The defining economic trend of the 21st century has been the rise of the gig economy often at the expense of traditional employment.
Those working in the gig economy, 57 million people according to recent estimates, perform a range of activities from babysitting, delivering food, ghostwriting to driving on rideshare apps such as Uber and Lyft.
This ad-hoc employment not only provides an extra source of income for individuals looking to make ends meet but it also allows people to earn an additional income around existing commitments such as childcare, family or other jobs.
As the size of the gig economy has grown, so too have the efforts of state governments to restrict its existence.
The recent passage of Assembly Bill 5 in California, however, provides a crystal ball that reveals the real economic damage that crackdowns on the gig economy can cause for both employers and employees.
Ignoring the damage AB-5 has caused in California, legislators in New York, New Jersey and Illinois have followed suit and proposed measures that would further imperil the gig economy.
California’s recent passage of AB-5 should serve as a warning to states across the country about the dangers of state intervention in the economy.
AB-5 forced California employers to reclassify their gig workers as traditional employees. Specifically, AB-5 dictates employers must demonstrate that the gig worker is “free from the control and direction of the hiring entity in the performance of the work,” and that the worker performed work “that is outside the usual course of the hiring entities business.”
Finally, employers need to demonstrate the worker “is not customarily engaged in an independently established trade, occupation or business of the same nature as the work performed by the hiring entity.” Only after these criteria are met can a company classify somebody as a gig worker.
Recognizing the onerous regulations AB-5 imposed on California’s businesses, the state’s Chamber of Commerce warned the legislation would be “detrimental to millions of Californians” and would “eliminate the vast majority of independent contractors in California,” preventing the state’s workforce from earning extra income and prevent small businesses from accessing the labor needed to grow.
These are not some lightweight warnings.
One of the critiques against the use of gig work, and of the misguided justifications for AB-5, is that it is exploitative. But as a recent survey by the Bureau of Labor Statistics found, “independent contractors overwhelmingly favored their employment arrangement … to a traditional one” by 79 percent in favor as opposed to 9 percent who favor traditional employment.
The significant popularity of gig work compared to traditional employment indicates individuals who participate in the gig economy do so consensually, contrary to the charges of exploitation. By limiting the ability of people to participate in the gig economy, states such as California are preventing their residents from freely exchanging their labor to earn additional income.
Restricting the gig economy also poses significant problems for small businesses, many of whom cannot afford the extra costs of hiring employees.
The Massachusetts Institute for Technology estimated it costs 1.25 times the base salary of an employee to “cover employment taxes and benefits.” While large companies can pay for benefits, payroll taxes and other employee-related expenses, small businesses, that employ more than 7 million Californians and account for 99 percent of California businesses are unlikely to initially be in a position to meet these costs, preventing them from hiring the labor needed to grow.
Unfortunately, the effects of AB-5 are not abstract, but they have had very real consequences for California’s workforce with many companies being forced to end relationships with gig workers.
The sports blog SB Nation, for example, was recently forced to lay off most of its freelance writers in California because AB-5 made it impossible for them to be profitable. Uber also warned that by restricting gig workers, 158,000 people could lose their jobs.
By forcing businesses to classify gig workers as traditional employees, AB-5 has caused many workers to lose additional income, restricting their economic opportunities and damaging their economic opportunities. The warning from Uber further suggests that even large companies are not immune to the harm of AB-5.
Recognizing the very real damage AB-5 is causing to California’s economy, especially in terms of jobs lost and increased costs for small businesses, other states should be wary about limiting access to gig workers.
Not only has it limited the ability of companies to employ the labor needed to grow, but it has prevented many Californians from accessing extra streams of income and lowering their economic opportunities.
Looking at social protection for gig workers through a gender lens
Among the labour code Bills passed in the just concluded Parliament session, the provisions regarding social protection for gig economy workers have been a topic of much discussion. The need for such provisions was felt acutely during the pandemic-induced lockdown.
As the country came to a grinding halt, gig workers were left without any economic cushion. Among them, women were further disadvantaged as a majority of them are engaged in occupations such as beauty and wellness that cannot be undertaken with social distancing. Many others also had to forego even available work to take care of increased domestic chores.
India had recorded an exponential growth in its gig economy, even before the pandemic hit the nation. It is now the 5th largest country offering flexi-staffing, according to a report by Invest India.
