Introduction
Suddenly the voice of the laborer, which had been stifled in the storm and stress of the process of production, rises: The commodity that I have sold to you [my employer] differs from the crowd of other commodities, in that its use creates value, and a value greater than its own. That is why you bought it. That which on your side appears a spontaneous expansion of capital, is on mine extra expenditure of labor power.
The prudent, penniless beginner in the world, labors for wages awhile, saves a surplus with which to buy tools or land, for himself; then labors on his own account another while, and at length hires another new beginner to help him. This, say its advocates, is free labor--the just and generous, and prosperous system, which opens the way for all--gives hope to all, and energy, and progress, and improvement of condition to all.
In the annals of history, Abraham Lincoln and Karl Marx emerge as starkly contrasting figures, yet both encapsulate a prevailing belief of their era: the intrinsic potential of every individual to harness their mental and physical capabilities for productive ends. This reservoir of innate abilities, termed “labor power,” was a concept that resonated deeply in their respective spheres.
Labor power signifies more than mere physical exertion—it embodies the essence of creativity, meaning, and value when employed for one’s own pursuits. However, when commodified and traded within the marketplace, labor power transforms into a standardized commodity, stripped of its individuality and vitality. This transformation occurs when individuals exchange their labor power for wages, thereby entering into a relationship of subordination with employers.
Within this dynamic, an individual’s labor power assumes a utilitarian role, becoming a mere input in the process of production. It is deployed by employers to create goods and services that are then marketed at a premium, marking a profound shift from personal agency to economic exchange.
Lincoln and Marx, though divergent in their philosophies and contexts, both recognized the transformative power of labor power—whether celebrated as a source of personal fulfillment or scrutinized as a commodity within industrial capitalism. Their perspectives offer profound insights into the evolving relationship between individuals, labor, and the economic systems that define their times.
In September 2019, California ushered in a new era of labor regulation with the passage of Assembly Bill 5, better known as AB5. This landmark legislation redefined the landscape of work relationships across the state, aiming to reclassify many independent contractors as employees unless specific criteria were met under a stringent three-part test.
AB5’s genesis stemmed from mounting public discontent, particularly surrounding gig economy giants like Uber, Lyft, DoorDash and others. These platforms, criticized for offering minimal compensation and lacking traditional employee benefits, became focal points of the debate on the virtues of the platform economy. Advocates argued that the practices of gig economy platforms exploited workers and exacerbated societal inequalities.
While AB5 ostensibly applies universally, its primary impact is keenly felt within the realm of digitally-mediated labor platforms. These entities, where work arrangements often blur the lines between independent contracting and traditional employment, were singled out for scrutiny. Critics of AB5 contend that while it seeks to protect workers’ rights, its application could stifle innovation and flexibility that have defined the gig economy.
For California policymakers, the solution to the perceived problem of worker exploitation by the digital labor platforms was obvious. Simply seek to make all individuals obtaining work through digital labor platforms employees of those platforms so that they would be entitled to employee-centered social welfare safeguards such as minimum wage, overtime compensation, collective bargaining rights, access to workers’ compensation and unemployment insurance.
Unfortunately, AB5 misses the mark in its attempt to address labor market imperfections, instead reflecting hasty decision-making rooted in outdated perspectives. It clings to traditional common law principles that fail to accommodate the evolving landscape of work in a deindustrializing America. Today’s employment relationships extend far beyond the binary distinctions of employer-employee and independent contractor.
AB5’s favoritism towards formal employer-employee relationships overlooks a crucial reality: while such status offers social welfare benefits, it also entails surrendering individual labor power for financial security, often under hierarchical control. This commodification of labor, while acceptable to some digital labor platform workers, proves unsuitable for many other such workers.
Digital labor platforms attract diverse participants precisely because they provide autonomy and self-directed work opportunities, liberating individuals from traditional employer constraints. These platforms empower workers to harness their skills independently, away from the confines of conventional employment structures.
AB5’s rigid stance risks stifling this innovative sector and disregarding the preferences of a significant portion of its workforce. Rather than fostering flexibility and choice in how people engage in work, it imposes a one-size-fits-all solution that may not align with the evolving aspirations and realities of modern laborers.
