Elizabeth Warren’s Next Crusade
Can liberals fix the safety net for 21st-century workers?
The New Republic
May 19, 2016
Senator Elizabeth Warren has a knack for recognizing the challenges facing ordinary Americans years before the rest of the political world gets there. The Consumer Financial Protection Bureau was an idea she generated as a Harvard law professor in mid-2007, when the housing market was just beginning to melt down. She was well out in front on the need to reinstitute the firewall between commercial and investment banking, a cause taken up in the presidential primaries by Bernie Sanders.
So when Warren turned her attention on Thursday to the atomized American workplace and what I have called the 1099 economy, it was a huge moment. It signaled that the question of how to rebuild the safety net for a twenty-first-century work environment is now poised to be the dominant topic for American liberalism in the next decade.
At the New America Foundation’s annual conference in Washington, Warren gave a speech called “Strengthening the Basic Bargain for Workers in the Modern Economy.” American workers, she pointed out, have already fought for and won the ability to work a 40-hour week at a living wage in a safe workplace—with compensation if you get hurt, unemployment insurance if you get fired, Social Security when you retire, and a union to help with your grievances. These innovations “helped make sure that part of the increased wealth generated by innovation would be used to build a strong middle class,” Warren noted.
We shouldn’t have to wage those battles again. But we do: The classifying of employees as temps or freelancers, “permalancers” or independent contractors or gig workers, necessitates it. The structure of employment law that served the nation over the past eight decades is fraying, shot through with loopholes that employers use to their advantage to shortchange workers. For example, President Obama’s new overtime rule will help millions of salaried workers who currently don’t receive extra pay when they work more than 40 hours a week. But it does nothing for freelancers.
Progressive and New Deal-era employment law arose from the Gilded Age’s exploitation of workers powering the Industrial Revolution. There’s nothing new about modifying the rules to accommodate new technologies, so workers can share in the wealth produced by them. There’s also nothing new about a “gig economy” service like Uber: Long before anybody knew what an app was, employers were moving to classifying their workers as independent contractors to shirk their responsibilities.
We have to redesign how we deliver a safety net to every worker in the economy, regardless of what their employer decides to call them.
On-demand work prospered after the recession because workers needed to fund their own safety nets or find stopgap work in a tough job market. “For many,” Warren said, “the gig economy is simply the next step in a losing effort to build some economic security in a world where all the benefits are floating to the top 10 percent.”
Warren doesn’t think we should fear the technology that has driven some of this change; this was not a speech about hating Uber or Lyft. But the technology demands a redesign of how we deliver a safety net to every worker in the economy, regardless of what their employer decides to call them.
So how can we re-introduce stability and security into the workplace for everybody who contributes to the economy? In figuring that out, Warren arrives at the same place I did when considering the 1099 economy: We need to make benefits currently tied to the workplace universal and portable.
Warren puts the steps necessary to do that into a few compartments. First, she wants to universalize workers’ compensation and paid time off (vacation, personal, and sick days, along with paid family and medical leave). She also wants to require Social Security payroll deductions. Right now, 1099 workers don’t have payroll taxes automatically deducted, and depending on how they structure their taxes, they may pay in at much lower rates than their earnings would dictate, leading eventually to lower retirement benefits. Warren proposes to automatically deduct those payroll taxes from freelance and gig workers’ paychecks (with employers picking up their share), as well as deducting small amounts for disability or workers’ compensation insurance. This would use efficiencies created by technology to benefit workers, rather than to push them out of a job.
Second, Warren endorses the idea of making benefits portable—an idea endorsed by Nick Hanauer and David Rolf on the left and Ian Adams of the R Street Institute on the right. The Affordable Care Act does some of this work already; a freelancer can take that individual insurance coverage with them regardless of their job. Warren called on Thursday for “enhancing portability” in the ACA, a nudge toward putting employer-sponsored health care on the exchanges. But she really focused on pension benefits for 1099 workers and independent contractors, run by workers for the benefit of workers. “It’s time for all workers to have access to the same low-cost, well-protected retirement products that some employers and unions provide today,” Warren said.
