DigitalMarketplaces

andtheFutureofWork

StatementofJonathanLieber
ChiefEconomist,Thumbtack

U.S.HouseCommitteeonEnergyandCommerce
SubcommitteeonCommerce,ManufacturingandTrade

September29,2015

ExecutiveSummary

DigitaltechnologyhasopenednewpathsformillionsofAmericanstofindwork.
Althoughthereismuchconfusioninthetermsusedtodescribethedifferentplatforms
thatobscuresimportantdifferencesbetweenthem,theyallsharethebasicfeaturethat
theyareconnectingpeopletofacilitatecommercialexchange.Becausetechnologyhas
allowedadisintermediationbetweenthepeopledoingtheworkandthepeople
receivingthebenefitoftheservice,weshouldexpecttoseemoreservicesbeing
performed.Directexchangebetweenindividualsfacilitatedbydigitalplatformsis
likelytobecomeamorecommonformofcommercialinteractionincomingyears.Asa
result,thepeopledoingtheworkaregoingtobemoreempoweredbutlessprotectedby
thebenefitsofferedbyatraditionalworkplace.

Thumbtackisasixyearoldmarketplaceusedbymorethan150,000activesmall
businessestofindnewcustomersandhelpthemaccomplishprojectsthatarecentralto
theirlives.Forthesmallbusinesseswhouseourplatform,theissuesthatarecurrently
beingscrutinizedbypolicymakershowbusinessesattractandmaintainahighquality
workforceatalowcostwithmaximumflexibilityarenothingnew.

Thereisalitanyofbenefitsavailabletoindividualswhoaretraditionallyemployedthat
arenotavailabletothelegionsofcontingentworkersintheUnitedStates.Policymakers
shouldconsideractionsthatextendthesebenefits,wherefeasible,tothemillionsof
Americanentrepreneursandsoleproprietorswhodontfallundertheumbrellaof
traditionalemployment.Doingsoinasmartwaywillalsobenefitthesmallbusiness
ownerswhoaretodayemployersorwhoaspiretobeemployersdowntheroad.Ifthey
dont,judges,juriesandprivatelitigantswillimposeoutdatedsolutionsthatwill
ultimatelyharmconsumersandworkers.

Introduction

Thankyoufortheopportunitytotestifythismorning.Iamtestifyingonbehalfof
Thumbtack,aSanFranciscobasedtechnologycompanythatmatchesconsumerswith
smallbusinessserviceprofessionalstohelpthemaccomplishprojectsthatarecentral
totheirlives.Wearehonoredtobeapartofthisdiscussionheretodayonbehalfof
growingtechnologycompaniesandthesmallbusinessesweserve.

Thumbtacksnetworkofmorethan150,000activeprofessionalseachquarterhelps
customersgetstartedwithmorethan5millionprojectseachyear.Weareproudtosay
thatwewillbeputtingmorethanabilliondollarsintothepocketsoftheseprofessionals
thisyear,andmultiplesofthatintheyearstocome.Ourprofessionalsareactiveacross
all50statesandhereintheDistrictofColumbia,andtheyofferservicesacrossmore
than1,000categories,fromdogwalkingtobathroomremodeling.Abouthalfofthe
serviceprofessionalsonThumbtackhavebeeninbusinessforthemselvesforfiveor
moreyears,andsimilarnumbersreportthattheyhaveoneormoreemployees.
TwothirdssaythatthebusinesstheyrunonThumbtackistheirprimaryformofincome.

Ourmostactivecategoriesarepersonaltraining,lawncare,moving,housecleaning,
DJs,catering,andphotography.AndthoughweareheadquarteredinSanFrancisco,it
isonlyour11thbiggestmarketourbiggestmarketsareNewYork,LosAngeles,
Dallas,Atlanta,andChicago.WeoperateonlyintheUnitedStatesfornow.

