Regulating the sharing economy: The next public policy challenge? (Updated with polling data)

The Seattle Times editorial board today advises the Seattle City Council to “tread carefully” in regulating the shared economy (also called the gig economy). Noting that the city has already tackled regulation of ride-sharing services like Uber and Lyft, the editorial focuses on rental housing services like Airbnb and Vacation Rentals by Owner (VRBO), but there are broader implications. Here’s the editorial on some economic impacts.

But the council should also tread carefully, respecting the right of property owners to make an honest buck by occasionally renting out a room or their entire house. Housing advocates likely will push for the most restrictive approaches to regulation, which would be a mistake…

In considering a cap, the council needs to balance property owners’ interests with the larger concerns over housing access and affordability. Setting the cap too low could, for example, squeeze a middle-class family looking for extra income by renting a child’s room while he or she is away at college.

Regulating this emerging slice of the economy poses significant challenges, beginning with a definitional dilemma. Last December, Gillian B. White wrote in The Atlantic.

If asked to define the variously named sharing/gig/on-demand economy, anyone would struggle. Despite the fact that Uber and Airbnb have become household names, most companies that are considered part of this new tech-driven, non-ownership economy do vastly different things. And so do their workers.

This nebulousness of these companies makes them hard not only to define, but also to regulate.

Part of the problem is the limited, binary system for labeling workers—either they are employees with all the legal protections that imbues or not—argue Seth Harris and Alan Krueger in a new paper from the Brookings Institution. They (and others) have suggested that the solution is finding a new, middle classification, which would allow workers and employers to retain some of the freedoms associated with independent work while enjoying some of the protections from being mistreated.

Greg Ip also cited the Harris and Krueger work in a Wall Street Journal article. He reports that nearly a third of U.S. workers are in “contingent” work arrangements. And, he points out the risk of overregulation.

…the spread of contingent work arrangements is often a sign that governments have already burdened regular hires with onerous and costly regulations. This has left many European economies with labor markets polarized between secure, permanent jobs and precarious temporary ones. Extending basic rights to workers in the on-demand economy should not involve burdening all employers with costs that ultimately hurt economic growth. 

 Just today, Melissa Sorenson, Executive Director of the National Association of Professional Background Screeners, writes in The Hill of the how regulation affects her industry and its clients.. 

What the gig economy really is and what it means for the future of work in America is still an open question. What we do know is that by 2020, roughly 40 percent of US workers will fall into the category of freelance work according to a recent Intuit study. Given the rapid pace of innovation and the diversity of the app driven economy, it’s anyone’s guess as to what industry the next Uber, Lyft, or Airbnb will impact. What will remain constant, however, is the need for a pool of thoroughly vetted and screened people to do the work. 

Hers is a small example, a particular industry with a focused market niche. But it raises the questions of how governments can balance interests in an evolving workplace. And the pressure to increase regulation is global, according to the World Bank.

“It is absolutely a trend that we need to acknowledge,” says Arup Banerji, Senior Director of the Social Protection and Labor Global Practice at the World Bank in Washington, DC. “Anything that can be made piecemeal and opened up will be. Work is not being done in fixed units anymore. It is being shared and this allows more and more people to enter the work place. But how can these workers be protected?”

The question, possibly, should be extended to “and how can we be certain our regulatory efforts do not foreclose opportunity and reduce consumer and worker choice?”

There’s no question that the gig economy is rapidly expanding, as noted in a Time magazine article from January 2016.

There is no one name—whether sharing economy, gig economy or on-­demand economy—that captures the diversity of this disruption. But it’s clear that the demand for this way of working and consuming is profound. According to a first-of-its-kind poll from TIME, strategic communications and global public relations firm Burson-Marsteller and the Aspen Institute Future of Work Initiative, 44% of U.S. adults have participated in such transactions, playing the roles of lenders and borrowers, drivers and riders, hosts and guests. The number this represents, more than 90 million people, is greater than the number of Americans who identify, respectively, as Republicans or Democrats.

As the Seattle Times writes, governments will have to deal with the emergence of new ways to do things. And, in so doing, they should “tread carefully.”

Update: Pew Research has a new poll showing significant public confusion over the meaning of the term, “sharing economy.”