The final compartment: Warren wants to streamline worker classification, narrowing the multiple legal definitions of an employee so companies cannot use legal loopholes to get out of their responsibility to provide benefits. And she wants to give contract workers the right to organize, to “bargain as a group with whoever controls the terms of their work”—though it’s not clear how to make that a reality.
Warren stresses the benefits of a universal, portable benefits system not just for workers, but for employers. They would no longer have to become health-insurance and wealth-management companies on the side in order to deliver benefits. They could outsource that responsibility to portable-benefit managers and focus on their core business. Employers should be obligated to contribute to these plans, rather than leaving it entirely to workers to finance. (Warren is a bit fuzzy on that point, but it wasn’t the purpose of Thursday’s speech.) But getting this right would mean unshackling companies from reinventing the wheel on delivering health insurance and benefit packages to their employees. It would ultimately help, not hurt, their bottom lines.
Portable benefit packages are the next frontier of liberal policymaking. It’s a recognition that at least some of Americans’ economic anxiety derives from the fact that workers have all become free agents, hustling from gig to gig without the security of a lifetime career and the foreknowledge of a dignified retirement. The gap between worker productivity and worker compensation has been a direct result of the atomized workplace, of the great risk shift from employer to employee.
When Warren attaches her name and stature to a subject, it usually becomes part of the liberal policy framework. She brought the Democratic Party along on increasing Social Security. She opposed Michael Froman’s nomination as U.S. Trade Representative long before anyone ever heard of the TPP. She has some power to set the agenda for the Democratic caucus. And now she’s pinpointing this major gap in how we treat workers, and how employers have been allowed to leave them stranded without a safety net.
If Hillary Clinton becomes president and Democrats win the Senate, Warren will be able to start on this workplace agenda from the majority as a lead policymaker on the center-left. The rest of the party should come along with her.
May 19, 2016
Senator Elizabeth Warren has a knack for recognizing the challenges facing ordinary Americans years before the rest of the political world gets there. The Consumer Financial Protection Bureau was an idea she generated as a Harvard law professor in mid-2007, when the housing market was just beginning to melt down. She was well out in front on the need to reinstitute the firewall between commercial and investment banking, a cause taken up in the presidential primaries by Bernie Sanders.
So when Warren turned her attention on Thursday to the atomized American workplace and what I have called the 1099 economy, it was a huge moment. It signaled that the question of how to rebuild the safety net for a twenty-first-century work environment is now poised to be the dominant topic for American liberalism in the next decade.
At the New America Foundation’s annual conference in Washington, Warren gave a speech called “Strengthening the Basic Bargain for Workers in the Modern Economy.” American workers, she pointed out, have already fought for and won the ability to work a 40-hour week at a living wage in a safe workplace—with compensation if you get hurt, unemployment insurance if you get fired, Social Security when you retire, and a union to help with your grievances. These innovations “helped make sure that part of the increased wealth generated by innovation would be used to build a strong middle class,” Warren noted.
We shouldn’t have to wage those battles again. But we do: The classifying of employees as temps or freelancers, “permalancers” or independent contractors or gig workers, necessitates it. The structure of employment law that served the nation over the past eight decades is fraying, shot through with loopholes that employers use to their advantage to shortchange workers. For example, President Obama’s new overtime rule will help millions of salaried workers who currently don’t receive extra pay when they work more than 40 hours a week. But it does nothing for freelancers.
Progressive and New Deal-era employment law arose from the Gilded Age’s exploitation of workers powering the Industrial Revolution. There’s nothing new about modifying the rules to accommodate new technologies, so workers can share in the wealth produced by them. There’s also nothing new about a “gig economy” service like Uber: Long before anybody knew what an app was, employers were moving to classifying their workers as independent contractors to shirk their responsibilities.