TheSharingEconomyorWhateverYouWanttoCallIt

Thumbtackrepresentsanewclassofbusinessthatsimplywasntpossibletoimaginea
decadeago.Theinternethasrevolutionizedhumaninteractionatanunprecedented
clip.Thefirstrevolutioncameinhowwesharedinformationtheoriginalusefor
networkedcomputerswastheexchangeofinformationinmilitaryandlatercivilian

functions.Inthelate1990scameawaveofinnovatorsfromAmazontoeBaywho
changedthewayweshoppedforgoodsonline.Intheearly2000s,socialnetworks
revolutionizedhumaninteraction.Andtodaythecomingrevolutionisinthewaywe
connectwithoneanothertoprovidetheservicesimportanttoourdailylives.Thislatest
revolutionisinmanywaysacombinationofthecommercialinteraction,information
sharing,andsocialinteractionofthefirstthreewaves,andisenabledbyeach.

Smartphonetechnology,currentlyused
byabout64percentofAmericans
,meansthat
usershaveaconstantconnectiontobuygroceries,hailaride,planavacation,or
scheduleahousecleanerwhiletheyarerelaxingonthebeachoroutwalkingthedog.
SomeoftheseserviceslikeUberorPostmatesuseadispatchmodelthatsendsa
relativelycommodifiedrideoramealatthepushofabutton.OtherserviceslikeAirbnb
orThumbtackuseamarketplacemodel,thatallowstheconsumertopickandchoose
fromanetworkofoptionsbestsuitedfortheirneeds.

Thecommonthreadamongalloftheseplatformsisdirectexchangebetween
individualsthatwasntpossiblewithouttechnologyenablingthetransaction.Although
previousgenerationshiredserviceproviderstocompleteprojectsforthem,thesearch
costsforfindingaskilledprofessionalwerehigh,andfortheprofessionalsidentifying
andsolicitingnewworkwasachallengethattypicallyinvolvedplacinganadinthe
YellowPagesandhopingthatthephonewouldring.

Becausetechnologyhasloweredthetransactioncostsoffindingadriver,hiringalawn
careexpert,ordeliveringthegroceries,
weshouldexpect
thesedirectexchanges
betweenindividualstobecomeamorecommonformofcommercialinteractionin
comingyears.Digitalserviceplatformswillsavelaborforfuturegenerationstheway
householdapplianceslikethedishwasherandclothesdryerdidforprevious
generations.Andthepeopledoingthework,whowillnotbereliantonasinglesourceof

income,willbecomemoreempoweredworkingforthemselvesbutlessprotectedbythe
benefitsofferedbyatraditionalworkplace.1

Aquicknoteonterminologybecausetheseservicesareessentiallyconnectingpeople
tootherpeople,theyhaveattractedavarietyofeverchangingtermstodescribethem.
Onepopulartermthesharingeconomyisparticularlyinaptduetothefactthatthe
onefeatureeachoftheseserviceshasincommonisthatmoneyisbeingexchangedfor
aservice.Thereisnoactualsharinginthesenseofwhichwelearnedaboutin
preschool.Thegigeconomy,1099economy,collaborativeconsumption,peertopeer,
ondemandthesetermsconfusetheissueofwhatisactuallyhappeningwiththe
changesweareseeinginhowpeopleareturningtheirtimeandeffortintomoney.

Beingprecisein
howwetalkabouttheseissuesisimportant
becausethedifferencesin
thebusinessmodelsraisedifferentsetsofpolicyconsiderations.Totaketwoprominent
examples,UberandAirbnbhavebothfiguredouthowtotakeunderutilizedresources,
privatecarsandprivatedwellings,andcreateproductiveassetsoutofthembyenabling
peopletosharethemwithothersforafee.Butsayingtheyarebothpartofthesame
sectortotallyobscurestheradicallydifferentpolicyissuesraisedbyboth.Airbnbdoesnt
havethelaborissuesthatUberdoes,andUberdoesnthavethezoningandother
issuesthatAirbnbdoes.