Through AB5, California sends a troubling message to its citizens: it questions the individual’s ability to leverage their own labor power for personal and societal benefit. By categorizing a broad spectrum of workers on digital platforms as employees, California appears to reduce labor power to mere commodity status—something to be sold for another’s profit. This approach overlooks the diverse motivations and preferences of those who engage in digital work.
California, known for its progressive stance on socioeconomic issues, unexpectedly adopts a conservative and regressive approach with AB5. Instead of embracing the evolving complexities of modern work relationships, the state’s legislation imposes rigid classifications that may not reflect the aspirations or realities of those in the gig economy. This shift raises questions about California’s role as a pioneering force in shaping progressive labor policies in the United States.
With AB5, California has overlooked a critical opportunity to respond to the structural shifts reshaping the U.S. workforce. Instead of innovating with new worker classifications beyond the restrictive labels of employee or independent contractor, the state has maintained a binary approach. Creating new categories of workers could have fostered fairer work relationships, empowering individuals to fully utilize their labor power for personal and societal progress. This approach would align with the evolving nature of work and the diverse needs of modern workers, ensuring that California remains at the forefront of pioneering labor policies in the United States.
America's 200-years-old Work Relationship Known as the Employer-Employee Relationship
While Karl Marx’s philosophies may provoke disagreement, one observation rings true: the distinction between labor power and labor itself.
Every individual possesses inherent labor power, encompassing both realized capabilities and untapped potential. It represents the combined physical and mental capacity to engage in productive activities.
Labor, in contrast, is the active manifestation of this power—the application of physical and mental faculties to create tangible outcomes or valuable goods. This labor can be directed towards personal endeavors or undertaken on behalf of others.
Understanding this distinction sheds light on the essence of human productivity and the dynamics of work. It underscores the fundamental capacity of individuals to contribute to society through their unique abilities, whether through self-directed efforts or collaborative endeavors.
Before the industrial era in the U.S., the notion of labor power exercised independently was revered as a pathway to individual independence, prosperity, and societal improvement. This changed dramatically with the onset of the First Industrial Revolution, which introduced a relentless demand for individuals to submit themselves to factory systems. These systems treated human labor as a commodity essential for mass production.
This shift catalyzed the emergence of free labor markets in the United States. Increasing numbers of individuals chose to sell their labor power to businesses in exchange for wages. This pivotal development during the First Industrial Revolution laid the foundation for the contemporary employer-employee framework that persists today.
Since around 1790, American social policies, governmental regulations, and labor laws have primarily focused on transforming labor power into a commodity through the promotion of labor markets and widespread employment. Subsequently, efforts have aimed to address imperfections within these markets by regulating the employer-employee relationship.
Throughout this evolution, the U.S. has also instituted social welfare mechanisms such as the minimum wage, unemployment insurance, and worker’s compensation. These measures were introduced to mitigate the commodification of labor, aiming to soften the impact that market forces, especially within labor markets, can have on individuals’ lives.
For American workers, the modern employer-employee relationship fundamentally represents a firm trade-off: it involves either preserving one’s labor power for personal pursuits or gaining access to essential social welfare benefits. This dynamic underscores the enduring tension between individual autonomy and the protective measures designed to cushion the uncertainties inherent in market-based employment.
In the United States, the employer-employee relationship grants employers significant authority over how, when, and where their workers perform their duties. This control has become remarkably comprehensive in the 21st century. Employers now have the prerogative to establish stringent workplace policies, such as forbidding casual conversations which might be deemed as “time theft,” conducting inspections of personal belongings to prevent theft, and regulating restroom breaks to maintain workflow efficiency, particularly in production environments.
Moreover, advancements in monitoring technologies empower employers to monitor and track their employees’ movements and performance minutely throughout their workday. These technologies enable a level of oversight that extends beyond traditional managerial practices.
