Modern Work, Modern Benefits: Fixing the Gig Economy’s Safety Gap

In this episode of Believe in Arkansas, host Ryan Norris sits down with Dr. Liya Palagashvili, Senior Research Fellow and Director of the Labor Policy Project at the Mercatus Center at George Mason University, for a conversation on one of the biggest challenges—and opportunities—facing Arkansas’s modern workforce: how to support independent contractors and gig workers in a rapidly changing economy.

Dr. Palagashvili’s research dives deep into the intersection of labor policy, entrepreneurship, and the gig economy. Her work has been featured in leading outlets like The New York Times, The Wall Street Journal, and The Hill, and she brings an economist’s precision to a policy conversation that impacts everyone from rideshare drivers to freelance professionals and small business owners. A former professor of economics at SUNY–Purchase and a Forbes 30 Under 30 honoree in Law & Policy, Liya has testified before Congress and state legislatures on how to modernize labor policy for a more flexible, fair, and innovative economy.

Together, Ryan and Liya explore how portable benefits—benefits that follow workers from job to job—could bridge the gap between flexibility and security for Arkansas’s growing independent workforce. They unpack how states like Utah are leading the way, why Arkansas is uniquely positioned to innovate, and what policymakers, entrepreneurs, and everyday Arkansans can do to build a system that empowers work—not bureaucracy.

It’s a thoughtful, forward-looking discussion on the future of work, economic freedom, and how Arkansas can lead the nation in making work work for everyone.

 
To learn more and see how AFP-Arkansas can help you or your organization increase your impact in our state, email us at infoar@afphq.org or visit us at believeinar.com.

Transcript

Welcome to Believe in Arkansas, where we believe free people are capable of
extraordinary things.
Now, here is the host of Believe in Arkansas, Ryan Norris. Welcome back to Believe
in Arkansas. I'm your host, Ryan Norris, and today we're stepping straight into one
of the most urgent questions shaping the future of work in our state. How do we
protect the freedom and flexibility of independent contracting? One of Arkansas's
fastest growing segments of work without leaving people exposed to a benefit system
built for a very different economy. This episode is titled Modern Work, Modern
Benefits, Fixing the Gig Economy Safety Gap. And we're going to talk about exactly
that safety gap, why it exists, who is impacted, and how modern policy can close it
without tying workers to a rigid employment structure. And Arkansas is not watching
this debate from the sidelines anymore. This year, lawmakers introduced SB -235,
the Voluntary Portable Benefits Account Act, sponsored by Senator Justin Boyd and
Representative Robin Lundstrom. The bill creates a simple, flexible framework that lets
independent contractors open voluntary portable benefits accounts, accounts they control,
that follow them from client to client, and that can be funded by workers or
businesses without affecting employment classification. Now, why is this so important?
Well, here in Arkansas alone, according to the Census Bureau, we have over 250 ,000
independent contractors or gig workers. That is one quarter of a million people that
are affected by benefits and benefits gaps when they are trying to be contractors
that need flexibility in their work. So in plain terms, it lets workers keep their
independence and build a safety net at the same time. That's what portable benefits
does. And that's a big step for Arkansas. And there was a lot of conversations
around it, but a lot more needs to be understood about portable benefits. benefits.
So that
and the Hill. She has testified before Congress and multiple stated legislatures on
how to modernize benefits for a flexible workforce. She's a former economics professor
at SUNY Purchase, a member of the U .S. Labor of Labor Statistics Data Users
Advisory Committee, and a Forbes 30 under 30 honoree in law and policy. In short,
she understands exactly where our labor system is breaking down and how portable
benefits can make work more secure without making it more restrictive. So welcome to
Believe in Arkansas, Dr. Palo Gashvili, and we look forward to having this
conversation with you. Hi, Ryan. Thanks so much for having me on your show. Well,
you know, this idea that, you know, things change over time. The economy,
when you look at it, it's had its different iterations of, you know, we had the
agriculture, we had the industrial ages, we've had,
you know, these other concepts of like service economy being a big deal,
having the economy that's around, you know, intelligence, and now we're moving into
the AI era. So lots of different changes in the economy. And though that changes,
a lot of our policy about work and workers has stayed the same. So to help kind
of level set a little bit about this topic and give some clarity, what by
definition is portable benefits? Yeah, so portal benefits are a newer concept.
They, portal benefits are benefits that are tied to a worker rather than through a
job. So for the vast majority of us who have kind of W -2 traditional jobs,
we always think of benefits as being tied to our jobs. So you get a new job.