This sector is a big draw for semi-skilled and skilled labour, but especially for women. A recent report by IWWAGE supported by the Asia Foundation surveyed women working with a prominent gig platform in India and found that an overwhelming majority (nearly 85 per cent of the surveyed women) associate with the platform as it allows them flexibility in working hours.
In urban areas where there is a higher burden of unpaid care work and domestic responsibilities due to nuclear family structures, flexibility is a critical factor for women. The survey respondents also reported an average income of ₹1,552 per day, depending on the number of tasks performed.
This is significantly higher compared to a typical salon job (where average monthly income ranges between ₹8,000-10,000, with a relatively long average working day of 10 hours or so). Most of these salon jobs are also in the informal economy, operating outside of any formal social security net. Therefore, while 81 per cent workers surveyed were reportedly dissatisfied due to lack of maternity benefits, it is evident that for most women, the platform work is a step better than their existing options.
In this backdrop of a growing gig economy, the new social security code has created legislative space for Central and State governments to announce schemes for platform workers. It proposes a National Social Security Board which will recommend suitable schemes relating to life and disability cover, accident insurance, health and maternity benefits, old age protection, crèche or any other benefits. Aggregators employing gig workers will have to contribute 1-2 per cent of their annual turnover, with the total contribution not exceeding 5 per cent of the amount payable to such workers.
These provisions are in line with regulatory developments across the world which can be categorised into three models.
First is a model proposed in California under which companies are legally obliged to classify gig workers as employees and provide the requisite benefits that go along with such classification. This has been met with a huge pushback from companies like Uber and Lyft, which threatened to shut down in response.
The second model is followed by the EU, which aims at ensuring basic rights in employment terms and conditions for gig workers without entering the independent contractor/employee debate.
The third model is more of a voluntary agreement on standards as envisaged by the Singapore government, wherein companies are nudged to provide facilities such as accident insurance and upskilling to gig workers.
As the government starts to mull over specific schemes under the social security code, it must find a middle ground between these three models and ensure an adequate level of social protection while allowing space for the growth of the platform economy.
Unlike developed countries, where platform work is more informal than the rest of their economy, in India, platform work is already a step towards formalisation and its flexibility is an attractive feature especially for women who may not be able to work otherwise.
A new report by the Fairwork Foundation suggests five principles using which social security and decent work standards may be designed for platform workers, including women. These include fair pay, fair work conditions (prevention from infection, and payment to workers if they fall ill), fair contracts, fair management (e.g. no loss of bonus or incentive levels despite temporary deactivation of workers), and fair representation (e.g. engagement with worker associations, including organisations representing women).
Building on these principles, the government needs to balance the obligations of aggregators and social protection offered by the state through other mechanisms. Schemes which put large onus on industry are likely to be met with pushback.
For a bigger state role
This is even more relevant for women; the ILO has noted that placing undue financial costs on women’s employers is unlikely to contribute to labour market equality. Therefore, the state must play a bigger role towards social security for women gig workers to create a level playing field. Apart from direct contributions towards insurance and skilling, the state should also consider building enabling infrastructure in cities such as crèches and childcare centres, the presence of which expands employment opportunities for women.
Often, a lack of a gender lens in policy design leads to unintended consequences. Gig economy is a sunrise sector presenting new opportunities for women; therefore, their welfare and opportunities should be central to the regulatory objectives in this context.
Soumya Kapoor Mehta is the Head of the Initiative for What Works to Advance Women and Girls in the Economy (IWWAGE), an initiative of LEAD at Krea University; and Aparajita Bharti is Founding Partner at The Quantum Hub (TQH), a policy research and communications firm
Companies relying on gig work long term hurt employees and customers
Imagine that one of two people will be responsible for your safety. The first receives health and dental benefits, earns more than minimum wage, has clear advancement options within their company, and may even belong to a union. The second has no insurance benefits, works wildly erratic hours, feels no allegiance to their company, and makes less money. Which person would you pick?
The ride-share and micromobility industry is under the microscope for worker violations and safety concerns. Major shared e-scooter companies are facing lawsuits from injured riders. Revel, a moped company operating in New York City, recently reopened operations after a shutdown earlier this year, as complaints about reckless driving and fatalities involving its vehicles mounted. Ride-sharing companies Uber and Lyft face a number of lawsuits related to allegations by passengers of injury, assault, and harassment. A California ballot measure asking voters whether gig workers should count as employees has shown that many Americans are understandably focused on legal and legislative methods to introduce more order and security to the gig economy.
