’re fascinating because, again, the key feature of independent work is that it’s basically full work autonomy and flexibility. You don’t really have a boss where you can ask, “Hey, David, can I come in late this week?” or, “I have to pick up my children from daycare earlier, I’m going to be in late.”

That’s what we think about when we think about work flexibility. Independent workers have full work autonomy, full work flexibility, meaning they don’t really have a boss to be like, “Oh, yes, I need to come in. I need to ask off,” or, “I need to ask if I can come in late.” We see a lot of women who are primary caregivers, who are mothers, go into independent workforce. According to official IRS tax data on this, by the way, since 2001, the participation in independent work has grown significantly more among women than it has among men.

Then in that tax data, we also see that female independent workers are more likely to have children than female employees. Then we also see some recent studies that use the American Time Use Survey, for example, that follow women who are in self-employment. They do find that self-employment rates are higher for women who have young children. That self-employed female workers seem to have more flexibility in their work location, hours, and schedule, as compared to women who have W-2 jobs. 

Then they follow these women and ask them, “What do you do with this extra time at home?” It allows them to basically manage their work. Self-employment allows them to manage their work and take care of the children. We see that come through in these surveys. It’s something that we don’t typically think about when we think about gig economy work, because we’re like, “Oh, it’s the Uber driver, and the Uber drivers aren’t really female most of the time.” If you take out the transportation sector entirely, so assume it away, women are actually comprising a greater share of the independent workforce than are men. They’re particularly high in things like selling, you mentioned your wife on Etsy. We’re seeing a lot of women on that. 

Then the other thing that’s interesting with this rise of women in independent work arrangements is, and also part of the post pandemic, remote work arrangements, I think that they might be contributing to the new highs that we’re seeing with women’s labor force participation rates. The labor force participation rate for prime-aged women, so those are women between the ages of 25 and 54, has exceeded and is at an all-time high right now. Then, the percentage of women in the workforce with young children is significantly higher than it has ever been.

There’s also data that follows women who’ve had kids in the last 12 months. That’s another high that we’ve seen in decades. Right now, almost 70% of US women who gave birth in the previous 12 months were in the labor force 12 months later, within the next 12 months, basically. That’s the types of trends that we’re monitoring right now, and we’re trying to work on some studies to see what part of flexible jobs, independent work, and remote jobs as well are they one of the key contributors that are leading to women participating in the labor force in these numbers that we’ve never seen before.

Beckworth: That’s really fascinating. The two groups that really need or demand flexibility in their work, older people, and then ladies, females, who have other competing demands in their lives, they’re the ones who are driving the growth, is what it sounds like, in the independent contractors.

Palagashvili: Yes.

Beckworth: Now, you tied the story about females and independent contractors, there’s some interesting work by Claudia Goldin. She’s Nobel Prize winner. She’s a famous economist at Harvard. Tell us that story and the connection you’re making here.

Palagashvili: Yes. Claudia Goldin’s story with flexibility was this. She wrote an awesome piece in the American Economic Review 2014, the “A Grand Gender Convergence.” She said, basically, the remaining part of the gender wage gap that exists today is because women pay a price for needing flexibility in the workplace. There are some types of jobs that make it very costly to have flexible work arrangements. 

Claudia Goldin gives this example in her research about partners or lawyers or big corporate law firms. It’s very costly to be flexibly working as a corporate lawyer because you need to be in person with clients. You miss out on promotion and opportunities if you’re not there in person. There’s a lot of demand on you being there in person at specific times and so forth. She contrasts that to the tech sector, where working flexibly from the tech sector isn’t that costly for women. They don’t have to pay what she calls the flexibility amenity. What we do in our work is we go one step further and look at the emergence of these new forms of independent work that are also making it not super costly to have flexibility as a working mom.

That’s the connection to Claudia Goldin’s work. By the way, I should point out some of her earlier work also highlights just how important flexibility is for women and that they self-select into jobs that allow for greater flexibility precisely because many of them choose to be mothers. If they choose to be mothers, they have to choose jobs that allow for a little bit of flexibility. She looked at the traditional workforce, like W-2 workers or payroll jobs. 