It’s clear that being an employee in contemporary America involves more than simply exchanging labor for wages; it often necessitates relinquishing aspects of personal autonomy and dignity. In some instances, the employer-employee relationship can erode self-esteem, underscoring the profound influence employers wield over the lives and behaviors of their workforce.
Conversely, the employer-employee relationship in the U.S. serves as the gateway to accessing a wide array of social welfare benefits. For nearly a century, U.S. policy has mandated that participation in such a relationship is necessary to qualify for government programs aimed at safeguarding individual health and well-being.
As an employee, you are entitled to essential protections including the minimum wage, overtime pay, the right to bargain collectively, and access to workers’ compensation and unemployment insurance. These safeguards are integral to ensuring financial stability and security in times of need.
In contrast, individuals classified as independent contractors or self-employed do not have access to these critical protections. This distinction underscores the significant impact of employment status on an individual’s ability to access essential social safety nets in the United States.
Beyond its impact on social welfare, the employer-employee relationship in the U.S. holds significant fiscal implications. Annually, the federal and state governments face a substantial “tax gap” amounting to hundreds of billions of dollars. This gap represents the disparity between taxes owed and those actually paid on time and voluntarily.
Historically, the employer-employee relationship has demonstrated higher levels of tax compliance compared to arrangements involving independent contractors or self-employed individuals. This higher compliance is partly due to mechanisms like wage withholding requirements and robust information reporting protocols.
The role of the employer-employee relationship goes beyond social welfare—it serves as a cornerstone of fiscal efficiency. Policymakers often prioritize this relationship because of its proven ability to ensure tax compliance and facilitate the effective distribution of social welfare benefits. This preference persists even when determining whether a specific work arrangement should rightfully be classified as employer-employee remains a topic of debate.
The Natural Rise of the Nontraditional Worker in America
In the late 20th century, the United States initiated a significant shift known as deindustrialization, marking a decline in its manufacturing sector—the historical bedrock of the employer-employee relationship. This trend accelerated notably with the onset of the Third Industrial Revolution, characterized by the adoption of electronics, computers, and information technology to enhance manufacturing productivity. Consequently, the proportion of American workers employed in manufacturing dwindled substantially. In the 1950s, approximately 30% of U.S. workers held manufacturing jobs. Today, that figure has plummeted to around 8%.
As deindustrialization reshaped the U.S. economy, a corresponding expansion occurred in the services sector. As detailed in our article “Innovating the Business of Gratuities,” this growth has been so substantial that by 2018, services accounted for 68% of U.S. GDP. Unlike manufacturing, where stable staffing is often a norm, the nature of services necessitates greater flexibility to meet fluctuating demand.
This demand for flexibility has led to shorter and less permanent work arrangements in the services sector, diminishing the significance of firm-specific skills. These dynamics have catalyzed the rise of what we term “nontraditional workers” in the U.S. labor force. This category encompasses contingent workers, alternative workers (such as independent contractors, on-call workers, or those employed through temp agencies), and electronically-mediated workers (engaged via web or app platforms). Today, these nontraditional workers collectively constitute approximately 13% of the U.S. workforce.
A notable development within the expanding service sector and the increasing presence of nontraditional workers in the U.S. has been the rise of online digital labor platforms like Uber, Instacart, and Grubhub. These platforms leverage digital technologies to establish efficient marketplaces where nontraditional workers can autonomously utilize their labor power, connecting directly with customers seeking their services. While these platforms primarily serve as intermediaries matching supply (workers) with demand (customers), they have not been immune to controversy surrounding their economic dealings with participating workers.
Certainly, several practices of specific digital labor platforms concerning nontraditional workers—particularly incidents of withholding gratuities received from customers—have been inappropriate. However, it’s crucial to note that only about 1% of all nontraditional workers in the U.S. engage with digital labor platforms. Each worker’s experience with these platforms varies significantly based on individual circumstances and interactions with specific platforms. In this regard, it is perplexing why digital labor platforms have become emblematic of issues surrounding low pay among some nontraditional workers in today’s evolving U.S. economy, given their relatively limited reach and the diverse array of experiences among participants.