We have to redesign how we deliver a safety net to every worker in the economy, regardless of what their employer decides to call them.
On-demand work prospered after the recession because workers needed to fund their own safety nets or find stopgap work in a tough job market. “For many,” Warren said, “the gig economy is simply the next step in a losing effort to build some economic security in a world where all the benefits are floating to the top 10 percent.”
Warren doesn’t think we should fear the technology that has driven some of this change; this was not a speech about hating Uber or Lyft. But the technology demands a redesign of how we deliver a safety net to every worker in the economy, regardless of what their employer decides to call them.
So how can we re-introduce stability and security into the workplace for everybody who contributes to the economy? In figuring that out, Warren arrives at the same place I did when considering the 1099 economy: We need to make benefits currently tied to the workplace universal and portable.
Warren puts the steps necessary to do that into a few compartments. First, she wants to universalize workers’ compensation and paid time off (vacation, personal, and sick days, along with paid family and medical leave). She also wants to require Social Security payroll deductions. Right now, 1099 workers don’t have payroll taxes automatically deducted, and depending on how they structure their taxes, they may pay in at much lower rates than their earnings would dictate, leading eventually to lower retirement benefits. Warren proposes to automatically deduct those payroll taxes from freelance and gig workers’ paychecks (with employers picking up their share), as well as deducting small amounts for disability or workers’ compensation insurance. This would use efficiencies created by technology to benefit workers, rather than to push them out of a job.
Second, Warren endorses the idea of making benefits portable—an idea endorsed by Nick Hanauer and David Rolf on the left and Ian Adams of the R Street Institute on the right. The Affordable Care Act does some of this work already; a freelancer can take that individual insurance coverage with them regardless of their job. Warren called on Thursday for “enhancing portability” in the ACA, a nudge toward putting employer-sponsored health care on the exchanges. But she really focused on pension benefits for 1099 workers and independent contractors, run by workers for the benefit of workers. “It’s time for all workers to have access to the same low-cost, well-protected retirement products that some employers and unions provide today,” Warren said.
The final compartment: Warren wants to streamline worker classification, narrowing the multiple legal definitions of an employee so companies cannot use legal loopholes to get out of their responsibility to provide benefits. And she wants to give contract workers the right to organize, to “bargain as a group with whoever controls the terms of their work”—though it’s not clear how to make that a reality.
Warren stresses the benefits of a universal, portable benefits system not just for workers, but for employers. They would no longer have to become health-insurance and wealth-management companies on the side in order to deliver benefits. They could outsource that responsibility to portable-benefit managers and focus on their core business. Employers should be obligated to contribute to these plans, rather than leaving it entirely to workers to finance. (Warren is a bit fuzzy on that point, but it wasn’t the purpose of Thursday’s speech.) But getting this right would mean unshackling companies from reinventing the wheel on delivering health insurance and benefit packages to their employees. It would ultimately help, not hurt, their bottom lines.
Portable benefit packages are the next frontier of liberal policymaking. It’s a recognition that at least some of Americans’ economic anxiety derives from the fact that workers have all become free agents, hustling from gig to gig without the security of a lifetime career and the foreknowledge of a dignified retirement. The gap between worker productivity and worker compensation has been a direct result of the atomized workplace, of the great risk shift from employer to employee.
When Warren attaches her name and stature to a subject, it usually becomes part of the liberal policy framework. She brought the Democratic Party along on increasing Social Security. She opposed Michael Froman’s nomination as U.S. Trade Representative long before anyone ever heard of the TPP. She has some power to set the agenda for the Democratic caucus. And now she’s pinpointing this major gap in how we treat workers, and how employers have been allowed to leave them stranded without a safety net.
If Hillary Clinton becomes president and Democrats win the Senate, Warren will be able to start on this workplace agenda from the majority as a lead policymaker on the center-left. The rest of the party should come along with her.
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