Itisimportanttonoteherethat,generally,whenitcomestoissuesoflaborlawsandthe
relationshipofaworkertoanemployer,themarketplaceservicesdiscussedabove
havenotrunintothesamekindsofproblemsasthedispatchservicesdiscussedabove.
TruemarketplaceslikeThumbtackgenerallytendtobeplaceswherebuyersandsellers
arematchedtogethertoworkoutagreeabletermsofexchange.Therelationship
betweenadispatcherandalaborproviderismoreambiguous,especiallywhenthe

Thisistrueatleastinsofarasthoseoccupationsarenotyetautomatedbyeverincreasinglyintelligent
computersystems.Foronetheoryonprofessionsmostlikelytobecomeautomatedincomingyears,see
TheFutureofEmployment:HowSusceptibleAreJobstoComputerisation
.

dispatcherislargelyresponsibleforsettingpricesanddictatingthetypeofworkwhichis
tobeprovided.

Regardlessofthemodel,theBureauofLaborStatistics
usestheterm
contingent
workertodescribeworkerswhodonotexpecttheirjobstolastorwhoreportedthat
theirjobsaretemporary.ThistermdoesntcaptureeverythingaboutThumbtackpros,
butforpurposesofthinkingaboutthefutureofwork,thisisthemostusefulterm.

WhatWeDontKnowHurtsUs

Thegrowthinthisformofearningincomebringswithitaproblemofmeasurement.
Lookingstrictlyat
traditionalmeasuresofselfemployment
showthatthepercentof
workerswhoareselfemployed,accordingtotheBureauofLaborStatistics,
has
declined
overthelasttenyears.
Othermetrics
,suchasthenumberofworkersholding
multiplejobsandthenumberofworkersworkingparttime,haventseenthetypeof
increaseyoumightexpectfromsomeofthebreathlesscoverageofthegigeconomy
inrecentmonths.

Governmentstatisticsdonotprovidemuchinsightintothecontingentworkforce.As
outlinedinaletter
fromtheGovernmentAccountabilityOfficetoSenatorsMurrayand
GillibrandfromAprilofthisyear,theBureauofLaborStatisticshasperiodically
conductedasupplementalstudyofindividualswithoutstandardworkarrangements.
However,theBLShasnothadfundstoconductthissurveysince2005.Althoughthe
AppropriationsCommitteeinboth
theSenate
and
theHouse
haverecommendedthe
BLSconductthisstudyagain,theyhavenotprovidedadditionalresourcestomakesure
thishappens.

Becauseofthelackofinformation,GAOwritesthatThesizeofthecontingent
workforcecanrangefromlessthan5percenttomorethanathirdofthetotalemployed
laborforce,dependingonwidelyvaryingdefinitionsofcontingentwork.

Severalprivateorganizationshaveattemptedtocountwhatthegovernmenthasnot
seen.An
analystfromtheBayAreaCouncil
gotaccesstoIRStaxrecordsand
documentedasteadyincreaseinthenumberofForm1099sfiledwiththeagencysince
theendofthelastrecession,ascomparedtorelativelyflatgrowthinFormW2.Intuit
commissionedareport
thatestimates2530percentoftheAmericanworkforceare
contingentworkers,andthatcontingentworkerswillbeupto40percentofthelabor
forceby2020.
Astudy
bytheFreelancersUnionandUpWorkestimatesthecurrent
numbersasbeingslightlylargerat34percenttodayandgrowing.

Clearlythisisanareawhereweneedbetterinformationbeforelegislating.

NothingNewUndertheSun

Aswediscussthefutureofwork,itisimportanttoreflectonwhataspectsofthefuture
looksimilartothepast.Thegigeconomyisthetopicoftheday,butmanyaspectsofit
willlookverysimilartosmallbusinessowners.Thesmallbusinessownerswhouse
Thumbtacktofindnewworkdontthinkofthemselvesas1099workers,butforyears
theyhavelivedwiththesameflexibilityanduncertaintythatcomeswithit.