Myself and my co-author, Paola Suarez, we looked at jobs in the independent workforce that provide flexibility. We looked at different characteristics that women are self-selecting to within the independent workforce as well. It turns out that within the independent workforce, women are much more likely to choose freelancing jobs that allow for more remote working. They’re more likely to sell things on Etsy rather than having to work for Uber, partly because it requires them to be in person for Uber, but it doesn’t require them to be in person in Etsy. Because they can also schedule the work that they need around baby napping or picking up kids from daycare and so forth. That’s our work in flexibility that we see in the independent workforce as well. I think that’s part of the reason, as I mentioned, why we’re seeing a lot more women participating in the labor force, specifically women who have young children at home.

Beckworth: This is so interesting to me, Liya, because it answers both the question about we need a buffer, a shock absorber when there’s business cycles, when there are shocks that hit the economy, but it also addresses the idea of having, over the long term, a dynamic economy. It’s filling a hole. There’s a missing market there, so to speak, and this is filling that missing market. Both in terms of a shock absorber and in terms of dynamic growth over the long run, we have a story here about these independent contractors playing an important role.

Men in the Independent Workforce

We talked about the role women play in this, the older generation. I’m just curious, what about men here? I’m thinking in particular, you look at like men’s labor force participation rates, they’ve been going down, down, down. There’s all these men who maybe aren’t able to compete in a globalized economy. Do you see any role or any place for them, any opportunities for them, in this independent workforce?

Palagashvili: Yes. There are more independent contractor men than there are women, even though the growth in independent contracting has been greater among women. Men, in the independent contractor workforce, they tend to be in construction and in transportation. That’s where we see the dominance of men in the independent contractor labor force: construction and transportation. 

I will mention one more thing is that some of the top industries for independent contractors are professional, scientific, and technical services, as well as healthcare, construction, and financial activities. Healthcare obviously is more female-dominated. Construction, like I said, is one of the top industries for independent contractors. That’s almost all men. I think some of the traditional independent contracting industries is where we see a lot of men and where we’ll probably continue to see a lot of men. 

I did see some data on the freelance professionals, even though there’s more women in that we’re seeing a growth in men post-pandemic. That was an interesting uptick. I think a lot, probably what happened is that, during the pandemic, some men who were in high-paying jobs, like in finance or something, left their job, and then are doing financial consulting as an independent worker, or maybe they have a financial blog, or a Substack that they make all their income on. It doesn’t have to be financial, but it could be something else. We did see an uptick in that for men, post-pandemic, where previously had high-paying jobs, and now going into independent work also potentially high paying for them as well post-pandemic.

Beckworth: Men are actually well represented in the independent labor workforce and well represented in probably the higher-paying portion of it as well.

Palagashvili: Yes.

Beckworth: Interesting. The story they told during the pandemic of the great resignation, I know, there’s questions of how big of a deal it actually was. This would be an example. Some man says, “Is it really worth it working 80 hours a week? I’m going to go become an independent consultant, set my own hours, do my own thing.”

Palagashvili: Absolutely. That’s what we saw. Again, it happened with men, but it happened also with women, where they were like, “We’re quitting our jobs and finding other opportunities to do this.” I will say that there was a Brookings Institution survey post-pandemic that asked unemployed workers, “Why haven’t you found a job yet?” Most of them were like, “We’re looking for jobs that allow for flexibility.” That was post-pandemic. It came up—

Beckworth: Interesting.

Palagashvili: —as a key characteristic they were looking for. Whether it was remote jobs or freelancing jobs, it was that, “We’re looking for something that allows for greater flexibility.” I like to tell the story that I noticed it with my friends, at least, David—so again, it’s anecdotal evidence—where they got a taste of the flexibility during the pandemic. Then, when everyone was like, “Okay, everyone back to work,” they’re like, “I don’t want to go back to work. I want to go find a job where I can have the flexibility that I had during the pandemic.” 

I have a lot of friends who were in these high-paying jobs in New York City, had to be in person in the office five days a week, 80-hour weeks, and then they got a taste of the flexibility during the pandemic. They were like, “No, we don’t want to go back to that.” I think that, I don’t know, that’s anecdotal evidence, but I did see that among a bunch of people in my friend group from New York, where it was a defining moment, where, “Oh, wait, I worked from home for a year, I got to do whatever I want. I’m not going back to the office.”

