Updated: Dec 8, 2022
by Kristen Carroll, Founder and Chair of The LMC Groups
The missing employees dilemma is a mystery plaguing most US industries and local economies. If you listen to the politicians, the answer is clearly the fault of [insert any action of] the opposing party. If you ask small business owners, many of them will blame the stimulus checks Americans received during the initial stages of the pandemic, insisting that people are still refusing to return to work after living high on the hog from that $2k check they got in 2020.
We are still down 3 million jobs from the early days of Covid, so it’s not as though our booming economy has driven the demand for employees beyond capacity. I remember hearing about parents, especially mothers, leaving the workforce due to frustrations with their children’s schools during the pandemic. While it's true that 1.5+ million women have left the workforce, close to 1 million men have rejoined, so that seems to be working its way toward a wash. And as much as we seem to hear about van-lifers trading in their homes for customized Sprinters with compost toilets, that group can’t be more than one-ten-thousandth of the population, right?
So where is everybody?
Let me ask you this . . . what was happening right before the pandemic started, in the few years previous? It rhymes with goober.
Ah yes, Uber! Okay, Uber is to blame for plenty of things, but can we REALLY blame them for the employment crisis we’re currently experiencing? I know, that sound a bit extreme. However, I’m going to say yes, yes we can. At least in part.
The Gig is Up (Well, Maybe)
Uber’s business model was only profitable and viable in the midst of the gig economy. In fact, Uber actually didn’t become profitable until well into the pandemic when high unemployment enabled them to resolve their driver shortages. They were able to turn a profit because they didn’t have to pay taxes on their employees the way normal companies did (and they put a number of those companies out of business). They also didn’t offer insurance, vacation time, and everything else that makes up the 30% over the hourly rate that it costs to employ someone. They didn’t need to worry about paying their drivers a minimum block of hours for their work like their law-abiding competitors. They didn’t even need to worry about the law.
While it’s easy to make an example of Uber, they are just the tip of the gig economy iceberg. Internet and app-based services in the context of a global marketplace transformed the way we found the help we needed. In the past, employers may have hired a graphic designer for their team, but now they can just find someone on Fivrr who can do something perfectly well for pennies on the dollar in many cases . . . often because they live in a place where the cost of living is lower. Uber, however, comes in for special notice because they bought out the politicians and local governments to get a pass on wage and hour principles that had been in place for decades. We were all drunk on innovation and $65 Billion dollar valuations, and we forgot there was a reason there are guidelines in place for employee classification and equitable practices.
Uber paved the way for DoorDash, Instacart, Shipt, and so many other gig-based services that took workers out of the workforce while undermining the competitive abilities of the brick-and-mortar establishments beholden to a higher set of restrictions. Currently, a little over one-third of all US workers are part of the gig economy…and we all struggle to figure out why we can’t find employees for our jobs.
Here’s what the gigs can offer that employers (compliant with FLSA and DOL guidelines) cannot:
1. Higher hourly rates (due to the 30% savings over employment)
2. No taxes taken out when the payment is issued
3. Greater flexibility in hours – if you want to do a one-hour project, you can! If you were working for your employer, you’d likely fall under the requirements for minimum hours paid, preventing short project work from being an option
4. Very few performance expectations
Employees who receive government assistance and/or state benefits are not beholden to their employer for these benefits, and the government benefits are often better than what the employer can afford. In many cases, people in entry-level, client-facing positions did not have the need for the benefits or insurance offered, making the gig work a perfectly viable option. Your gig workers are most often your non-professional workers who typically occupy the positions companies are having the most trouble filling currently.
This situation, however, is not sustainable.
1. Gig companies are working feverishly to figure out a way to provide their service without having to use people at all (such as driverless cars, drone food delivery, etc.).
2. The workers in the gigs will soon realize that they do not have the same rights and benefits as employees, even though they deserve them, and so they will either organize or find political backing to support their needs, and the classification for gig workers will become much more stringent.