There's a benefits package and everything so the employer. Now, if you quit that
job, you lose all your benefits. And if you switch, you lose the benefits of that
job and you have to go to another job where they provide benefits there. That is
kind of the institute. That's not because, that's not because of choice necessarily.
That's because of the way our institutional and legal systems were set up over 100
years ago, where our benefits were tied to a traditional W -2 job.
And it made sense back then because, you know, that was the workforce was not very
dynamic. That was all people did. And they stayed, as you mentioned, right?
They stayed in these jobs forever.
And that's it. That made sense. But the U .S. labor market is no longer built
around that like lifelong, simple, like single employer jobs. And it hasn't been for
a very long time. So today people move in and out of jobs. They take on side gigs
while caregiving or studying. They freelance professionally. They launch entrepreneurial
ventures or earned income from multiple different sources. And why is portal benefits
as important is because as this workforce continues to grow and continues to change
and continues to modernize, more and more workers will be left out of the purview
of this institutional benefit system. and so that That's why we are talking about
portal benefits, which are how do we rethink and redesign benefits so that benefits
stay with the worker and are not tied to the employer or job that they're in.
Yes. And so to define that on like an independent or gig worker,
what is the definition there? So the audience kind of has clarity about who we're
talking about. Yeah, this is, It could be a gig worker is the bigger umbrella term
is independent worker. An independent worker could be someone who's on a gig economy
platform, like an Uber driver or DoorDash deliver. It could be a freelance journalist
who's a professional freelancer, a freelance graphic designer, a musician,
a mom who's just set up her shop on Etsy. And so she earns all of her income
independently on Etsy.
It captures a vast majority of people, construction worker, traditional truckers or
delivery drivers as well. So independent work really kind of goes across all
different sectors and industries. But what it really means is you're making income
outside of the traditional W2 work arrangement. So whether it is working off of a
platform, having your own side business, having your own truck or making your own
deliveries, in some way or another, you're making income on your own. It's not tied
to a W2 traditional job. And that's what we mean by independent work. So sometimes
people think about it as just Uber driver, but that's wrong. Uber drivers and
DoorDash and app -based industry accounts for less than 10 % of the overall
independent work industry it's really an
that's how gig workers, you know, emerge. That's not the case. Self -employment and
independent work and freelancing was actually growing much faster after,
from the mid -1990s onwards. Well, let's see, that's great, that's great for us to
know because we know this is an issue and it's not going away. And so let's delve
into some of these questions that come up as we're talking to lawmakers is just the
general public. So one of the first questions is one of the biggest concerns that
contractors face is losing that access to benefits when they switch clients or, you
know, or contracts. How do portable benefit accounts tied to the worker rather than
the hiring party actually solve this continuity problem in practice? Yeah.
So if you're an independent work, let's say you had a full -time W -2 job and you
want to launch your own business and be a professional graphic designer.
To make that jump, you would lose your benefits. Now, once you're an independent
worker, you also might, or a freelance graphic designer in our case, right? You will
have like 15 different clients that you might work with at any given time. So to
think about benefits in this context, being tied to a job makes no sense for the
freelancer because I might have a six month project. I'm with that employer for six
months and then I move on to the next project or job. So having benefits tied to
employer doesn't make sense in the independent work or self -employment context. And
so the biggest problem that independent workers face today,
according to surveys that we've went through and across all many different surveys
it's the same thing we love our jobs we love independent work we love the freedom
and the flexibility gives them but we would love to have some sort of access to
portal benefits and portable benefits is defined in some of these surveys and you
get greater than 80 % of independent workers saying I would love to have access to
portal benefits which are benefits that stick with me and move with me as I move
from client to client or job to job. And so the problem that we're trying to solve
is how do we get portable benefits? How do we get benefits to be tied to the
worker of the independent worker in this context where a W2 kind of benefits -based
model doesn't work more.
And so what what keeps them from doing this now? What what keeps an independent
from having benefits of the variety you're talking about? Yeah, Ryan. So this is the
same question I asked 10, 10 years ago when I started doing research on this. I
was like, oh, great. Like everybody wants this, but what prevents it from happening?
And so we discovered some legal issues at the state level and at the federal level,
that if you are a company that works with a freelance graphic designer and you
wanted to voluntarily provide that freelance graphic designer with additional
contributions of benefits or anything of that sort, you wouldn't be able to do so.