Like most startup industries, the companies providing these new mobility options are scrappy, doing things on the fly, and, at times, operating shortsightedly. This needs to change. As these forms of transportation edge their way to being a supplementary public transportation in a pandemic and beyond, we need to take this responsibility seriously. After all, when the public gets on a bus, they don’t imagine the bus’s tires were changed not at a company-designated station but in someone’s garage.
Companies themselves would be wise to consider moving away from the gig economy and choosing to play a greater role in ensuring the well-being of their workers because doing so is fundamentally linked to the safety of their consumers and the success of their business.
Outdoor apparel giant Patagonia is famous for taking this approach: With generous time off, on-site child care, and the doors locked on weekends, the company has doubled in size since 2008 and is currently expanding into new markets. Employee turnover is minimal. CEOs and business school professors are increasingly aware that giving workers better wages and benefits also tends to be a recipe for greater profitability and employee retention in the long run.
Of course, any business has to keep an eye on the bottom line, but the damage done from rider injuries and safety lawsuits gives pause—financial pause, especially with potential liabilities tied up. But also pause because if you are hurting your customers, it’s not great for your brand. Investing in worker safety and well-being is more expensive in the short term, certainly. But in the long term, it leads to a more profitable company.
In 2019, my company, Spin, chose to make more than 90% of its workers employees with benefits, as opposed to contractors. In all markets our lowest starting wage is $15 per hour, with incremental increases based on tenure. We did this in part because research has shown that companies with healthy employees have better business performance. Companies with excellent safety, environment, and health programs outperform the S&P 500 by 3%-5%. But also because gig workers are less likely to have been thoroughly trained, more likely to leave for another job, and are often incentivized to cut corners in order to keep a high number of scooters on the streets and boost their own apparent productivity. This is unacceptable. Carefully training and fairly compensating the employees who work to keep our scooters safe for riders ensures that employees face no perverse incentives to rush through their work.
Safety ‘out there’ also begins with safety in the home base.
Safety out there also begins with safety in the home base. Designating our workers as employees with benefits—as opposed to contractors—allowed us to put protocols in place in both operations and maintenance and high standards endorsed by the Occupational Safety and Health Administration (OSHA). This operation would have been much less achievable with an ad hoc staff.
In order for companies in the ride-share and shared mobility space to truly unleash their potential, we must first gain public trust by improving the job we do on safety. Part of this will require that city planners and urban voters reimagine the nature of transportation infrastructure away from cars and toward biking, walking, and scooter transportation. It’s also vital that companies themselves give their workers every reason to do careful, excellent work in maintaining their fleets. As private-public partnerships create another way for people to move around, we need to make sure our workers are as supported as the workers behind transit agencies.
As the pandemic continues to demonstrate, the choice between safety and economic growth is a false reality, and companies should not pose these options against one another. At the end of the day, treating workers well is ultimately the safest choice for both businesses and their customers.
Kyle Rowe is the global head of government partnerships at Spin, the micromobility unit of Ford Mobility.
When the pandemic struck Indonesia, urban gig workers were hit the hardest
“We know what can end poverty. But how come poverty never diminishes?” was the reply I received from Harry, who works as a gig worker in a city in Scotland when we were discussing poverty. The reason I specify his identity is because it is significant to what I am about to elaborate.
Indonesia’s rural poverty has always been higher than in the cities. In September 2019, urban and rural poverty hit 9.86 million and 14.93 million people, respectively. But when the pandemic struck, more households were plunged into poverty. As of March 2020, the urban and rural poor were already 11.16 million and 15.26 million, respectively.
The spike in rural poverty was not as high as in urban areas. Does this mean that urban communities are more prone to external shocks? Maybe. But we should dig deeper, deeper, and deeper. Based on the Statistics Indonesia (BPS) database, there is not much disparity in bi-annual poverty trends between urban and rural areas. Even though poverty is much higher in Indonesian villages than in cities, the pace is quite similar. So, what makes March 2020 different? Both areas were hit by the same pandemic, but why was the spike in urban poverty four times larger than in rural areas?
There might be a lot of plausible reasons behind this, but perhaps we should examine what has been sitting in front of our eyes: the unequal geography of the gig economy in Indonesia, which, in the case of COVID-19, protects rural areas from more poverty cases.
The gig economy is mainly concentrated in urban areas, where people are no longer in the process of catching up — they are already there. Gig workers represent 5% of Indonesia’s workforce. The majority of them work in urban areas. They were among the main recipients of the negative effects of COVID-19.