Thesesmallbusinessownersconfrontthechangingworkforcebothasindividuals
lookingfornewclientsandinmanycasesasemployers.

1099contractorscalledsobecauseoftheformtheyhavetofillouttoreporttheir
incometotheIRShavelongbeenusedbybusinesseslargeandsmall.
TheBLSina
1999report
calledoutthattheageof"justintime"productionhasgivenriseto"justin

time"workersemployeeswhomabusinesscanhireonamomentsnoticetofilla
momentsneed.Aquickinternetsearchonworkerclassificationissuesturnsup
Congressionalhearings
ontheissuefromasfarbackas20yearsago,beforethe
smartphonewasevenapracticalconcept.

AccordingtoScottShane,aprofessoratCaseWesternReserveUniversity,spending
bysoleproprietorsoncontractors
nearlydoubled
between2003and2011.Professor
Shane
alsowrites
thatthisprobablyreflectsthedisproportionateriseinbenefitscosts
andtheincreasingneedforflexibilityinchangingworkforcesize.

Theserisingcostsandtheassociatedcomplexityofbringingonfulltimeworkerscan
keepagrowingsmallbusinessfromhiringtheirfirstworkeratallwefrequentlyhear
fromthesmallbusinessesonThumbtackthathiringemployeesisadauntingtaskwith
manypitfallsandunknownpenaltiesformakingamistakeinthebyzantineprocess.
Only36percentoftherespondentstoour
2015SmallBusinessFriendlinessSurvey
reportedthathiringemployeeswaseithersomewhatorveryeasy.Thesimplicityof
bringingona1099contractorwherepossibleisinmanycasespreferabletothe
complexityandcostofaW2worker.

Thefactthataneweraoftechnologycompaniesthatrelyonlaborinputsareagain
drawingpolicymakersattentiontotheissueshouldbecelebratedandseenasan
opportunitytorevisitworkerclassificationrules,andmorefundamentallyasachanceto
rethinkwhyweasasocietyhavecreatedtwoclassesofworkersandwhatthatmeans
forthefutureofwork.

Benefits

FulltimeemploymentinAmericahastraditionallybeenassociatedwithapackageof
nonwagebenefitsthateitheremployershaveoptedintoasawayofattractingand

retaininghighqualityworkers,orthatthegovernmenthasmandatedorencouragedas
awayofensuringworkersareprotectedfrommisfortuneinthelabormarketortohelp
prepareforretirement.

Thetablebelowoffersanoncomprehensiveoverviewofthetraditionalbenefitsthatcan
beassociatedwithfulltimeworkinAmerica.

Benefit

Howhasthegovernment
encouraged?

Receivedby
Contractors?

MedicalInsurance

Taxpreferred

Generallyno

SocialSecurity

Taxed

Yes

Pension/RetirementSavings

Taxpreferred

Generallyno

WorkersCompensation

Mandateddependingonstate Sometimes

UnemploymentInsurance

Taxed

No

PaidParental/SickLeave

Voluntary,mandatedby
certainstates

Generallyno

PaidVacationorHolidays

Voluntary

Generallyno

FMLALeave

Mandated

No

Overtime

Mandated

No

MinimumWage

Mandated

No

Fringebenefits(parking,childcare,
FlexibleSpendingAccounts,etc)

Voluntary,Taxpreferred

Generallyno

DisabilityInsurance

Taxedmandatedbycertain
states

Yes

Sickleave

Mandatedbycertainstates

Generallyno

Thesebenefitsareeitherentirelyvoluntary,
mandatedbythegovernment
,incentivized
throughataxbenefitprovidedtoemployers,orrunthroughfullysocializedprograms
thatcollectanadditionaltaxonanemployeeswagethatiscreditedbythegovernment
8

tobedeliveredtotheemployeeshouldaqualifyingeventsuchasdisabilityorjobloss
occur.