Because if you did so, it would create a huge legal risk for you as regulators at
the state level and at the federal level would come up to you and say, Ryan, you
just gave benefits independent contractor. We might reclassify them as an employee.
Yeah.
And they say one of the things we look at is, did this company or client provide
benefits to an independent contractor? If they did, that doesn't look like an
independent contractor. That looks like an employee, a W2 employee. And so it creates
a huge legal risk for companies or for clients who want to even voluntarily provide
access to benefits for independent workers. It has, it's associated with back fines,
penalties, fees, and then reclassified, like a misclassification lawsuits because you
had misclassified this worker that you've given benefits to. We've talked to companies
large and small. I've interviewed them. We've talked to general counsel of companies.
And they all say the same thing. Like this is 100 % the reason when we don't enter
into the benefit space at all. So even, you know, voluntarily provide benefits to
independent workers. So I started talking to, first, you know, I started talking to
Congress about this five years ago about this legal issue or six years ago at this
point. And it was like the first time they've heard of it. And I'm like, what are
you talking about? What do you mean? Portable benefits and this legal risk. But ever
since then, we've been so much momentum because we shifted our strategy to talking
to the states. And some states have adopted the model. And once the states started
adopting the model, now the federal government and congressional members have started
to introduce bills on this concept as well, being like, oh, let's remove the legal
barriers and provide workers from having access to portal benefits. And I think it
really is showing kind of just tremendous amount of understanding of the benefits of
what these sort of reforms and bills could do. But that's kind of that, that's the
core idea, Ryan. It's just that There's this legal problem that if you did this in
Arkansas or at your state, then regulators would cut after you and say you gave
benefits an independent worker, we might reclassify them as an employee. And as a
result, nobody does it. So is there a benefit to employers for going this route as
opposed to saying, okay, we're going to bonus up your contract for you to do
whatever you want with. Yeah, that's a great question. I'm an economist. I'm like,
why not just provide the extra cash? Like, I don't get it. And so we started
interviewing some independent workers on this and looking at some survey research and
trying to figure out why do the benefit route. And I'm going to give you two
answers. One is that from the worker perspective themselves,
there's some sort of additional value place on it being like a benefit and they
don't see it as like a cash account. They see it as like a savings or benefits
account, which actually is good for worker behavior in this sense. So you might say
if you made a contribution into my benefits account, I'm going to say, okay, that
is for me to use for retirement benefits, right? Or for health expenses and so
forth versus thinking about it as a cash account. So it has a behavioral
implication. It also has some sort of weird added value for workers where they think
like, you know, a dollar of benefits for some workers seems to be worth more than
the dollar of just having a dollar. But that's partly because it's tax advantaged.
Okay. which gets me to my second point. At the end of the day, right, the long
haul on this is if we set up portable benefits accounts for independent workers now,
the next step is to create equal treatment on employee benefits and independent
worker benefits because currently under federal law, workers who are employees and
workers who are independent contractors are treated unequally. So you are far better
off as a W2 employee in terms of benefits and tax advantages for benefits. As an
independent worker, you are constantly being taxed a lot more,
even though you're still, you know, using those benefits for premiums and so forth
and so forth. So the idea in the future, I think, is if these accounts are to
emerge and we're building an infrastructure for independent workers to have equal tax
treatment with W2 employees, which builds a greater infrastructure into the future of
decoupling benefits from employment. Okay. Yeah, that makes sense. And so,
you know,
another question I have is, you know, how do these portable benefits strengthen the
financial stability of these gig workers, you know, some of these are working moms,
people with disabilities, just entrepreneurs that kind of test in the waters to see
if there's a market for their skill set. So how does that go about preserving that
flexibility and that independence? Yeah, that's a great question. Currently in our
institutional context,
you're forced with a choice, essentially, either go have a standard job with standard
hours that might be inflexible and benefits versus you get an independent job with
zero benefits. And so what these sort of reforms do is allow workers to choose both
independence and financial security. And so they can say, I am a working mom.
I can't take on. I'm a mom with young kids, I can't take on a full -time W -2 job
or even a part -time W -2 job that has set schedules. I need to be able to set my
own work schedule and work while the baby is napping or a baby is in daycare or
kids are in school. But I would still like to have access to some sort of
financial security and benefits. Portable benefits models and reforms allow that to
happen. It allows workers to have both independence in their job, true flexibility,
and some sort of safety net financial security. Right. See, that's what I hear is
that, you know, I want to go out there. I want to try something. Some people, they
have great ideas, but they're like, man, I can't go try that because I can't afford
to lose my benefits at the job that I'm at. And so this could spur again, greater
innovation, new creations in the marketplace that we hadn't had before because people
will feel a little more protected with that safety net that benefits provides. Yeah.