Beckworth: Yes, I think the horse is out of the barn, so to speak, when it comes to that. Most of the evidence I’ve seen, for example, work from home, yes, it’s been reversed some, but I think there’s still a new permanent, new equilibrium path where there are far more working from home. 

Myths Surrounding the Gig Economy

All right, let’s do a few more things here, and we’ll move on to your work on portable benefits. What I want to do is work through some myths surrounding the gig economy. You have an article on your Substack titled “Labor Myth Busting Series: The Gig Economy.” We’ve already answered myth number one is the majority of the independent workforce are gig economy workers. We’ve already addressed that one. Let’s go to myth number two, the majority of gig workers are full-time earners on the app.

Palagashvili: Yes, that’s another false statement. The majority of workers using gig apps are using it as a supplemental job, not as a primary job. There’s definitive research on this. I will pull in the data from the IRS. They looked at basically the 50 largest gig economy platforms, pulled their IRS 1099 records, connected it to the workers there. I’m going to read you actually the quote that they found in their study. They said, “We find the exponential growth in labor online platform economy work is driven by individuals whose primary annual income derives from traditional jobs and who supplement that income with platform mediated work.” They close that box that everyone’s like, “What’s going on with gig work?” No, these are supplemental earners. David, your examples, and if you look at the company’s own data, in their company report, it makes sense. If you look at DoorDash—you said your kids worked on DoorDash—90% of dashers work less than 10 hours per week on delivery. 90% of dashers worked less than 10 hours per week on delivery. These aren’t people who are doing it as a full-time job.

Then Lyft data, too—I pulled out some company data from Lyft—96% of drivers work elsewhere or are students in addition to driving. That’s really one of the biggest myths. I think the concern there is, “Oh, my God, look at the growth of the gig workers, they don’t have healthcare benefits,” or, “they don’t have these other protections.” Most of them are W-2 workers. It alleviates some of that concern related to gig workers. 

I would actually say the concerns about healthcare benefits and retirement benefits and so forth, that concern should be targeted toward workers who are doing it as a primary source of income. Those are your traditional freelancers, for example, like your freelance writer who is a professional freelance writer for the last 30 years, or a construction worker who is not a W-2 worker but an independent contractor. We should target our concerns to those groups who are doing it as primary source of income who don’t have W-2 income, rather than the gig economy. Because the gig economy is a hot topic issue, everyone wants to talk about that. The reality is we should be less concerned about them in terms of benefits than we are concerned about these other groups of independent workers.

Beckworth: You’ve answered the other myths in the article already then. Myth number three was most gig workers don’t have access to health insurance. You addressed that. That’s not true because most of them do have other jobs, and they have health insurance. Myth four was independent contractors want to be traditional employees. The fifth myth, maybe you can speak to that one quickly, and we’ll move on to portable benefits. Large companies are primarily to blame for the growth of independent contracting.

Palagashvili: Again, I think that’s part of the Uber conquest of America. We saw it. We witness it. We deal with it every day. We’re thinking about, “Oh, these independent contractors are all working at large companies.” That’s not the case. The IRS tax data on this shows that the growth in independent contracting has been greatest for small and low-wage firms. They define that as firms that have less than 20 employees. 

It’s really your small business firms. Let’s think about a hair salon. You have some employees, and maybe a couple of contractors who are maybe the nail technicians or maintenance and cleaning and so forth coming in. That’s where we’re seeing the greatest growth in independent workforce is among small and low-wage firms. Second, among medium-sized firms, and then only last among the largest firms. That’s firms greater than 1,000 employees.

Portable Benefits for Independent Workers

Beckworth: Let’s transition into your amazing work on portable benefits and a nice segue from what we were just talking about. What about those independent contractors who are full time, that is their mainstream of income. They don’t have employment-based health insurance. They don’t have all the access to programs that you would get with a W-2 situation.

You’ve had some great work on this. As I mentioned at the beginning of the show, you’ve actually been a part of conversations in the state of Utah and other places. I believe there’s a senator who was excited about your work. Maybe you can tell us all about this. You had congressional testimony on this, and maybe I’ll just turn it over to you, what are you trying to accomplish here? What has been your track record?

