What does the gig economy mean for work?
The rise of portfolio work has profound implications for more than just Uber drivers – it may lead us to fundamentally reshape the way we organise and motivate our people
It goes by many names: the gig economy, the sharing economy, the pop-up economy and the on-demand economy. It’s made up of some of the world’s biggest start-ups, which call on millions of far-flung workers through smartphones and slickly designed pieces of software. In many cases, it involves people doing one small task or project – whether that’s filling out a survey on Amazon’s Mechanical Turk or providing legal services through the aptly named UpCounsel – and then moving on, never to deal with their ‘employer’ again.
But more than new companies or technologies, more than Uber drivers ferrying passengers around or TaskRabbits assembling furniture for strangers, the gig economy reflects a dramatic shift in labour relations; one that, depending on who you talk to, offers a dynamic new marketplace for workers and employers alike, or leaves workers to compete for meagre rewards while platform owners reap fees from every transaction.
Around the world, regulators and lawmakers are beginning to wake up to a new set of challenges against a backdrop of employment legislation that is largely based on the traditional employer-employee relationship. Courts from California to Catalonia are being asked to determine whether those providing services through these software platforms are employees or independent contractors or, perhaps, some other class entirely, with the answer having implications for issues ranging from legal liability to sick pay and pension payments.
These companies have tried all manner of clever obfuscation and argument to prove that their workers are not employees. Many embed highly specific language in their user agreements, claiming that they are merely facilitating, or providing a venue for, interactions between third parties. Uber, for instance, has referred to itself as a technology rather than a transportation company. Critics, in turn, have pointed out that anything could be a ‘technology company’. Forks are a technology as surely as drones or smartphones or pharmaceuticals. At the same time, many of the user agreements workers agree to lay out terms and conditions for how they are supposed to go about their job, and rating systems, data collection and other forms of monitoring help guide worker behaviour.
America’s various courts and government agencies use different criteria when deciding on the obligations these companies have towards their workers, which has led to a host of competing decisions. In California, a labour commission ruled that a ride-share driver was an employee, the Seattle City Council passed a bill allowing them to unionise and the Florida Department of Economic Opportunity found that drivers are independent contractors. A number of other regulatory appeals and lawsuits are still to be sorted out.
In Italy, some lawmakers proposed that car-hailing apps act like temporary work agencies and should be classified accordingly. In Belgium, government analysis found drivers should be considered self-employed, independent contractors. In a lawsuit, British Uber drivers are requesting they be described as ‘workers’, an employment status that would give them rights such as the minimum wage and paid holiday. Other European nations are still considering the question, while the European Court of Justice is expected to issue a ruling on what type of service Uber provides – software or transportation.
These matters remain unsettled in part because gig economy firms have expanded so quickly and aggressively. That has, in turn, earned them a lot of press and some impressive economies of scale, as well as forced shutdowns, costly tussles with government agencies and public discontent in some countries. For example, in Germany, companies are expected to conduct themselves with more modesty (and legal rectitude) than you often observe in Silicon Valley start-ups flush with venture-capital cash and libertarian rhetoric about changing the world. And in the long term, as contingent labour relationships increasingly become the norm, workers can be expected to lobby for more rights, including more control over the terms of their employment. As gig economy companies grow, they can expect their legal budgets to do the same.
The on-demand economy long predates the current wave of enthusiasm for start-ups like Uber. Over the last few decades, the rise of telecommuting, advances in communication technologies and the decline of lifetime employment have combined to make workers more mobile and less likely to stick with one job long term. The economic crises of the last 10 years saw millions of workers lose their jobs worldwide, many of whom never returned to full-time work, swelling the ranks of the un- and under-employed. Economists and social commentators now speak of a state of ‘precarity’, defined by periodic crisis, unstable job markets and growing income inequality.
Meanwhile, wages have stagnated and, as urban neighbourhoods in major metropolises undergo renewal, locals find themselves priced out, forced to move to cheaper areas or new cities. Smartphones, digital platforms and other mobile technologies offer new income streams that appeal to unsettled urbanites or the precariously employed. The result is most evident in cities like San Francisco, New York and London, where high-paying industries – such as technology, finance and law – attract well-heeled professionals who work long hours and hire locals through smartphone apps and web platforms to drive them around, deliver meals and take care of their pets.
Over all of this looms the spectre of automation, with advances in robotics and software expected to add to an already insecure labour market. A recent report from Deloitte found that 35 per cent of existing UK jobs are “at high risk of replacement” over the next two decades. A similar report estimated that half of all jobs in Switzerland might be automated. That includes obvious targets like transportation (Apple, Google and Mercedes are just three of the many companies working on self-driving cars), medicine, education and other forms of ‘knowledge work’.
