Freelancers in Germany: Why Global Gig Economy Platforms Find It So Hard to Succeed
Much of the discussion about freelancing and the future of work has been focused on the USA. Yet the state of work relations and conditions varies a lot from one country to the next, depending on culture, legislation, history and economy. This is the first article of a series about working in the gig economy in major European countries.
Freelancing is as much a growing trend in Germany as anywhere else in the world. Indeed the number of independent workers has increased steadily over the past twenty years in Germany, from half a million people in 1992 to nearly 1.3 million today, in a population that has grown very little.
In a country that traditionally had strong unions and a strong working class with strong purchasing power, the Freiberufler (independent workers) used to be mostly rich and highly qualified (doctors, dentists, architects, pharmacists…). But like in the rest of Europe, the development of digital platforms and the crisis of salaried work in traditional corporations have produced a whole new class of digital-age freelancers. Despite this common trend, giant US work platforms like Uber are not very successful in Germany. Germans have often developed their own services and platforms that the rest of the world knows nothing about.
Over the past decades outsourcing has been a steady trend in Germany, and freelancing is on the rise.
There have never been so many independent workers in Germany, according to a recent report from the German government: 1.23 million in 2013, 90% of whom make a decent living. The IAB, the Institute for Job Market and Research (Institut for Arbeitsmarkt -und Berufsforschung) found that Germans under 30 used to stay an average 814 days with the same employer in the 1980s, and only 536 days today. The Institute points to both strong economic trends and a growing frustration with traditional employment.
German companies use more freelancers to lower their costs and remain competitive in an increasingly globalized economy, as the cost of traditional long-term full-time employees remains high.
The German job market is increasingly polarized between well-protected high-waged insiders and under-paid low-qualified outsiders, most of whom have jobs that are largely subsidized. On the one hand, strong unions have protected their workers better than in neighbouring countries and industry workers remain better paid than in France, for example. On the other hand, there is a growing class of unprotected outsiders. When Chancellor Gerhard Schröder passed the so-called ‘Hartz laws’ in the early 2000s to make the German work force both cheaper and more flexible, he really polarized the market between protected insiders and “€400-workers” (mostly women) whose part-time jobs are largely subsidized by the state and who contributed to the creation of a new class of working poor in Germany. The polarization of workers contributed significantly to the rise of freelancing. When you make only 400 euros a month, how risky can it be to switch to a new model and become a gig worker?
The cultural evolutions driven by 30 and 40-year-olds also explain part the change. There is more frustration over traditional 9 to 5 jobs, which are often regarded as alienating whereas the possibility of choosing one’s own projects is seen as more fulfilling.
Parenthood (or rather motherhood, but that’s another subject) is a job in Germany. Compared to countries such as France, relatively few couples with children under 6 would choose to have both parents work full-time in traditional jobs. (See this interesting French-German comparison of employment of Mothers After Childbirth). Even though Chancellor Angela Merkel recently made childcare universally accessible to all, many German couples would still choose to have one parent (the mother) dedicate a lot of her time to raising the children (often just the one child). Freelancing is therefore an appealing part-time solution for parents (mothers) who don’t want to be stuck in rigid full-time jobs.
Germans value their free time and believe there is more to life than work. Is there another people on the planet that takes care of homes and cars as well and as much as the Germans do? Clichés aside, Germans — the young generation in particular — aim at finding a healthy work-life balance.
Industry jobs have so far been quite safe, with healthy exports driven by competitive brands. But the Volkswagen scandal could be the beginning of a larger industrial crisis. The reputational damage to the carmaker as well as the country’s “made in Germany” badge of manufacturing excellence is still hard to measure. There could be massive layoffs in the automobile industry in the near future. That crisis may further accelerate the growth of the gig economy.
Further outsourcing is to be expected, which will translate to new opportunities for global work platforms. Increasingly freelancers are also poorer workers in Germany. So numerous articles in the German press express the fear that the digital transition comes with the rise of “digital sweatshops” that can jeopardize the German model. Unions castigate the international competition from a new class of cheap flexible digital nomads. “The whole world is competition” was the title of a Zeit article last year. Ver.di (Vereinte Diesnleistungsgewershaft, the ‘United Services Union’), Germany’s second largest union after IG Metall (the industrial union), is the world’s largest union in services, with some 2.1 million members. It campaigns relentlessly against the large global platforms. Good working conditions, they say, are being “cannibalized” by the internet. “The abundance of the internet workforce is costing us jobs”, they complain. Their complaint is evidence of a growing recognition of the phenomenon.