3. The IRS is losing a ton of money, and the house always wins. It’s only a matter of time before they reclassify these positions, as well as pursue individuals who may believe they no longer need to pay some or all of their taxes as gig workers. When the tax bill comes, there will be a great wave of employees rushing back into the protective arms of the employer-driven workplace.
The Employer Strategy
A quick story: The other day I scheduled a Lyft ride. The driver arrived within seven minutes, but when I entered the vehicle, he decided I was going too far and asked me to get out. I did and was assigned another driver I had to wait another 10 minutes for. This driver wanted to save money on gas, so even though it was 95 degrees out, and even though we were on the road for an hour, he didn’t use the AC. I had to keep my window open on a day when air pollution was high, with no recourse. There is no longer a way to report issues to Lyft that don’t fit their pre-set categories. I tried three times to resolve it, and then I gave up. Will I still use Lyft? Yes, but only if I have absolutely no other option.
Customers have accepted the nearly full absence of service and support from these app-based solutions, so lucky for employers, the bar has been lowered. For employers struggling due to the gig disruption, I challenge you to find ways to outsource as much of your business as you can, so employee shortages are never your problem to solve again. Find software-based solutions to replace your human needs. So much of our business functions are unnecessarily processed by humans.
When an actual car company provides me with even the most basic level of service, I’ll just be so glad they showed up and didn’t sweat me out of the vehicle, I won’t really care if they no longer have a person answering the phone live – they have a phone number, period! I won’t know if someone from their staff replies to my email or someone from an outsourcing company, nor will I care as long as my issue is resolved. If the workforce doesn’t want to return to the employer model, then the employer needs to find a way to continue performing their service or function with fewer employees.
This sounds like a recipe for economic disaster, and guess what, it definitely is. However, as soon as things start to get really bad, the government will compensate employers to create new jobs to fix the economy, and we’ll all gladly comply. The lack of equitable enforcement of employment laws for these tech-based companies was a failure of the government, and I think we can all sleep soundly knowing they will also have to pay their way out of it. In the interim, let’s work toward leveling the playing field so that the hands of compliant employers are no longer tied so tightly.
The good guys shouldn’t always come in last.
An Opportunity for Small Businesses
Before we relegate the small business owner to sainthood, however, I’d like to remind us all of something else that was happening right before the pandemic. At the end of the Obama administration, there was a lot of talk about a living wage and increasing the minimum wage to $15/hr. Small business owners perceived this as a threat, because their pricing models and operations were built on the wages required at the time, and they didn’t believe their customers would be willing to absorb the price hikes that would follow wage increases (which, of course, would affect more than the lowest-earning employees).
At the same time, there were efforts underway to increase the minimum earnings to meet the FLSA exemption rate, which would require employers to either raise the associated rates or accommodate for overtime. It was initiatives like these that likely contributed to the massive about-face in government leadership, and the United States went from President Obama, with his idealistic, fair, and equitable platform to President Trump, with his business-friendly, hands-off approach. There is nothing inherently wrong with either of their principles, but the execution of each turned out to be problematic.
A living wage is a goal we work toward, not a light switch we turn on. However, great news, the pandemic fixed the living wage issue, so now we just need to make sure our employers are making enough revenue to continue to pay these increased wages, or we will quickly find ourselves back to where we were before. Small business takes the brunt of economic policy, and it’s unfair to the small business owner. Large corporations can hide from taxation or enforceable worker laws (cheers, Amazon!), while small businesses have to put the well-meaning though not always realistic federal guidelines into practice. It’s an incredibly unfair advantage that we give to the giants among us, and it’s time to redirect our focus. We need to Robinhood this situation and have the larger businesses compensate for their unfair business practices while giving the small business owner some breathing room.
Most small businesses want to do the right thing. They want to be fair to their employees. They want to treat their customers well. They also simply want to stay open.
So the last piece of this issue is enabling the small business owner to provide an opportunity that is attractive to potential employees, because that is where the greatest security will be generated from. We do not want to continue to line the pockets of the boulders that may one day tumble upon us; we want to build a fortress made up of small stones that together, create a lasting structure for economic stability, growth, employment opportunities, and community.