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Ensuring economic security in the gig economy

Society, governments and firms must find a balance between flexibility and security around this disruptive but very efficient solution to create markets for talent.

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Uber was among the first companies to develop the gig economy model and is still the best-known gig economy giant. David Plouffe, strategic advisor to Uber, says such platforms boost incomes of many families and help people who are struggling to pay bills or transitioning between jobs.

ONE of the most disruptive ways in which technology is changing the world of work is without doubt the so-called "gig" economy, where unlike in the traditional firm-based model, work is not performed by employees, but by freelancers (or "giggers") who are hired only for the time it takes to perform specific tasks.

Thanks to Internet-based platforms, gig economy companies connect sellers and buyers of almost any service. Uber was among the first companies to develop this model and is still the best-known gig economy giant. This business model has spread rapidly - first to other low-skill services such as domestic chores (TaskRabbit) or care needs (Care.com), and now to higher-skill jobs. Anyone can hire computer programmers, designers, ghost writers or even business consultants on general web-based platforms such as upwork.com or dedicated platforms like 99designs.com for designers or 10eqs.com for business consultants. Since these jobs do not necessarily have to be performed locally, the high-skill segment of the market for freelancers is clearly international. In the gig economy, talent can be traded on a global scale.

What exactly do we mean by gig economy? There are, at least, two different types of gig work. The best-known type is on-demand work, facilitated by Internet-based apps and platforms that connect service sellers and buyers in local markets (for example, Uber, TaskRabbit, Handy.com, Care.com and so forth).

But there is also crowdwork, which can be performed by workers based anywhere in the world as long as they have access to a computer. They execute simple tasks for which they are paid usually small amounts, typically a few cents per task. One of the best-known crowdwork platforms is Amazon's Mechanical Turk. The tasks performed by crowdworkers are called "human intelligence tasks" and cannot be outsourced to machines, like filling in psychology questionnaires or training machine learning algorithms in face recognition.

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How big is the gig economy now? The answer depends on how we define it. Estimates using a strict definition (persons getting all or most of their income from gigging) give relatively low numbers, ranging from 0.5 to 3 per cent of the workforce for the US and Western Europe. Broader definitions to include workers who supplement other sources of income are in the region of 10-15 per cent. The gig economy is still marginal, but is widely recognised for its enormous potential. It is easy to envision a future in which many firms will consist of a core of essential staff who hire talent when and where it is needed.

A GATE TO EMPLOYMENT AND INCOME FOR EVERYBODY?

What are the consequences of such disruptive technological change for workers? The debate on the gig economy provides us with various scenarios. The digital optimists believe that not only consumers, but also workers, will benefit from the increased flexibility and empowerment that come with being self-employed, such as having greater control over work schedules, clients, jobs and projects. In fact, this vision is very far from reality for most gig workers. Take Uber drivers: if they want to obtain a reasonable income, they have to drive around for several hours every day, often just waiting for a client to call.

Socially minded gig economy gurus and executives, above all in America, propagate the optimistic view of the gig economy. The narrative is often one of new forms of work providing a kind of last resort safety net for poor people - a safety net that the state is no longer capable or willing to guarantee. The Internet is full of quotes from new economy big names who argue this. David Plouffe, who ran the 2008 presidential campaign for Barack Obama and is a now a strategic advisor to Uber, says: "We're discovering that platforms like Uber are boosting the incomes of millions of American families. They're helping people who are struggling to pay the bills, earn a little extra spending money, or transitioning between jobs."

Stacy Brown-Philipot, the CEO of TaskRabbit who grew up in a disadvantaged Detroit neighborhood, sees the gig economy as an opportunity to "create everyday work for everyday people". Could the gig economy really be replacing the fading welfare state?

Then there are the pessimists who see the kind of work provided by Internet-based platforms as insecure and alienating. In their eyes, gig work represents the ultimate stage in the casualisation of work and the destruction of workers' rights. From this perspective, gig economy workers are like employees without workers' rights.