Corporatism, regulation and culture have made life very hard for US platforms such as Uber.
Uber has had many problems with local governments in Germany. In fact, Uber’s operations in Germany can be said to have largely failed, in spite of the millions of dollars spent in lobbying and advertising. Perhaps the recent resignation of Uber’s top lobbyist, Mark MacGann, can be largely accounted for by this failure. His chief argument that Uber is a tech company and not a taxi firm (and therefore shouldn’t be subject to the same rules) has not worked. Taxi Deutschland, the cooperative of taxi companies that had UberPop banned in Germany, has won the last battles.
A tightly regulated transportation market has effectively set the bar too high for new entrants. Uber drivers are not allowed to accept a new ride as long as they haven’t gone back to their base, so the cars are empty much more often (which makes being a Uber driver a lot less lucrative). Drivers must have a special license for commercial passenger transportation and abide by a set fare structure.
Uber has now pulled out of Hamburg, Frankfurt and Düsseldorf (three of Germany’s biggest and richest areas), leaving active operations only in Berlin and Munich… because it can’t get enough drivers! Uber’s business model is an unattractive option for licensed taxi drivers in Germany, because the 20% fee that Uber charges is heavy compared to the 5% (on average) that radio taxi companies charge licensed drivers. The company wrote that it had found the “local conditions difficult to build a reliable switching platform for car rental companies”.
Taxi Deutschland’s chairman Dieter Schlenker said:
“The German society values consumer protection, safety and training. Uber interprets this as ‘difficult market conditions’. But as a matter of fact, these conditions apply to every company in Germany, radio taxis and taxi drivers operate accordingly. Uber still has hardly any drivers. The reason is obvious: Taxi drivers are working more economical and efficient when driving for radio taxis. They get more passengers through radio taxi companies and better conditions. Traditional radio taxi companies are organised in the form of cooperatives. Thus, the economic support of the many self employed taxi companies is their primary concern, contrary to Uber and other internet taxi platforms whose purpose is to be profitable.” “Building a legal taxi service is no Silicon Valley business model that can be instated in a rush. And the illegal business model Uberpop — which compromises safety and consumer protection — is already banned in Germany”.
German startups have also been quick to develop fairly decent apps that make Uber less life-saving for users. Mytaxi was developed as early as in 2010 by a Hamburg startup called Intelligent Apps. Its founders Niclaus Mewes and Sven Külper had the idea during a visit in Munich. They thought the app should not be tied to one taxi company but open to all taxi drivers. Each driver can download the app and register. The app started in Hamburg, Cologne/ Bonn and then Berlin. Since then it has been introduced in 40 German cities and also abroad, in Vienna, Zürich, Warsaw, Madrid and Barcelona… As early as in 2012 it had already been downloaded 1.7 million times.
Uber now only has operations in Berlin and Munich. Taxi Deutschland explains Uber’s continued presence in Munich as the result of a higher proportion of international customers in the city driving more demand for the Uber app. In Berlin, the cooperative points out that the city does not have a limit on the number of licensed taxis that can operate, supporting more drivers and competition, unlike in other German cities which have stricter limits.
But Uber’s failure is not the only story. When you visit Germany you are constantly amazed by the number of locally famous apps and services that you’ve never heard of elsewhere. There could be Germany’s best kept secret. The whole world believes this highly solvent market can easily be conquered because everybody speaks English and because it’s so culturally close (to the USA). But the truth is Germans like German services. Don’t forget that all US films are dubbed in German, contrary to the situation in the Netherlands for instance, because many more people speak German than speak Dutch (so the cost of dubbing the film is more easily recouped). As a result, Germans are less familiar with the English language. Furthermore, the German-speaking market (Germany, Austria and parts of Switzerland) is large enough — some 100 million solvent and qualified people — to make it worthwhile for German businesses to develop their own services.