Palagashvili: Benefits in this country have always been tied to one form of work, that’s W-2 work. Now, back then, when this labor and institutions around benefits emerged, it wasn’t an issue back then. 100 years, it wasn’t an issue because most workers were W-2 workers. We had these employees and benefits were tied to W-2 employees. Now that has changed, a lot of things have changed in work. People don’t have one career for their whole lives, they change jobs seven times rather than working at one job for their entire life.

A lot of that has changed over the course of the second half of the 20th century. Then obviously, into the 21st century is where we got a lot more workers who are in the short, flexible, freelancing, independent forms of work, who are entrepreneurs as well, self-employed. Now Substackers and TikTok has bunched that up even more, because now you’re getting all these young people who are like, “I don’t want a W-2 job. I want to go be an influencer on YouTube.” They start these YouTube channels. They make a lot of money. They make six figures doing that. They’re thinking, “Why would I go apply for a job where the starting salary is $45,000, where I can make influential YouTube channel and make six figures right away.”

We’re seeing, especially among the youngest generation of workers, jumping right away into these new forms of work, these flexible forms of work. My concern is, as more and more workers become independent, flexible workers, nontraditional workers, more and more of them are outside of the purview of traditional thinking about benefits. The way that we’ve set up our system is that you can’t provide benefits to an independent worker without some tax risks and punishment.

You, David, if you had a freelance graphic designer that you were working with, and you wanted to provide that freelance graphic designer with maybe just some contributions to healthcare insurance purchases or something into a retirement account for them. If you did that, the IRS and state governments will come after you and say, “You gave benefits to an independent contractor. They look like an employee. We’re going to reclassify them as an employee.”

That’s written on the IRS website. That’s written in state government regulations that you cannot give benefits to an independent worker, because if you do, that means they look like an employee, and it’s like a checkmark for the employee side. It creates a huge risk of misclassification, huge risk. As a result, companies have publicly said this, and many have pointed this out, they’re like, “We’re not going to give benefits to independent workers, or independent contractors, because if we do so, they’re going to be reclassified as employees, maybe they don’t want to be employees. Also my freelance graphic designer is not an employee, they’re an independent contractor, freelancer.”

One thing that we’ve been doing is just raising awareness about this. Like, did you know it is not currently legal to give benefits voluntarily, there are no mandates, to freelancers and independent workers, precisely because that’s the structure of our laws? They made it that way so that benefits only go to employees. That’s only one type of worker, though, and not to self-employed workers. That’s one issue, which is just a legal barrier issue. All that federal government or state governments have to do is say that the presence of benefits shouldn’t be used to determine whether a worker is an employee or an independent contractor, that should have no say in that debate how they’re classified.

Now, our work got into the hands of the Utah legislator two years ago, and they passed this bill that said very simple, exactly that, the presence of benefits shouldn’t be used to determine whether a worker is an employee or independent contractor. They were the first state in the country to do that. As a result, we’re getting some pilot portable benefits programs in Utah. Target is doing one, Lyft is doing one. They’re called pilot portal benefits programs because they just want to test the concept in Utah. They’re small scale. What they’re doing is basically providing these accounts that are held at a third party. The worker can have many different contributors to that account.

The one thing that’s typical of a freelancer or an independent worker is that they have many different companies or clients that they work with, or that they might start working with maybe DoorDash this month, and then work again with them in a year. These accounts need to be with a third party. That’s why they’re portable. They need to stay with the worker and not with the company. They need to travel with the worker. If they have these accounts at a third party, which is, right now, there’s a portal benefits company, basically, that a self-employed worker has an account with, and then different companies that they work with, or clients that they work with can make contributions to those accounts.

Right now, they’re structured as savings accounts, but if there’s changes in federal law that will basically allow for self-employed workers some of the same tax advantages that W-2 workers get in terms of health insurance and retirement, then we could really see this expand as a true portable benefits system model. That’s why we’re also talking to federal policymakers about this. States are passing laws. Like I said, Utah passed this law. I just testified in Virginia for the House and the Senate on their portal benefits bill. I think there’s going to be Montana, Nevada, and Florida and Ohio, I think are introducing or have just introduced this year portal benefits bill, too.