As always, reality is in the middle. Platforms like Uber or TaskRabbit do provide access to income streams to people who would find it extremely difficult to compete in the regular labour market. This is, above all, the case for unskilled workers. But having access to an income stream is not enough. Freelancing of the kind that takes place through Internet-based platforms has two main shortcomings. The first one is the lack of short-term income security. Revenues for giggers can be unpredictable. Some level of short-term economic security is essential to be able to lead a "normal" life, which by most definitions would include having a family, renting or buying accommodation, and planning for the future.

The second problem is income security in the long term. For employees, this security is provided by social insurance. When working, employees and their employers pay social contributions that entitle workers to an income stream if they are unable to work due to social risks such as unemployment, disability or old age. To some extent, access to long-term income security is a matter of earnings. High skilled, high-earning freelancers can buy insurance cover on the market for all the social risks mentioned above.

The gig economy, like most disruptive technological innovations, is both an opportunity and a threat for social cohesion and stability. It is an opportunity because it is inclusive by nature. There are very few obstacles for motivated individuals who want to participate in it. It is a threat because the rewards it offers for participation are very far away from what we consider as a socially acceptable way of living in advanced economies. Society, governments and firms still need to find a balance between flexibility and security around this disruptive but very efficient solution to create markets for talent.

WHAT CAN BE DONE?

Unsurprisingly, there is little consensus on how to provide a reasonable level of economic security to people working in the gig economy. Some argue that enforcing existing legislation would be enough, and giggers should simply be considered as employees and receive employee rights. This solution is often favoured by the trade unions and governments.

However, it is not applicable everywhere. First, some giggers are true freelancers who chose to be self-employed and who work for several clients, so that there is no legitimate reason for governments to reclassify them as employees.

Second, forcing standard employee status on gig economy workers may destroy the business model, which is based on low-cost and low-priced services. This would mean denying access to work and income to those who are profiting from the opportunities provided by the gig economy.

We may need more innovative solutions. In its 2019 report on the changing nature of work, the World Bank argues that "traditional provisions of social protection based on steady wage employment, clear definitions of employers and employees, and a fixed point of retirement are becoming increasingly obsolete".

Let us not forget that the social insurance systems in place today are a legacy of the early days of industrialisation. Social insurance was invented in 19th-century Germany by Otto von Bismarck and it is at least questionable whether this model is suitable to today's working world.

The idea that social protection needs to be adapted to the changing nature of work is now firmly embedded in public debates. The most striking proof of this is the return on the scene of an old idea: a universal basic income (UBI) paid unconditionally to every citizen. The idea has gained renewed popularity precisely in relation to fears of robots taking over more and more jobs, and work becoming ever more precarious.

Another alternative would be to improve the financial support given to households with children. In fact, the uncertainty due to income fluctuations is especially a problem for families. Adult-only households are much more able to cope and adapt. Many OECD (Organisation for Economic Co-operation and Development) countries provide child allowances, that is, benefits that are paid to households with dependent children. These could be strengthened and connected to the debate on basic income.

These debates show that the disruptive technological change and the transformation of work are generating new ideas with regard to the reform of the social protection systems that we have inherited from the industrial economies of the post-war years. The challenge before us is to preserve the high levels of social cohesion and economic security achieved in the past in this new emerging economic and technological world.

Obviously, the implications of this challenge go beyond the narrow field of social policy. Preserving some form of social cohesion is essential in modern democracies. Otherwise, those who feel left behind tend to turn to anti-system political parties with unpredictable consequences for the preservation of our prosperity and way of life.

The occupational structure is changing and society needs to understand that, given the surplus of low-skilled labour in all advanced economies, a substantial effort will have to be made to support the living standards of those who cannot participate in mainstream wealth creation processes. This has to be done intelligently, that is, in a way that preserves work incentives while at the same time protecting the weakest members of the workforce from poverty and exclusion.

The technological transformations that we are witnessing in recent years have the potential to produce enormous gains in terms of quality of life. The dark side is polarisation and a very real risk of exclusion for some workers. Public policy must make sure that society as a whole will profit from this tremendous opportunity and that it will do so in an inclusive way.

  • This is an abridged version of an article from the 'AI & The Future of Work' report by the Credit Suisse Research Institute.
  • The writer is professor of social policy at University of Lausanne.