Xing, for example, is bigger than LinkedIn in Germany. The professional social network has about 10 million members in Germany, and more in the rest of the German-speaking market. It is very popular with freelancers in Germany. Xing is now one of the biggest non-US social networks. The company, founded in Hamburg about ten years ago, has close to 1,000 employees and is generally regarded as one of Germany’s biggest success stories of the digital age. And yet, it is hardly known outside of the German-speaking market. Its features aren’t spectacular, but it lets its users choose their privacy settings in a more German-friendly way, for one thing. Xing is evidence that a US-centric approach doesn’t always work in Germany.
Last, but not least, the generous social model so valued by Germans still makes traditional employment considerably more attractive to Germans and could also slow down the growth of work platforms. Freie Mitarbeiter don’t have paid vacations or insured income in case of injury, for example. Healthcare is mandatory in Germany (freelancers can choose their insurance but have to be insured) but for other risks there is no mandate. When an independent worker works essentially for one employer, his/her status is closer to that of a regular employee, which is controversial because it lacks flexibility. The transformation of the German model to better take independent workers into account is widely discussed in Germany and could happen in the near future, but in the meantime, because social and insurance standards are high, traditional jobs will remain attractive because they’re bundled with insurance, pensions and paid holidays.
The relative failure of US platforms doesn’t mean freelancing won’t grow ever faster in Germany, at least for three more reasons.
Real estate is A LOT MORE affordable in Germany than in neighbouring countries, even though there are of course strong geographic differences. You can still afford housing in Berlin on a relatively low wage (compared to Hamburg), but if you’re a digital nomad and can work from home, you can find even much cheaper alternatives in the new Bundesländer (the 6 formerly East-German states added to the Union in 1990). For instance, there are many more apartments than inhabitants in cities like Dresden or Görlitz in the federal state of Saxony. You can literally buy a beautiful 4-room apartment for $40,000 or find something very decent to rent for $200/month. Hamburg, Munich of Frankfurt are much more expensive of course, but nothing compared to London or Paris. Also Germans largely prefer renting to owning, so they can move more easily. There is objectively less need for high and stable incomes to have access to housing, which makes the more unstable gig model more easily acceptable in Germany. It is no small difference with France, whose inhabitants have to pay a lot more for housing and whose real-estate market is very rigid.
The shortage of IT engineers (and all sorts of engineers) has made a large market for qualified freelancers more relevant. The market is more fluid and it has become easier for qualified engineers to work on the projects of their choosing and seek higher pay. Many IT engineers have chosen to become freelancers and hop from one job to the next for higher flexibility. Almost 100,000 IT specialists are independent workers today — plus 30% in 10 years. Some German platforms, like Twago, have specialized in connecting programmers and designers with the German corporate world. The dense network of big old corporations — large banks, insurance companies, industrial giants — that have legacy systems, data issues and a need for well-designed apps to better transition their business to the digital age, makes the shortage of IT workers all the more acute. As of today, close to 40,000 posts are vacant in the IT sector. A range of German crowdsourcing platforms are surfing on that ever expanding need by offering companies access to micro-jobbers. WorkHub is a relevant example, as is Testbirds, a startup from Munich that crowdsources app and code testing for companies. It offers German workers access to additional revenues. GULP is a more established German IT platform — founded nearly twenty years ago — with 90,000 IT engineers and over 1.7 million contracts to this date.
Finally, unemployment is low in Germany compared to other European countries. In the euro area, seasonally-adjusted unemployment rate was 10.8 % in September 2015. Among the member states, the lowest unemployment rate was recorded in Germany (below 5%). Even though the market is very polarized between the qualified and the less qualified, the unionized and the non-unionized, the West and the East of the country, on average, German qualified workers are a resource that is sufficiently rare for them to have considerably high negotiating power. For instance, Skjlls, a German startup that presents itself as a career platform, offers to compare income between freelancers and salaried workers based on skills, not job titles. They offer to give workers the tools to leverage their skills and demand higher pay when the market allows it. And studies show that qualified freelancers can indeed leverage their skills quite well.
There are many reasons why freelancing will continue to grow in Germany. Yet so far, US platforms have not found it easy to conquer the German market because local actors are stronger than in most other European countries.
I would be very interested in reading about your own experience of the gig economy in Germany. Please add a note or send me a message on Twitter. @Vitolae
Laetitia Vitaud with Switch Collective