A more effective target for social and policymaker concern regarding the challenges faced by low-wage workers in the U.S. lies within certain traditional employer-employee relationships. Across the country, millions of individuals hold low-wage jobs where federal and state laws permit practices like the “tipped minimum wage” or establish minimum wage levels that, even in states such as California, fail to adequately meet the basic living expenses of a single person. This issue warrants greater attention and action to ensure fair wages and economic stability for all workers.
The rise of nontraditional work demands a fresh emphasis on labor power and how individuals can effectively leverage it for personal gain. Nontraditional work inherently transforms each worker into a self-contained “microbusiness,” necessitating constant decision-making regarding the allocation of their labor power across multiple short-term engagements. This shift underscores the need for workers to strategize and optimize their skills and efforts to maximize their own success in this evolving economic landscape.
Available data clearly demonstrates that many nontraditional workers prioritize autonomy and the ability to direct their labor power for personal gain. According to a 2016 study by Intuit, nearly 40% of electronically-mediated workers actively opted for nontraditional work over conventional alternatives. This highlights a significant trend: a considerable portion of nontraditional workers actively choose to retain control over their labor power, opting to utilize it independently rather than commodify it within traditional labor markets.
California's Decision to Commodify Labor Power as a Solution to the Problem of Low Wage Work
Amidst U.S. deindustrialization and the broader shift towards a service-oriented economy and nontraditional workforce, California introduced California AB5 (AB5) in September 2019. This legislation aims to classify all work relationships in the state as “employer-employee” unless they satisfy a stringent three-part test for independent contractor status. While AB5 theoretically impacts all industries across California, its primary focus currently appears directed at electronically-mediated labor platforms such as Uber, Instacart, and DoorDash.
Notably, recent legal actions taken by the state to enforce AB5 have predominantly targeted these digital platforms. Cases like People of the State of California v. Uber Technologies, Inc., et al., filed in the San Francisco Superior Court on May 5, 2020, and Labor Comm. For State of California v. Mobile Wash, Inc., et al., filed in Los Angeles Superior Court on July 1, 2020, underscore the concentrated enforcement efforts towards regulating these sectors.
AB5’s underlying purpose and rationale seem straightforward: California policymakers sought to address the issue of some nontraditional workers, particularly those on digital labor platforms, receiving low wages and lacking benefits. Confronted with this challenge, policymakers self-confined themselves to a binary view of labor relationships—employee versus independent contractor. This approach led them to convert as many work arrangements as possible into employer-employee relationships.
Currently, it is the employer-employee classification that promises U.S. workers the most comprehensive array of social welfare benefits available. The logic follows that by reclassifying nontraditional workers as “employees,” the perceived problem of low wages and inadequate benefits would ostensibly be resolved. This perspective suggests a pragmatic, if somewhat cynical, approach to tackling labor issues within the evolving landscape of nontraditional work.
California unquestionably has a valid interest in safeguarding all workers within its borders and upholding laws that define genuine employer-employee relationships. However, it’s challenging to argue that AB5 effectively achieves this goal. AB5’s rigid categorization of work relationships into employer-employee roles seems out of step with the broader shift in how work is conducted in a deindustrializing America. This approach appears more like a solution in search of a problem, rather than a nuanced response to the complex and evolving dynamics of modern employment practices.
There are several reasons why AB5 poses significant problems. However, none is more concerning than its blanket treatment of every nontraditional worker on a digital labor platform, regardless of whether these workers actively seek to leverage their labor power for personal gain. Whether we approve of it or not, digital labor platforms offer individuals a unique opportunity to utilize their labor power in ways that traditional employer-employee relationships do not allow.
AB5’s strong bias towards promoting employer-employee arrangements overlooks the fundamental trade-off involved in being classified as an “employee.” While this classification offers social welfare benefits, it also requires individuals to commodify their labor power and engage in relationships that can be restrictive. What policymakers fail to recognize is that many individuals opt for digital labor platforms precisely because they provide a chance to exercise their labor power independently, free from the constraints of traditional employment structures.