That one follows the Utah model. At the federal level is where there needs to be a lot of work. We’ve gotten interest in the federal level as well from Senator Cassidy, who’s the chair of the Senate HELP Committee right now. I think it’s health, labor, pensions. That’s the committee that works with benefits and labor. We’ve also gotten interest from the House education and labor workforce too about starting to pass some of the reforms to allow for freelancers and self-employed workers to have benefits too.

Like I said, the key reform is legalize it, so get rid of the legal barrier that prevents hiring parties and companies from voluntarily giving benefits to independent workers. The other side of it, David, is about tax reforms too, to basically equalize tax treatment for self-employed workers as we do with W-2 workers, because we get special tax treatment when we put away money into a health savings account or into a retirement account and so forth. Some of those things are not available to self-employed workers or to freelancers. Part of it is a tax issue.

The idea that we’ve been pushing forward is allow for flexible benefits accounts that look like Section 125 plans for self-employed workers, so anything that goes into a Section 125. Cafeteria Plan will be allowed for a self-employed worker as well. Then hiring parties can make contributions to those accounts for self-employed workers, so that self-employed workers hide that from federal income tax and payroll tax as well in the same way that W-2 workers are.

By the way, David, there’s also a lot of reforms that need to happen on healthcare as well, so on health savings accounts to make them more accessible for self-employed workers. It’s a lot of work. A lot of different things need to be reformed. I think in 10, 15 years down the line, I think we will get to a place where self-employed workers and W-2 workers will both have access to benefits. Then we can really hit home on increasing labor market mobility.

One of the key problems that restricts labor market mobility is that benefits are tied to your job. Jonathan Gruber who is an economist at MIT has done a lot of work on this. The idea is like, you might not want to leave your job, even though it’s a bad fit, and you want a different job, but you have four kids and you’re going to lose your health insurance. You’re like, “I’m not going to go out into the market without health insurance or these other benefits because I have four kids and I have a family to care for.” You become very risk averse to change jobs.

If we find ways to make it easier for workers who are not W-2 employees to have these portable benefits accounts—W-2 workers can have them too. That’s the whole point is to decouple some of those benefits from one company, from an employer so that it stays with the worker and can travel with the worker. That will help not only self-employed workers, like we’ve talked about here, but it’ll also help with labor market mobility in the US.

Beckworth: Liya, you have your work cut out for you, that’s for sure. This is very optimistic, very hopeful. Again, tying this back into the theme of this podcast, man, this would open up a lot more opportunities for people to become independent contractors. It would make the US economy more resilient to shocks. It would make it more dynamic over the long run. This is like a win-win in my mind going forward. You’re doing the Lord’s work, for sure, trying to add more flexibility to labor markets. I’m glad to have you as a colleague at the Mercatus Center. I’m sure all the macroeconomists out there are giving you three cheers right now.

Port Strikes and Dynamic Labor Markets

Let’s segue to the last part of our program here. You’ve also done some other work. This is interesting. You did some work on the port strikes and automation, and you wrote up a piece or several pieces about the International Longshoremen’s Association when they were really creating problems with labor contracts. The question of the automation of cranes, gates, and container movements, that was a big deal for them. Tell us about that experience.

Palagashvili: In October 1, the Port Workers Union, so I’m going to call them the ILA for short, they basically wanted a total ban on automation used in ports. That means opening and closing doors. That’s like going to the grocery store and having someone be there as a job just to open and close doors for you.

Beckworth: Wow.

Palagashvili: They went on strike. The strike was three days. They said, “We’re not going to come back to work unless you agree to ban automation on everything in the ports,” which is an excessive demand. Also, it would backfire on them, because what essentially happened is that if they got what they wanted, which is a total ban on automation on all ports. Over time, those ports would be less productive, there would be less business and less activity as compared to other ports in the United States. Over time, those same workers would probably lose their jobs because they would see a lot less business and activity at those ports.