Whenitcomestobothvoluntaryandtaxpreferredbenefits,smallbusinessesoffer
benefitsatratesmuchlowerthantheirlargercompetitors,duetotheexpenseandlegal
andoperationalcompliancecosts.Inour
annualsurveyofsmallbusinesses
,48percent
ofrespondentssaidthatgettinghealthinsurancewaseithersomewhatorverydifficult.

AccordingtodatafromtheBLS
,employeesatprivatefirmswithfewerthan50
employeeshadaccesstoretirementandmedicalbenefits,andpaidsickdays,vacation,
andholidaysatratessignificantlylowerthanemployeesatlargerprivatefirms.The
differenceisevengreateratfirmswithmorethan500employees.

PercentofFirmsWhereEmployeeshadaccessto...

Retirement Medical PaidSick

Benefits
Benefits Leave

Paid
Vacation

Paid
Holidays

Firmswithfewerthan50
employees

46

53

49

65

66

Firmswith100ormore
employees

84

84

72

86

86

Source:
BLS

Makingabroaderpackageofbenefitsavailabletocontingentworkersisalaudable
goal.Itwouldhelptheworkersbyprovidingaflexiblesafetynetthatcouldtravelwith
thembetweenjobs.Itcouldhelpemployers,includingthe
5millionsmallemployers
in
theUnitedStates,bytakingtheonusoffofthemtoprovideacompetitivepackageof
nonwagebenefits,ultimatelymakingcompensationpackagesandlegalcompliance
simpler.Detachingbenefitsfromemployerswasoneof
themotivations
behindthe
AffordableCareAct,and
thereisevidence
thatdecouplingthesebenefitsiseffectivein
enablingpeopletoworkforthemselves.
9


Thesechangesarenotwithoutroadblocks,unfortunately.

First,itisclearthatsomeofthesebenefitsareeasiertoprovidetocontingentworkers
thanothers.Forexample,Congressactedin1974tocreatetaxpreferredsavings
vehiclesforindividualswhowishedtosaveforretirementthatofferedsimilarbenefitsto
theemployersponsoreddeferredcompensationpackagesoftheirday(thoughwith
differentcontributionrulesandlimits).Congresshasalsoalreadycreatedtaxpreferred
savingsvehicleslikeHealthSavingsAccountsorprovidedthechildcarecreditthatare
availabletotheselfemployedasalternativestoemployerprovidedbenefitslikeFlexible
SpendingAccounts.

Arelativelysimple,thoughpotentiallycostly,changecouldbetocreatesimilarly
taxpreferredsavingsvehiclesdesignedtobeusedforspellsofunemploymentor
periodsofvoluntaryleavebycontingentworkers.Amoreburdensomeroutemightbeto
require1099workersortheselfemployedtopayFUTA(FederalUnemploymentTax
Act)taxesthewaytheyarecurrentlyrequiredtopayFICAtaxes(FederalInsurance
ContributionsAct,morecommonlyknownasPayrolltaxes).Expandingthesetaxes
couldbearelativelysimple,thoughperhapsnotdesirable,action.

Second,providingpaidvacationormaternityorpaternityleavetoworkerswhodont
haveasteadyemployerisalotmorecomplicatedwhowillpayfortheworkthatisnt
beingdone?Whenaprofessionalphotographergoesonmaternityleaveorwhena
plumbertakeshisfamilyonavacation,theyarentgettingpaidtimeoffiftheyarent
doingthework,thereisnoonetheretopaythem.