Certainly, some California policymakers may argue that digital labor platforms fail to offer participants genuine “entrepreneurial opportunities” to exercise the labor power celebrated in this article. If this were accurate, our advocacy for the empowerment of labor power within electronically-mediated environments would indeed be purely speculative. However, this assumption does not align with reality.
We find ourselves amidst a profound technological and digital revolution that, while dismantling old socioeconomic paradigms, concurrently introduces new tools and products democratizing technology. These innovations offer individuals diverse opportunities to harness their labor power for personal gain. While it’s true that most digital labor platforms may not inherently foster “in-platform” entrepreneurial prospects, separate platforms and tools are emerging expressly to empower workers.
Consider Dumpling, a startup facilitating individuals to launch, manage, and expand their own personal shopping enterprises. This platform enables workers from digital labor platforms to convert customers they encounter into their own clientele for personalized shopping services. Similarly, our company intends to launch an internet-based product known as “Gigafin,” a mobile app designed to enhance platform worker benefits, including increasing gratuity income directly from customers encountered through digital labor platforms. These developments illustrate how, over time, technology will stimulate the development of new products and services that will allow individuals the ability to leverage their participation in digital labor platforms in order to cultivate new economic and social opportunities outside traditional employment structures.
While some nontraditional workers on digital labor platforms may find the employer-employee relationship suitable for their goals, a significant number of others aim to exercise their labor power independently. For these individuals, becoming subject to employer control directly jeopardizes their personal objectives. Employers traditionally dictate how, when, and where tasks are performed, potentially restricting workers from using personal tools or mobile applications that could enhance their income or create social opportunities outside of their participation on digital labor platforms. Considering this, is it truly in California’s and its citizens’ best interest to mandate that all digital labor platform participants commodify their labor power exclusively to these platforms, thereby forsaking their aspirations for personal benefit? The answer to this question, we believe, is no.
A Better and More Progressive Approach than AB5
It’s clear that America’s longstanding practice of categorizing workers strictly as either employees or independent contractors is outdated and inadequate for addressing the complexities of modern work relationships. Given this, what alternative approach could better serve the needs of today’s evolving workforce than AB5?
A superior alternative to AB5 would involve establishing a new worker classification tailored for nontraditional roles on digital labor platforms. This classification would enable these workers to participate without having to reduce their labor power to a commodity or adopt an employee status. Ideally, such workers would enjoy the autonomy to leverage their labor power for personal gain, utilizing third-party tools and mobile applications freely. This approach would empower them to enhance their work outcomes beyond what is achievable under traditional employee arrangements with digital labor platforms.
Consider introducing a new worker classification termed the “Self-Determining Worker.” This designation would require individuals to demonstrate a level of economic autonomy from digital labor platforms they engage with. Economic independence would be gauged by the proportion of income derived directly from the platform. For instance, if more than 60% of an individual’s earnings originate from payments directly received from a digital platform, they could be categorized as dependent and thereby considered an employee.
Conversely, if an individual uses personal tools or mobile applications like Gigafin to receive payments directly from customers (such as gratuities) or other economic benefits amounting to 60% of their income, they would qualify as a Self-Determining Worker. This classification acknowledges their self-reliance despite their association with digital platforms. Should policymakers deem it necessary to provide additional safeguards to Self-Determining Workers, such as anti-discrimination protections, these could be integrated into the framework of this new category.
The concept of developing new worker categories beyond traditional classifications of employee and independent contractor is not just a recent idea. In response to similar challenges addressed by AB5, several deindustrializing Western nations have shown forward-thinking leadership by establishing innovative worker categories that better reflect the evolving work relationships of the 21st century. Examples include Canada’s “dependent worker,” Italy’s “lavoratore parasubordinato,” and Spain’s “trabajador autónomo económicamente dependiente.”
The rapid structural shifts in U.S. labor markets are fundamentally reshaping long-established work dynamics. These changes necessitate accommodating new forms of work relationships that cannot simply fit into the conventional workforce frameworks dictated by common law. Policymakers must therefore acknowledge the imperative for novel worker classifications and establish legal frameworks that support these new categories, especially those aimed at enabling individuals to exercise their labor power autonomously, free from the control of others shaping their future.