I understand, David, by the way, because the key issue that the port workers were afraid of is that if they introduce automation, we’re going to lose our jobs. At least some of us will lose our jobs. I think it’s important to be honest and say, yes, when automation is introduced, some people lose their jobs. Sometimes it’s the roles that get changed. At the same time, what matters from a macro perspective is not that particular job that we have, 100 port workers, or we have 100 workers at grocery stores. What matters from a macro perspective is that there’s more jobs in more industries that are opening up as a result of technological innovation and automation.

If 20 jobs get lost in the ports, but over time, we get more job creation in more industries and so forth, that’s what matters from a healthy economic perspective. I pointed out in that Substack post and also a video that I did on this that 100 years ago, we had zero airplane engineers or pilots. We had zero workers on TikTok as influencers. We had a lot of blacksmiths. We had a lot of railroad workers. Blacksmiths went to zero. There are still some railroad workers, but that industry shrunk. That doesn’t mean that that was bad for the US economy, because it’s part of what economists call creative destruction.

Some jobs are destroyed, that’s fine. The important part is, are more jobs being created? I think when you’re part of a labor union, special interest group thinking about it, you’re like, “No, no, I don’t want this job to be lost, because that’s my job.” You’re thinking about it from an individualistic perspective. Whereas from a macro and aggregate perspective, what we’re thinking about is, can that person find another job later? Maybe not in the same industry, maybe not in the same role. By the way, maybe in the same industry, but a different role because the job might itself change.

What matters from a macro perspective is that that person finds a job, not necessarily the port job, because maybe there shouldn’t be workers who are closing and opening port doors, when those things can be automated. I will point to, I put a video from a Chinese port where almost everything is automated. Instead of the port workers doing physical activity, they’re behind the screen doors directing the physical activity. Does that mean that there are fewer port worker jobs? Yes, by definition, I think, we would see fewer jobs. Some people will lose their jobs in the ports. Overall, it’s part of a healthy dynamic process that we need in our economy, and especially in our labor markets.

We don’t want to keep a job just for the sake of keeping that one job because we’ve decided that for some reason, port workers should never lose their jobs. I think that’s what we were talking about with automation and technological development is that it doesn’t matter that specific jobs are destroyed; what matters is that there’s a continuous dynamism, back to that continuous dynamism in our labor market, that new industries are created, new jobs are created, new types of roles are created, and that that worker who lost the job is able to find a new job. That might be a case for having stronger safety net for the worker who lost their job and maybe giving them opportunities and skills for upskilling and reskilling and so forth.

Maybe that’s the role we want to think about, like safety net jobs, but that’s not an argument to not to have any jobs be destroyed, if that if that makes sense, because that’s part of what makes our economy grow. That’s why the US economy is particularly unique. People come here for jobs because we’re the type of economy that doesn’t preserve the job for the sake of the job. 

I’ll contrast this with Italy, by the way. My husband is from Italy, was in their labor market there, graduated from a school there. Essentially, the problem in Italy, and the research I’ve seen on Italy, is that if you get hired in Italy in a job, it’s basically impossible to get fired from that job, almost impossible. If it’s impossible to fire you, you’re not going to get a lot of hiring opportunities or a lot of new jobs.

You get these young, smart, skilled people who then go abroad to find jobs and not in Italy. As a result, you have the Italian labor market, which is pretty stagnant. It’s not thriving. Nobody goes to Italy to pursue their Italian dream. Unless that means living on an American salary sitting in a café sipping your espresso on the cliff side. In Italy, that’s a different type of Italian dream. No one goes to Italy to pursue the American dream, to be like, “I’m going to bootstrap my way up.” Because it’s just a stagnant labor market, very little labor market mobility.

Just 10 years ago, a quarter of the youth population was unemployed, a quarter, 25%. That was the highest among the other OECD countries at the time. Italy still ranks the highest in unemployment among its Western counterparts, partly because, and I will say a big contribution is because, of all these various different labor market regulations that make it difficult for companies to open up, small, medium, or large businesses to open up there, and to provide job opportunities for workers. Again, you just can’t get fired from an Italian job. You can, but it’s very difficult.

