Hillary Clinton just called out the economic problem of the next decade

Uber driverLucy Nicholson/ReutersLimousine driver Shuki Zanna, 49, holds up his iPhone displaying transportation app Uber as he waits for customers in Beverly Hills, California, December 19, 2013.

Hillary Clinton just brought the most important economic issue of the next decade into the mainstream: the gig economy.

The gig, or on-demand, economy is the new favourite business model coming out of Silicon Valley. It is companies like Uber, which streamlines work for its drivers and takes a cut of their fares, but let’s them work on their own schedule. It’s a little bit like a blend between the regular employment model, and the freelancer model.

Whether we like it or not, it seems like the gig economy is everywhere. More and more Americans are turning to this semi-freelance way of making a living. A study from the software company Intuit a few years ago estimated that as much as 40% of the American workforce could be freelancers, independent contractors, or consultants by the year 2020. It’s a major, major economic shift.

The New York Times reported the director of the Freelancers Union, which does advocacy work for independent contractors, “puts the scale of the dislocation on a par with that caused by the spread of railroads before and after the Civil War and the boom in the mass production of goods during the early 20th century.”

The current economy isn’t set up to deal with this kind of disruption. Policy, so far, has not addressed it. The fact that Clinton addressed this issue in her speech gives this issue both a spotlight and legitimacy, which is the first step forward.

“This on demand or so-called gig economy is creating exciting opportunities and unleashing innovation, but it’s also raising hard questions about workplace protection and what a good job will look like in the future,” she said.

So, why is this “gig economy” a problem?

First off, it’s expensive for its workers. What independent contractors gain in flexibility they lose in benefits. Employment taxes are higher, healthcare is more expensive, and 401(k)s (let alone pensions) don’t exist for people who freelance. Even if freelancers get paid the same amount that they would at a regular job, they still have a lot less left over to drive the consumer spending that makes up 70% of the American GDP.

We need to be worried about this. Nearly everyone in America outside the top 10% of the income scale has seen their income fall since 2007.

A recent article by Nick Hanauer and David Rolf in Democracy Journal calls this new kind of economy “an economic transformation that promises new efficiencies and greater flexibility for ’employers’ and ’employees’ alike, but which threatens to undermine the very foundation upon which middle-class America was built.”

Like it or not, addressing the gig economy head on will have to be part of the solution. Today’s speech was a first step. That said, while Clinton raised the issue, she still hasn’t laid out a plan for what should be done.

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