The gig economy is both a product of changing labour conditions and an indication of where the larger economy may be headed: while workers – in some sectors at least – increasingly become free agents pulling down cheques from multiple employers, in the aftermath of the global financial crisis, businesses find themselves pressured to trim costs and keep cash on hand. In the US alone, reports the New York Times, corporations are collectively sitting on $1.9trn.
Enter online talent platforms, which promise to reduce some of the friction between, say, a medium-sized business trying to find someone to redesign a logo and a graphic designer looking for a new gig. The possibility of tapping talent on-demand is alluring. Organisations are considering new ways of doing business, using online platforms such as the Upwork network of freelancers as virtual hiring halls, scaling up and down for projects as needed.
According to a recent McKinsey report, Connecting talent with opportunity in the digital age, online talent platforms, including websites like Monster.com and LinkedIn, as well as the gig economy, could generate significant benefits for economies and for individuals. Realising that potential, the authors concede, will require improvements to broadband access, updated labour market regulations and clearer data-ownership and privacy rules. But the prospective benefits are significant: $2.7trn, or 2 per cent, could be added to global GDP by 2025, while 72 million full-time-equivalent positions could be created – with countries such as Greece, Spain and South Africa, where there is persistently high unemployment, having the most to gain.
“The globalisation of talent and technology frees up companies to experiment with new ways of filling critical skills gaps while staying lean. We call this phenomenon agile talent,” say Jon Younger, managing partner of the Agile Talent Collaborative, and Norm Smallwood, co-founder of The RBL Group, in a recent Harvard Business Review article.
Currently, few companies are shifting to agile talent as a total workforce strategy, but more than half of the line managers and HR executives who took part in a series of workshops described their organisations as moving toward employing agile talent to extend their capabilities in fast-moving strategic areas – the authors citing “Apple in design, Rolls-Royce Aerospace in engineering and Workday in system implementation”.
But if the cloud resourcing model is to truly scale, governments, businesses and workers need to rethink their relationships with one another. The question remains whether the industry can adapt the Uber model to more specialised, and higher-paying, fields such as consulting, engineering, IT and design.
Consider the so-far unrealised promise of platforms for lawyers, consultants, programmers and other highly skilled professions. Many such platforms do exist, such as the UK’s MBA & Company, a provider of on-demand consultants, and TopCoder or Tongal, which allow companies to post software and creative challenges, respectively, with payment for ‘winning’ ideas and solutions. Even the venerable law firm is facing disruption. UpCounsel, the on-demand legal company based in the US, has thousands of lawyers, while Axiom, which bills itself as a provider of “tech-enabled legal services”, has raised tens of millions of dollars in venture-capital funding and has lawyers on call in North America, Europe and Asia. But largely the success of the firms most identified with the gig economy has not been widely replicated.
There are reasons for that. Many of the industry’s forerunners were premised on monetising things that many people have access to – cars, homes, smartphones, basic computer skills or the ability to do manual labour. As Will Attwood-Charles, a PhD candidate and researcher at Boston College, points out, with “a lot of the platforms that have been successful, it’s sort of the low-hanging fruit”.
Compared to drivers and people with spare rooms, solicitors, doctors and consultants make for a scarcer, and more picked over, labour force. Professionals often require extensive education and training and credentials from a board or trade organisation. In terms of liability, they may be better off sticking with a larger employer who can provide insurance and legal services, rather than going it alone. And professionals who find themselves in demand may – for the time being – be able to secure higher pay, along with health and retirement benefits, by forming an exclusive relationship with one employer.
The dilemma for business is perhaps more complex. Companies have long subcontracted work, used temporary employees, made deals with outside suppliers and so on. “Most large organisations use a variety of strategies for sourcing labour,” says Mark Beatson, chief economist at the CIPD. Turning to work platforms to find someone to review a contract or consult on a project may simply be a digital-age twist on long-standing practices. But shifting towards these labour sources requires new procurement and subcontracting procedures. It means scaling up and down in a more frenetic way than many companies are used to. It might mean hiring new staff whose purview is to manage platform workers – invoicing, communication, assigning tasks, apportioning projects and smaller jobs across various sites, apps and cloud-based services.
Efficiencies may be gained, but it still represents a hectic, multi-channel workflow that employers would need to adapt to. And there are new concerns about liability, reputation and how such platforms collect tax, if at all. “What I haven’t seen is much evidence of how larger firms are using [platforms] themselves,” says Beatson. “They come with a degree of commercial risk to the business.” Quality issues might also become more of an impediment, he adds, questioning whether organisations are “ready to rely on advice provided in that sort of way, when perhaps it will be difficult to trace who has done the work”.
