The Business Casual Economy
The Business Casual Economy
We need creative economic and labor policy that recognizes the growing number of people who straddle the gaping divide between formal employment & informal needs-meeting.
Yesterday, Kamala Harris announced that, if elected, her administration would work to catalyze the formation of 25 million new small businesses. That would beat the Biden administration's 19 million new firms—the current record for a single term.
Fair enough—starting a small business can be professionally, personally, and financially rewarding. Small businesses employ almost half of private sector employees.1 They can help build stronger communities and local economies. Starting a business is a great option for some people, people like me, for instance. However, the political economy of small business growth isn't as clear-cut as it might seem.
That's because a significant percentage of small businesses operate in what I'm calling the 'business casual' economy.
Economists differentiate between two broad types of economic activity: formal and informal. Formal economic activities are recorded, taxed, and regulated by established processes. Informal economic activities include businesses, work, and exchange that occur outside of those bounds.
Most people interact with both the formal and the informal economies at some level. If you pay taxes on income from work or property, you participate in the formal economy. If you pay the kid next door to mow your lawn, you participate in the informal economy.
Typically, the informal economy encompasses people who don't have access to traditional jobs or the ability to start a registered business. The kid next door doesn't need or want a formal job yet—but they'd like some extra spending money. It also doesn't make sense for them to incorporate, and they won't earn enough to pay taxes.
The kid next door is one face of the informal economy—but there are many other faces whose circumstances are less familiar. People who make money or acquire goods and services in the informal economy often live in poverty. They are likely to be disabled, chronically ill, transgender, or unhoused. Race, gender, sexuality, and immigration status also frequently influence access to the formal economy. The legality of products and services (e.g., sex work) also prevents access to the formal economy.
The informal economy is almost by definition made up of tiny businesses. The out-of-work single mom who watches her neighbors' kids to put food on the table runs a tiny, unregulated childcare business. The undocumented immigrant who offers his services as the neighborhood handyman runs a tiny, unregulated home repair business. Tiny businesses also exist in much more dangerous and stigmatized fields.
The people of the informal economy are often referred to as the reserve army of labor or surplus population. As those terms suggest, players in the formal economy are happy to put these people to work when they need them and wash their hands of them when they don't. Employers can use the specter of all those potential employees waiting in the margins to extract concessions from workers.
Over the last couple of years, I've thought a lot about the growing number of people who've become self-employed, by choice or by necessity, and their relationship to the formal and informal economies. There’s a certain glamor or status associated with blazing your own trail—the laid-off journalist starts a Substack and makes it big, the therapist who gave up on billing insurance and now runs a lucrative coaching practice, the burned-out marketing executive who turned their expertise into an online course that makes millions. But the flashy stories and eye-popping income reports belie the precarity of the business casual economy—and draw attention away from those in even greater danger of ruin.
From my vantage point, gig workers, independent consultants, creators, micro business owners, freelancers, etc., straddle the wide gap between the formal and informal economies. We pay taxes, register our businesses, and try to follow the law. At the same time, at least in the United States, we don't have access to the already inadequate social safety net. We can't apply for unemployment benefits if our businesses go belly up. We can't access worker's compensation benefits if we're injured at work. We pay more for health insurance and save less for retirement.
What's more, the platformization of commerce creates a system of peer-to-peer exchange that mimics informal economic activity much more closely than formal economic activity. “Volatility spun as flexibility allows these sites to present themselves as the benevolent, forward-thinking guardians of a new labour compact, designed for a generation of workers who allegedly desire greater ‘independence’ over security and decent pay,” writes Phil Jones in Work Without the Worker.
The business casual economy is here, and it’s growing every day.
Are there upsides to operating in the business casual economy? Absolutely. However, there are also significant downsides (some of which I have detailed above).
Any economic policy that doesn't contend with the growing number of people making their way in the business casual economy isn't a sustainable economic policy for the 21st century. Prioritizing new business starts without expanding the social safety net and regulating platforms will inevitably create incentives that harm workers. Significantly increasing the number of new business starts over the next four years would likely deepen the pervasive sense of precariousness that has defined economic opinion polling for the last 18 months.
After all, every new Uber driver, fledgling influencer, retail arbitrager, and newsletter writer is a new small business. But these aren't often opportunities that support families or provide long-term security. For most people, starting a business means living at a subsistence level—even if subsistence can sometimes be pretty comfy. We need economic policies that support people who own the nearly 15 million non-employer businesses that generate between $5-50,000 annually.
So, if we're going to encourage more people to start businesses, we need to ensure that the people who do so (along with the rest of us in the business casual economy) have some sense of security and stability.
No amount of old-fashioned jobs policy will get companies to hire new workers when they've repeatedly seen that they don't have to hire workers to get all the independent labor they need. Supporting labor unions is essential, but so is creating new ways for independent workers and others in the business casual economy to organize. Making groceries, childcare, prescription drugs, and home ownership more affordable is critical, but so is giving people the peace of mind that comes from knowing they'll be able to pay their bills even if a client doesn't pay their invoice.
Further, we need technology policies that hold platforms accountable, make our online experiences richer and more useful, and ensure cultural, creative, and care work is protected in the same way technical work is protected. We also need a fresh approach to intellectual property that accounts for how its economic use (and abuse) has dramatically shifted thanks to the internet.
This all might sound like I'm calling for a complete reimagining of our employment and small business regime. And I am.
But what is most urgent is recognizing that there has already been a complete reimagining of how we work, do business, and exchange goods and services. The 21st-century economy is a different beast from the 20th-century economy. Revolutionary change has already occurred—it’s up to all of us to fight for policy that ensures that revolution works for us rather than against us.
Worth noting that this statistic is from the US Small Business Administration, which defines a small business as employing fewer than 500 employees and less than $7.5 million in annual sales. So “small” is relative.
Oh my goodness, Tara, yes! I co-sign in all of this. The world needs a book from you on the Business Casual Economy!