That's it. Oh, go ahead. Yeah, Ryan, I was going to say to your point, I just
wrote a piece in the hill on this saying about how portal benefits reforms are
actually really great for entrepreneurship. Yes. And small business information because
if you look at the research And there's really great economics research on this
where they can pinpoint that all these would -be entrepreneurs didn't go make the
next step because of the benefits issue. Because we call it entrepreneurship block in
the economics world instead of like job lock. It's entrepreneurship lock where like
you have a great idea, but you're too afraid to move because basically your
financial security falls apart and your benefits. And especially if you have a family
or your four kids or health issues, it's a huge risk for you to jump from a kind
of secure W2 job into being an entrepreneur, even though you might have a great
idea. You might have a great business idea. Is this what you want to do? That sort
of benefits being tied to a W2 model prevents that would be entrepreneur from taking
that leap. Very interesting. And so from your research, what benefits are these gig
workers and independent workers actually.
they have these flexible portal benefits accounts where they have access,
they can use those funds to pay for whatever benefits that they need. And for gig
workers, by the way, I'll use an example of research that was published using Uber
drivers. For gig workers, the majority of them didn't need health insurance because
they do it as a supplementary job gig work, right? So they have a full -time W -2
job, and they get their health insurance from their employer,
or they said they get their health insurance from a spouse, okay? So I think it
was something in the study, like 79 % of Uber drivers already have access to health
insurance. And so as a result, so anything that, you know,
retirement. That says you have to use this for health insurance would make no sense
for them. Right. Right. Yeah. And then in other cases, like if you're a professional
freelancer, you've been a professional reasons for the last 30 years, you don't have
a full -time W -2 job. You buy health insurance on your own. Using the benefit for
health -related reasons, that is what is valuable for that worker. But I'll give you
some results from a study from a pilot program that was
um with door dash uh workers in that case the majority of dashers use the um
benefits for emergency funding or pay time off as emergency funds are paid time off
and and that's in that um study of dashers in pennsylvania they the majority of
them had health insurance too because again we're we're custom to think like oh no
they don't have health insurance But it really depends on which type of independent
contractor you're talking about. If you're talking about like a professional freelancer
who does this as their main job, yes, they don't have access to health insurance.
If you're talking about gig workers like Uber or DoorDash, the vast majority of them
on this platform do have access to health insurance because they're all doing these
sort of jobs as side gigs, like after their full -time 9 to 5 p .m.
job ends. And so it's really, you know, one of the things I'm most excited about
with Portable Benefits is
And it is just, you're just getting rid of a legal barrier that prevents the
voluntary flow of benefits to independent workers. And when states have started to
remove those barriers, so Utah is the first state that did it in 2023. Then
Tennessee and Alabama follow this past year, removing, passing these portal benefits
laws and removing the barriers that prevent workers from accessing these benefits.
And now you have starting to see pilot programs emerge or permanent programs emerge
in these states. So in Utah, for example, targets delivery arm is giving 4 %
contributions on top of on top of earnings to drivers that they contract with.
In Utah, again, Lyft, the ride sharing company is giving 7 % of on top of earnings
to ride share drivers. In Tennessee and Alabama, you've got two companies that are
moving in there, also to provide benefits to independent workers. So it's really like
once you remove the legal barrier, you get to see the flow of benefits to
independent workers. And if you're a small business and you can't afford it, you
don't have to do it. So it's no mandates to anybody. And I was talking to some
companies that are part of the National Home Delivery Association. So they do like
first mile, last mile logistics. And they said they've been wanting to do this for
decades. Right. And they said, and I said, and I asked the question you asked Ryan
earlier, where why do employers want to do this? And they say, this is this model
is an independent contractor model, right? Delivery driving for the most part. And
it's people who've been doing it professionally for the last, you know, several
decades. They don't want to be W2 employees. But what helps the companies is that
they can, it's great for kind of recruitment and retention of contractors with them.