Attwood-Charles adds: “In economics, this is the old transaction cost problem.” Economists studying how companies do business have asked: ‘Why don’t we just put everything up on a market? Why isn’t every interaction a single-time contract?’ The answer, Attwood-Charles explains, “is because of the cost of search. Going to the market every time is costly.”
Some organisations also find hiring workers on a full-time basis yields rewards that can’t be replicated through outsourcing or platform work. When workers become employees, it’s harder for them to flee to a competitor and they’re likely to be more invested in the company’s mission. MyClean, a cleaning service based in New York, started with independent contractors and later made them employees. According to the CEO, the result was better customer reviews, as well as more control over staff.
That doesn’t mean that all this couldn’t change. And who’s to say businesses won’t try to overcome the hurdles by setting up their own platforms? Why can’t existing organisations develop employment platforms? If gig economy companies simply provide digital infrastructure – software – for facilitating connections between employers and workers, couldn’t others do the same? Why should venture capitalists in San Francisco earn 20 per cent of a fee earned by someone in Bangalore writing code for a web design firm in Brazil?
Scholars, small business owners and political leaders have begun asking these questions and working towards some novel solutions. A group of taxi companies in Vancouver have banded together to set up their own hailing app. Similar initiatives have been launched by municipal regulators and taxi commissions. Trebor Scholz, a professor who studies digital labour at The New School in New York City, sees a potential resurgence of worker cooperatives. In a recent paper, he pointed to efforts like Stocksy, a stock photo website owned by photographers, Resonate, a streaming music service owned by users, and Robin Hood Minor Asset Management, a British co-op hedge fund.
This kind of arrangement has deep roots – unlike lawyers, the vast majority of practising barristers in England and Wales are self-employed, for instance – but that doesn’t mean it isn’t ripe for innovation. Trade associations, guilds, licensing organisations or simply a group of like-minded video-game designers might create a platform that provides profit-sharing or shared services. They might even build their own platforms using programmers and designers they find on sites like Upwork or Guru. An electronics company might create a digital platform to manage outside vendors and solicit bids from new suppliers.
There are already notable examples, such as Euro Freelancers, which operates a freelance marketplace for independent EU affairs funding consultants and investors. Euro Freelancers also demonstrates some of the differences between lower-paying platforms and more professional gig work. The group screens potential consultants and plays a role in matchmaking employers, workers and projects. (That said, even firms like Handy, which provides workers to help around the house, only allows about 3 per cent of applicants through its screening process.)
FairCrowdWork.org, a website developed by the German union IG Metall, represents another possibility of what platform labour might bring. It provides ratings and reviews of crowd-working sites and assesses their terms of service agreements – the closest thing to an employment contract in these relationships. The site also offers legal and payment advice.
Efforts like FairCrowdWork may benefit employers as well. Reputation works both ways – companies that distinguish themselves with prompt payments and higher wages are more popular with workers. A study from the Institute for the Study of Labor (IZA) examined the use of Turkopticon, a reporting tool popular with users of Mechanical Turk, and found that “good-reputation employers attract work of the same quality, but at twice the rate as bad-reputation employers”. On some existing gig economy platforms, workers often don’t know anything about the company they’re contributing work to. But information sharing and employer rating help distinguish good from bad. As the IZA report suggests: “This should enable companies with better reputations to operate at a faster pace, a larger scale, or to be more selective in hiring.”
How prevalent the gig economy will become remains to be seen. Beatson sounds a note of caution: “Just because you can see the opportunity for a change in business model or change in technology… doesn’t necessarily mean it will happen. And the timescale will be quite variable.” But the potential is there and past experience has shown that disruption can come quickly and unexpectedly. Whether it is harnessed will depend on the willingness of companies and workers to adapt to changing labour conditions and new technologies. It will also require the cooperation of policymakers who often see the gig economy as an obstruction, rather than a potentially important new way of doing business.
Maybe, as John Boudreau, research director at USC’s Marshall School of Business and Center for Effective Organizations, believes, it’s time to move the debate beyond whether a worker is an employee or a contractor. “We should be talking about ‘good work’ not about ‘good jobs’,” he writes in the Harvard Business Review. “Replacing the idea of ‘good jobs’ with the idea of ‘good work’ doesn’t diminish the value and importance of regular full-time employment, but it places it in a context that acknowledges emerging work options – and it holds those new options to a higher standard.”
Words: Jacob Silverman
This article first appeared in the Spring 2016 edition of Work., the magazine for senior members of the CIPD
