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Tough gigs

How do we regulate for a new economic reality?

Photo of a multi-level parking lot

Sometime in the middle of the Industrial Age, Oliver Wendell Holmes remarked that the law evolves only in response to societal changes: “It cannot be helped, it is as it should be, that the law is behind the times.”

It took time – decades even – for governments to properly address some of the gravest social problems that characterized the period: child labour, industrial safety, tenement housing. A century later, as we look to find our footing in the Information Age, lawmakers are again feeling the pressure to tackle the bottleneck of legal reforms needed for us to adapt to the new economic realities.

In myriad ways, the gig economy – characterized by a workforce of digitally-enabled new entrepreneurs and freelancers – has upset how we govern ourselves. The times are moving fast, and there is a sense of urgency to quickly address new social problems, from perceived downward pressure on wages to lack of proper consumer protection. At the same time we want to create a regulatory environment that doesn’t prematurely kill off old industries while making space for innovators to grow.

Quebec recently proposed a law regulating the home-sharing platform Airbnb. If it passes the National Assembly (no vote yet as of this writing), anyone renting their homes to travellers will be subject to the same rules as the hospitality industry. Quebec Premier Philippe Couillard has also hinted that he’s open to legalizing – and regulating – ride-sharing services like Uber.  In Ontario, Tim Hudak’s private member’s bill could also make Uber and Airbnb legal.

Meanwhile, Canada’s securities regulators have struggled to agree on how to strike a balance between investor protection and efforts to stimulate innovation by making it easier for start-ups to raise capital by tapping into crowd-funding opportunities. In August, the Ontario Chamber of Commerce issued a report urging the province and Ottawa to respond to the growth of the gig economy by introducing legislative changes to address insurance coverage issues, tax compliance and the absence of a proper social safety net for independent contractors.

Look elsewhere and the story is the same. Efforts are under way in the U.S. Congress to reclassify its on demand drivers as employees – a cause that has received the blessing of Democratic presidential candidate and front-runner Hillary Clinton.

These are just some of the issues that will keep lawmakers tied up in knots for years – never mind other challenges soon to land on their doorstep, such as driverless cars, product liability rules for 3-D printing, and what to do with all the data generated by users through use of sharing platforms. But absent from much of the discussion about regulating the gig economy is an empirical understanding of its real repercussions.

Earlier this year CIBC released a much-publicized study that found that the quality of jobs in Canada had fallen dramatically over the last quarter century, in large part because part-time employment figures have grown at a much faster clip than full-time jobs. The paper fed a gloomy narrative that the gig economy is forcing struggling Canadians into low-paying jobs.  And yet according to another study published by Statistics Canada last year, proportionally more people were employed full time in 2014 than in the mid-1970s. Also, self-employed workers — a group that includes freelancers, independent contractors and business owners — account for roughly 15 per cent of the workforce in Canada, a figure that has barely moved over the last decade.

There is some debate among experts over how much real wages have risen over recent years; but even assuming that the quality of jobs has eroded, how widespread is it and how much of that is attributable to the gig economy or globalization more generally? Some observers have suggested that the gig economy might be a net positive by creating new employment opportunities.

Similarly, it is a common assumption that Airbnb’s growth comes at the expense of the hotel industry, when there is also evidence that the rental service has opened up new markets for travellers otherwise priced out of prohibitively expensive accommodations.

For now, no one can say with any certainty how damaging or beneficial the gig economy really is.

It’s a laudable goal to accommodate a new economic model while trying to prevent casualties that may arise. But to do so effectively, governments will have to look beyond the “sharing” services that have built billion-dollar marketplaces and grabbed headlines, and take a smart approach to regulating the Information Age.

In a recent interview with the Chicago Tribune, U.S. Federal Trade Commissioner Maureen Ohlhausen talked about the need for regulators to show humility before rushing to come up with a new legislative framework. “We need to understand what the technology is and what the business models are that it enables,” she said. For that to happen, lawmakers and regulators will have to do their research.

The law may indeed be behind the times.  It is as it should be, lest we get too far ahead of ourselves.