Right. So they can offer, and they want to move forward and offer these benefits as
a way to be like, no, no, continue working with us as the client or the vendor,
if that makes sense. And so in some business models, you know, when when I brought
this up to some of the companies I was talking to, they're like, you know, this
isn't new. We've been wanting to do this for decades. Like, we thought about this
many, many, many decades ago, but we haven't been able to do it because of the
legal changes. And so they tell me, thank you for starting this. And I'm like, of
course. But it really makes sense because it's a voluntary kind of transaction
between two parties. You know, the independent worker might say, actually, don't give
me any benefits, just give me extra cash. Great, right? That might work for that
worker. And the employer were like, okay, I'm not going to give you benefits. We'll
do cash. But in other cases,
those sort of transactions might occur where the worker says, I'd prefer it in terms
of benefits into these portal benefits accounts, especially if they get tax advantage
in the future. And that's the key is like if they're tax advantage in the future,
it's a great, it really kind of starts the momentum and we can start to see the
shape of how this will emerge in the future.
It provides contributions into their portal benefits accounts. They will be exempt
from state income tax for that amount. Okay. And so they went one step further and
made it tax incentive at the federal, at the state level. But really, I think we'll
see the most momentum on growth is when the federal government will give it a tax
advantage account. Well, to try and tidy things up because there's a lot of
information. So basically, portable benefits, they're owned by the workers who value
flexibility, these independent workers that come from all backgrounds are in all
different areas of our economy. It could be contracting for, you know, being a
builder, being a, you know, healthcare provider, all kinds of ways that you can
contract. And then this offers varieties of benefits. So as you said, you may not
need individually, you may have
for them if we were allowed to do this. Arkansas has attempted this through Bill SB
235 and 2025, which is now an interim study and will be brought back in 2027.
So we need contract workers to understand this policy and how it benefits them,
how it benefits the employers that provide the contracts. And our lawmakers need to
understand the economic development component that this could bring when people are
willing step out and say, hey, got this great idea. I want to contribute to the
Arkansas economy that made 10x my impact to the economy. But man, those benefits
that I have, that security that I have is keeping me from doing that. So this fits
all of that. And we have examples where it's working. The Pennsylvania DoorDash pilot
is running. You have Utah, Alabama, and Tennessee that are also already involved with
this. What else do we need the listeners to kind of understand about this policy
topic of portable benefits before we close out the segment.
I think the most important thing to understand is that self -employment and
independent work is going to continue to grow. Right. And so we, Portable benefits
is a way to empower this workforce. So these are workers, the vast majority of whom
have chosen this independent work because that's, that's what they want. That's the
type of job that they want. Or out of personal circumstances, some of them are, you
know, parents who have young children or elderly care responsibilities.
And according to the Bureau of Labor Statistics Survey, more than 80 % of independent
workers say that that's the job that they want. and less than 9 % say they want a
W -2 job. And so that says something, right? It says, I want to be in these roles.
I like these jobs.
But what's missing is that we're cutting them off from our benefit system because
our benefit system were designed 100 years ago. Okay, in some cases, by historical
accident, where our kind of benefits have been tied to a W -2 job. And I think if
we want to empower the independent workforce, right, and to allow them to experience
both independence and financial security, portable benefits is the best way to do
that. So if a listener wants to learn more about portable benefits and more about
your work, doctor, where can you send them? Right.
So I'm at the Mercatus Center, so they could just go on Mercatus .org. It's spelled
M -E -R -C -A -T -U -S .org. You can just search Mercatus portal benefits and all of
our work will be up on there. We have a state spotlight actually bringing portal
benefits to Arkansas's independent workforce, highlighting just how beneficial this will
be for Arkansas's 250 ,000 workers,
and highlighting the growth and self -employment in Arkansas from 1997, highlighting
how this workforce is generated,
majority of my research is on that. So if they search on that substack, you'll be
able to see all of these posts and materials and data and research that we've done
on portal benefits and the independent workforce. Awesome. Well, Dr. Palagashvili,
thank you so very much for spending some time with us here in Arkansas talking
about this issue. We definitely will be hearing more from you as we work to educate
our Kansansans and lawmakers and all of our business community about the importance
of portable benefits. And it's not going to go away. As you said, independent work
is on the rise and continues to rise. More and more people are interested in it.
So Arkansas needs to be on the cutting edge of this policy if we want to attract
this type of talent into our state. So thank you so very much. And again,
thank you everyone out there listening today to Believe in Arkansas, where we believe
that free people are capable of extraordinary things. Thank you for joining us for
Believe in Arkansas, where we believe free people are capable of extraordinary things.
If you believe in Arkansas and would like to help unlock our state's potential, go
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