On the other hand, Indonesia still has much homework to do for its villages. It needs to improve infrastructure, education, access to health services — all of which can pave the way to ending poverty. The slow progress in meeting these needs leads to an automatic rejection — or slow absorption — of innovations in employment and economic activities. The low concentration of the gig economy in rural areas corresponds to a smaller presence of COVID-19 infections in rural households, whose incomes are slightly above the poverty line.
So, what does that tell us about the nature of the gig economy and poverty in Indonesia? The answers are threefold.
First, gig economy work in Indonesia is extremely fragile — it exposes workers to the risks of living in poverty after giving them a taste of heaven for a split-second. Gig workers can be independent contractors or contract workers at big firms, other forms of temporary workers, or online platform workers. The new poor in urban Indonesia mainly come from online platforms.
Digital labour platforms, such as ride-hailing services, were supposed to bring more job opportunities to low-income families. And that was at least what we thought had happened. Nevertheless, by seeing the concentration of digital innovation, it looks as if profit always outweighs any social motive.
Second, the disproportionate levels of the gig economy between rural and urban Indonesia makes the low innovation in rural Indonesia more evident. In the case of COVID-19, the lack of innovation acted as a buffer against poverty, but it might also be the reason behind rural Indonesia’s slow progress in reducing poverty. Innovation has a blank face. Whether it turns out to be good or bad depends on how we make use of it. Before intensifying innovation in rural areas, the government ought to design social protection policies for all kinds of gig labourers.
Third, it is time to put an end to the stigmatisation of rural communities implying that they are backward, with low ability to succeed, and that “rural” means poor. Regardless of country or province, “rural” is associated with third world nations. Looking at the unequal geography of the gig economy, prejudice is another reason why innovative projects rarely target rural areas.
This is our life now. The life we had prior to digital innovation has become history. We can study it, but we no longer live in that period. Whether we want it or not, temporary and remote working are becoming the new normal. That will eventually reach all Indonesian villages. But even if we already know what is going to happen, there is no harm in coming up with a plan. Because odds are, digital innovation in rural areas will intensify inequality of income and deepen poverty.
Local governments in rural areas must promote innovation, but they should also prepare the buffers that will protect gig workers from economic turbulence and smoothen the transition to the gig economy.
To begin with, local governments must build a foundation for employment innovation. This includes creating a mechanism to bring equality between gig and non-gig workers, such as establishing shared social protection responsibility between rural governments and employers in the case of workers coming from poor or low-income families.
Harry’s comment that poverty never decreases, although not entirely accurate, bears some truth. We know that education is key to poverty eradication, and access to finance can expand people’s mobility and improve their livelihood. Yet the reason why poverty rates remain high is that policymakers fail to adapt poverty alleviation policies to contemporary forms of livelihood. Accurate poverty-targeting strategies are not merely about serving those who live below the poverty line; they are about understanding poverty. And the gig economy is one of the many faces of poverty.
- This blog post is an edited version of an article that appeared first in The Jakarta Post, and is reproduced here with permission from the author and the newspaper.
- The post expresses the views of its author(s), not the position of LSE Business Review or the London School of Economics.
- Featured image by Fikri Rasyid on Unsplash
- When you leave a comment, you’re agreeing to our Comment Policy
Namira Samir is a PhD candidate in human geography and urban studies at LSE.
Picking a Pandemic Side Gig Takes Hustle | Personal Finance
Looking at social protection for gig workers through a gender lens
Why California Prop 22 Is A Vote On The Gig Economy
GiG Partners Up With Armstrong Operation Ltd
Gig economy workers ‘hit harder’ financially
Jenny McCarthy Quit New Year’s Eve Host Gig for 2019-2020
Companies10 months ago
GiG Partners Up With Armstrong Operation Ltd
Economy9 months ago
Gig economy workers ‘hit harder’ financially
Work10 months ago
Jenny McCarthy Quit New Year’s Eve Host Gig for 2019-2020
Economy10 months ago
How to grow your company in times of gig economy and digital nomadism – TechTalks
Companies7 months ago
1.8 million gig workers were purged from Upwork – here’s why
Work7 months ago
New Platform to Support NYC Service Industry, Gig Workers
Workers10 months ago
U.K. Election and Taxes • C Corp Conversion • Gig Work Defense
Economy3 months ago
Impact of COVID-19 on the gig economy: The Standard