Nick Hanauer and David Rolf are an unlikely pair of troublemakers. Hanauer is a Seattle venture capitalist and was the first non-family investor in Amazon.com. David Rolf is a labor organizer who once rallied enough support to unionize 74,000 home health care workers in Los Angeles.
Yet the two of them agree on one thing: We need to pay part-time workers better, and provide better benefits. And they’ve teamed up to start a campaign to make that happen.
Their argument could slash the profitability (or future profitability) of many tech startups, including Uber, Lyft, TaskRabbit, and more. But it might also ensure the continued existence of a robust middle class, even in an era in which most of us work part-time or contract jobs for companies like Uber, Lyft, and TaskRabbit. And those companies actually require middle-class people to be their customers, so it might be win-win in the end.
On this Labor Day weekend, it’s an argument worth considering.
Bear with me, tech execs and captains of Silicon Valley. This might sound like some kind of socialism, but it’s not. Hanauer and Rolf say it’s about ensuring the future of work — and the viability of companies that depend on having a U.S. market for their services.
“All of the people I employ at startups can afford to go to Starbucks every day. But none of the people who work at Starbucks can afford to buy the products that we make,” Hanauer explained in a recent conversation.
That’s a problem that even Henry Ford recognized: You need to pay auto workers enough so they can afford to buy your cars or you’re not going to have a market for your product for very long.
Establishing better pay and better benefits will help preserve a robust middle class, even as many people increasingly work in what’s called the “1099 economy,” named after the tax form that independent contractors get at the end of each year. (Disclosure: After leaving VentureBeat’s employ recently, I’m an independent contractor now too.)
The duo recently published an article in the journal Democracy called “Shared Security, Shared Growth.” In it, they propose raising the minimum wage to $15. They think there should be mandatory overtime pay for anyone making less than $69,000 a year, far higher than the current threshold of $23,000.
And they propose a “Shared Security System,” somewhat like Social Security, except that in addition to providing retirement benefits, it also provides a way to fund vacation time, sick pay, and a host of other benefits to all people, including part-time workers.
“You have this idiotic situation where you have vast industries essentially parasitic off the rest of the economy by paying their workers poverty wages, and expecting the rest of us to make up the difference in food stamps, Medicaid, and rent assistance,” Hanauer said.
He’s not just talking about Uber and the like: He’s also referring to Walmart, Starbucks, McDonald’s, and other giants of part-time, minimum-wage employment. The fact is, there are many companies — tech “unicorns” as well as publicly traded Fortune 500 companies — that are benefiting from a generational shift from long-term full-time work for a single company to a constellation of part-time, temporary jobs for a variety of companies.
That shift provides flexibility for individuals, efficiency for companies, and a more rational allocation of labor resources for the economy at large, at least in principle. But it also leaves a large class of workers without benefits that many of us would consider standard, such as sick days, vacation days, or even the knowledge of what hours they’re expected to work next week.
These “on-demand” companies depend heavily on a workforce of people who work a few hours here, a few hours there, but remain independent contractors — or so the companies argue. (California courts recently took a different view, stating that Uber drivers are employees, but litigation is still ongoing.)
“All of the on-demand platforms, what they’re really selling is labor,” Rolf said.
Not that he’s opposed to that in principle, or to the rich valuations these companies have attracted. “It’s fair that since they invented a cool app, they ought to get something for it,” Rolf said. And, he added, “I’m a huge fan of the on-demand economy.” He regularly uses Uber, Lyft, and TaskRabbit. “It’s made life easier for a huge number of people.”
But, he points out, the people who actually provide this labor are having an increasingly hard time getting into, or staying in, the middle class. And that’s not fair — or smart.
It’s a shift that’s been decades in the making, thanks to deliberate policy changes and shifts in the way companies hire. Now, Rolf and Hanauer argue, it’s gone too far.
As Rolf put it, “Everyone got rewarded for driving down the wages of their workers and reducing benefits. That only works as long as you’re the only one doing it.”
“When one person doesn’t pick up after their dog in the park, nothing bad happens. When everyone doesn’t pick up after their dog, there’s no more park.”
These guys might sound so far out in left field that you can safely ignore them, but guess again: Their proposal for a $15 minimum wage has found surprising traction in a large number of cities, even if it was a nonstarter in Congress. New York, Seattle, San Francisco, and Los Angeles all have $15 minimum wages, and Washington, D.C. is considering it, along with other locales.
The annual salary cap for mandatory overtime also got recently raised, though not as high as Rolf and Hanauer would like. President Obama recently announced plans to raise the overtime threshold to $50,440, which means if you make less than that, your employer will be required to pay you extra for working more than 40 hours in a week.
What’s next on the duo’s program is a plan for a privately operated Shared Security System that collects payments from companies for every worker, even the most transient ones, and puts those payments into a trust fund that the worker can use to pay for benefits.
It’s not a tax, but a benefits payment, on the order of a few cents for every dollar of wages paid. And while they hope it will be federally mandated, they think it should be privately managed.
In a techie twist, Hanauer and Rolf propose that implementing this scheme — which would have been a top-heavy accounting nightmare in past decades — should be simple with today’s technology. It would be straightforward for even small employers to outsource all their benefits work to a company managing one of these trust funds. The fund itself could easily keep track of thousands or millions of accounts. And individual workers could check on the status of their accounts, or draw on them for approved purposes (like sick days), using an app.
Rolf told me that the two are already in discussions with some companies about prototyping the system on a smaller scale, although no one has actually tried it yet, and he wouldn’t say which companies.
“If all you had to do was install an app, and all your benefit payments would be allocated and taken care of, that takes a huge headache off the entrepreneur and a huge number of sleepless nights off the workers,” Rolf said.
The two will be speaking in November at O’Reilly Media’s Next:Economy conference, and maybe they’ll have more to say about this then.
As Rolf and Hanauer argue, it’s time to make sure that on-demand workers — and the greeters at Walmart and the baristas at Starbucks — get some economic security too.
Otherwise, who’s going to be left to take advantage of all these wonderful services provided by on-demand startups?
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