WorkersCompensationinsurance,whichwas
traditionallyabargain
thatfreed
employersofthelegalliabilityfromworkplaceaccidentsinexchangeforcreating
insurancepoolsthatbenefitedinjuredworkers,isalsoacomplicatedissuewithrules

10

andratesthat
varyfromstatetostate
.Inthecaseofindependentcontractorsandthe
selfemployed,whocanbeeligibletofileclaimsdependingonthecircumstance,
mandatinganinsurancefeeforWorkersCompensationwouldraisecoststhatdont
currentlyexist.Manyprivatecompaniesofferworkplaceinjuryinsuranceforboth
independentcontractorsandthecompaniesthatemploythem,and,whileprivate
incentivesclearlycurrentlyexistforthepurchaseofsuchpolicies,Congresscould
examinewaystoencourageitsadoption.

Forindependentworkers,moreflexible,taxpreferredsavingsaccountscouldhelpthem
tosaveearningsfortheselifeevents,butthereareprobablyotheralternativesworth
exploringbytheCommittee.

HowtoRespondtotheFuture

Regardlessofwhywearetalkingabouttheseissuesorwhotheyaffect,theyare
importantissuesthatwillhavelongrunimplicationsforthesecurityofAmericanworkers
andtheinnovativelandscapeinthedecadestocome.Stiflinginnovationorpreventing
smallbusinessesfrombringingonnewemployeesbecauseofgovernmentrulesthat
dontmatchthetimeswouldbearegrettablepolicyerror.

Currentlitigation
asksjurorstodecideintowhichof
twooutdatedcategories
anew
modelofworkerfits.Thelegislativeprocesshascreatedtwoclassesofworkersnamed
aftertaxformsW2and1099andhasprovidedcourtsverylittleguidanceonhow
changingcircumstancesshouldbeaccountedforgiventhislimitedchoice.Thereisvery
clearlyatleastathirdclassofworkersomehavelabelledthem
dependent
contractors
forwhichcurrentlawisabadfit.Andiflegislatorsdontact,courtsand
jurieswill.

11

Totheextentpossible,detachingbenefitsfromspecificemployersandencouraging
savingsforcontingentworkersaregoalspolicymakersshouldkeepinmindwhen
examiningtheseissues.

AlthoughmanyregulatoryissuesfacingsmallbusinessesinAmericaareatthestate
andlocallevel,therearealsomanybenefitsthataremandatedorcreatedatthefederal
level,whereCongressreignssupreme.Andifpolicymakersdontact,thecourtswillto
thegreatdetrimentofworkerflexibility,economicgrowth,andinnovation.

12

SelectedReadingList

Botsman,R.(2013,November21).
TheSharingEconomyLacksaSharedDefinition
.
Fox,J.(2014,February07).
WeWhereAreAlltheSelfEmployedWorkers
.
FreelancersUnion.FreelancinginAmerica:
ANationalSurveyoftheNewWorkforce
.
GAO,LettertoSenatorPattyMurray.(2015,April20).
ContingentWorkforce:Size,
Characteristics,Earnings,andBenefits
.
GuytonP,G.(1999).
ABriefHistoryofWorkersCompensation
.
Hathaway,Ian(August,2015).
TheGigEconomyisRealifYouKnowWheretoLook
.
Intuit2020Report(2010,October).
TwentyTrendsThatWillShapetheNextDecade
.
Lehmann,R.J.(2015,July22).
6ChartsThatDebunktheGigEconomy
.
McKinseyGlobalInstitute(2015,June).ALaborMarketThatWorks:
ConnectingTalent
withOpportunityintheDigitalAge
.
Miskell,S.(2015,April9).
TheAffordableCareActandEntrepreneurship
.
Ozimek,A.(2015,June29).
WeAreNotaNationofFreelancers
.
Grose,TerryandKellerman,Patrick(2015,September15).
The1099Economy
Elusive,butDiverseandGrowing
.
Shane,S.(2013,March15).
TheIRSsWorkerClassificationRulesArentWorking
.
Shane,S.(2014,August12).
SmallBusinessIsUsingMoreContractors
.
Sundararajan,Arun(2015,September9).
WilltheOnDemandEconomyRaiseGlobal
LivingStandards?

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