In Italian, the word is posto fisso, which is like fixed job. There’s an Italian movie, a famous movie, where there’s these children who are in school. They’re supposed to say, “What do you want to be when you grow up, or what job do you want when you grow up?” Someone says, like this, and this, and the main character says, “I want to post a posto fisso.” I just want to fixed post. That movie follows this guy. He works at the post office. All he does is have to stamp papers. That’s his job for life. He takes a three-hour café break. I know it’s in the movies, but it actually exists in real life too. We see it in the research, and I’ve experienced it in person living a little bit in Italy as well.

I just really want to contrast the European-style labor markets to the US labor markets. There’s tradeoffs, obviously. When we think about economics, we think about there are no solutions, only tradeoffs. In the European-style markets, there’s very little growth, not a lot of labor market dynamism, not a lot of new jobs coming up, and so forth, but you have a very safe job for life.

Whereas contrast that in the US, two weeks’ notice, you’re out, go find another job. As a result, we have tons of job opportunities, a lot of labor market mobility, a lot of dynamism. You get the true American dream, thriving labor market experience in the US. Of course, you can be fired at any point. Whereas in European-style labor markets, especially in Italy, you get these stagnant labor markets where you don’t get a lot of job mobility, a lot of job openings, and as a result, slower overall growth in Europe versus in the US.

Beckworth: In Europe, you also have these intergenerational clashes and struggles, because the young people don’t get the job because the old person stays in that job forever. It’s a painful tradeoff. Again, I would think over time, you’d want the pie to expand, more jobs, new dynamism. Of course, maybe I’m just the American saying this, because that’s what we have here. I think there’s tradeoffs here, too, but we have the blessing of a dynamic labor market. The work that you’re doing is very important, because you want to continue pushing that. Our discussion here at the end on the ports, I think that’s a case study of a bigger phenomenon that I worry about that we are becoming more inward-looking.

I was just reading an article in the Financial Times, more recent generations are becoming much more zero-sum thinking. There is a fixed pie. If I don’t get that piece, someone else is going to get it. I do worry that we have this beautiful thing in the US, creative destruction, dynamic labor markets. We are seeing more and more of a mindset of zero-sum thinking, which is going to eat away at the margins. The port strike is an example of that. Fortunately, for us, Liya, we have you on the job, and you’re going to push back and make sure our labor markets stay dynamic.

Palagashvili: There was an abundance agenda, David, as you know in our groups of people, abundant housing, abundant this, abundant that, and I’m saying abundant work opportunities.

Beckworth: There you go.

Palagashvili: We want an abundance of work opportunities. That should be what labor markets are about, abundance of work opportunities. Let’s make reforms. Let’s protect some of our institutions that we have in place that allow for America to be the place where we go to find a job, where we go to pursue an American dream. I think my family is a testament of it. We came as immigrants. My dad, $7 in his pocket $3,000 in debt, because he has to pay back his friends who got us our flight tickets. Then they came to America and America remained true to its promise as the land of opportunity, because they found jobs right away.

Not only did they find W-2 jobs, they also found these self-employment jobs on the side where they were able to make extra income that they needed to save to pay back the loan and then really start this intergenerational mobility that should be at the center of any pro-worker agenda. It should be about that, maximizing that, not maximizing job security.

Partly that comes because there’s a tradeoff. If you have job security policy, you don’t have abundance of work opportunities and thriving labor markets. You can’t choose both. Policymakers can’t have both strict laws about job securities and have thriving labor markets. In the US, our labor market is particularly good for young workers or immigrant workers, or any type of workers who are looking for new jobs and wanting to find jobs and so forth. I think that’s the type of environment we should lean into, and not the rigid European-style labor market.

Beckworth: With that, our time is up. Our guest today has been Liya Palagashvili. You can check out her work on her Substack titled Labor Market Matters. Liya, thank you for coming on the program.

Palagashvili: Thank you so much for having me.

Beckworth: Macro Musings is produced by the Mercatus Center at George Mason University. Dive deeper into our research at mercatus.org/monetarypolicy. You can subscribe to the show on Apple Podcasts, Spotify, or your favorite podcast app. If you like this podcast, please consider giving us a rating and leaving a review. This helps other thoughtful people like you find the show. Find me on Twitter @DavidBeckworth and follow the show @Macro_Musings.