Is the Gig Economy About to Change?
A UK Supreme Court decision hands Uber drivers a win, but muddies the waters when it comes to regulating gig work.
Image: The App Association
On Feb. 19, the UK Supreme Court dismissed Uber’s appeal to classify its drivers as independent contractors. According to the judgement, because the ride-hailing company “very tightly defined and controlled” how drivers offered transportation services, Uber was legally bound to treat them as employees and pay them the national living wage.
One of the largest companies driving the gig economy, Uber works by connecting passengers with individuals who use their own cars to provide rides. It describes itself not as a taxi company, but as a “platform” which gives self-employed drivers the flexibility to set their own hours and freedom to work for themselves. Upholding a 2016 decision by an employment tribunal, the UK Supreme Court found that Uber has far more control over its drivers than its sign-up pitch admits – including unilaterally determining remuneration rates, imposing penalties for cancelling too many rides, and setting maximum fares.
This is likely to upend Uber’s notoriously unprofitable business model. But the landmark decision is also being hailed as a referendum on the gig economy. For some, the judgement paves the way for regulators to look more closely at potentially exploitative contract work and close some loopholes in labor law.
But the ability to regulate the gig economy will depend, at least in part, on first grasping its scale and diversity.
The “side hustle”
In the simplest terms, a gig worker is an independent contractor who completes project-based tasks for a company or person. Because the worker is not an employee in the traditional sense – they are not salaried for instance – they are not entitled to employer benefits like healthcare or legal provisions like the minimum wage. In even simpler terms (at least in the U.S.), a traditional employee receives a W-2 issued by an employer while a gig worker receives a 1099 tax form.
According to the Gig Economy Data Hub, more than a quarter of the workforce was involved in some form of contract work in 2018, with over one in 10 individuals relying on gig work as their primary source of income according to the Bureau of Labor Statistics. The proportion of the workforce in the gig economy has been increasing, rising from 10.1% in 2005, and is expected to grow up to 60% in the next decade.
There are two main reasons why. First, the 2008 financial crisis forced many skilled workers to look for jobs elsewhere. A recent Bloomberg article describes, for instance, how “Americans rallied around the concept of a ‘side hustle,’ and governments effectively endorsed the practice by declining to get involved in the smartphone-based labor markets taking shape.”
Second, the rise of tech gave widespread purchase to the “platform” business model, in which companies develop apps and other digital infrastructure to connect individual workers to consumers for a small fee, rather than directly providing a product or service.
Image: The iLabour Project
The gig economy has been described as disadvantageous to workers. As Sarah Kessler, the author of Gigged: The End of the Job and the Future of Work, explained in an interview with NBC, “the traditional structures and regulations that protect the worker are all attached to the employment relationship, so if you’re working in the gig economy you don’t have any of those.” For those who cannot afford to save for their own retirement or purchase their own health insurance, the gig economy is criticized as a predatory structure that benefits corporations by providing them with an endless pool of cheap labor.
Upworking away
But some experts disagree with the notion that gig work is, by nature exploitative. For Stanford economist Paul Oyer, both contractors and firms benefit from labor market flexibility – or the ability to choose or set working hours and term-based employment contracts. Oyer also sees worker exploitation being offset by the lack of a “monopsony” (where a single entity would employ contractors, eliminating their ability to choose work); the fact that many gig workers hold traditional jobs as well (or have a spouse that does so); and that workers can form unions in most places.
Looking at the labor market through the lens of efficiency, Oyer’s analysis ignores a rather large elephant in the room – namely, that people still prefer a “traditional” job over gig work because the latter provides more stability, benefits, and higher pay. This implies that while many people may choose to freelance, many others have no choice but to work in the gig economy to make ends meet. But Oyer’s work also indicates that the gig economy is incredibly diverse, employing people in both non-skilled and skilled jobs ranging from delivery driver to software engineer and beyond.
Take, for instance, Upwork, an online platform which connects freelance professionals with third parties requiring project-based work. Potential hirers can find workers tailored to their budget, required skill level, and previous experience, while freelancers can set their hourly rates and pitch themselves for suitable opportunities. On the face of it, platforms like Upwork validate Oyer’s claim that the gig economy makes the labor market “thicker” – where more firms are offering contracts and more workers are looking for them.
But Upwork also shows the global reach of the gig economy, as contract workers and firms from all over the world can meet and enter into agreements via the platform.
This means blanketly stating that gig work is exploitative is, perhaps, inaccurate – or at the very least needs qualification. While they may not have employer provided health and retirement benefits, standards of living will vary given a gig worker’s skills, location, and earnings - specifically in relation to exchange rates (assuming they are being paid in a more valuable currency than their own).
Ride for one
There is no doubt that the Uber decision is a significant win for labor groups in the UK. At the very least, it is a pushback against California’s notorious proposition 22, which allowed the ride-hailing company to classify drivers as independent contractors. But the decision applies to one firm, operating in a particular country, and employing a specific kind of contract worker. In other words, the Uber decision does not reflect the diverse and global nature of gig work, and to see it as a harbinger for labor laws that protect workers across the gig economy would be overly simplistic.
Article recommendation of the week:
“Why America’s Housing Market Has Never Been Weirder” - The Atlantic, Mar. 5, 2021