Fixing the Unintended Consequences of the Gig Economy

In November, I wrote about the challenges of online platform economies like YouTube, Shopify, and Airbnb, which share characteristics that demonstrate weaknesses in their economic dynamics.

In our research to better understand these problems, what stood out most to us was the impact these challenges have on the people who work in the gig economy. These are the online platforms used to coordinate labor in a new way — think Lyft, TaskRabbit, Upwork, etc.

Within these markets, these platforms innovate by connecting the supply of labor to the demand for specific skills. This trend has created incredible opportunities for workers around the world to find flexible income and work, either as an outright replacement of traditional full-time employment or as an additional income stream that supplements their primary work.

Commoditizing Human Talent

In most online platforms, we see the commoditization of goods and services as a net positive that drives global economic value. But although economic value creation occurs in gig labor markets, the impact of the commoditization of human talent has not yet been fully appreciated. As these markets become more efficient, there is a downward pressure on wages for the workers trying to earn a living from these platforms. As a result, many gig workers face considerable income insecurity.

If commoditization of labor is an unintended consequence, how did this happen?

The Labor Disconnect

New technologies like AI and automation have driven changes in the way people work, resulting in more specialization, subcontracting and outsourcing. This trend has been particularly prevalent in consumer services as a result of modern online marketplaces and mobile apps, resulting in the emergence of companies like Uber, DoorDash, Foodora and their peers — the gig economy. As a result, companies can easily access labor without needing to hire employees, allowing them to price services significantly less than traditional competitors.

For merchants and consumers, there isn’t much downside here. Pizza parlors don’t need their own fleet of delivery drivers; customers can find a plumber on an hour’s notice; and taxis are no longer the only way to get around a city on demand.

For the people doing this work, however, the picture is not always as positive. Because these platform companies have achieved large-scale global traction, collectively operating markets for hundreds of millions of workers, workers have been disconnected from the benefits that typically come from employment. This is particularly true in labor markets that depend on relatively commoditized roles like delivery drivers and bike messengers, but is also increasingly affecting labor markets that rely on knowledge work, such as design or copywriting. For example, with relatively little friction, I can hire a designer via Fiverr from the other side of the globe, and have them work in tandem with my copywriting agency to produce an infographic together. But how much will that designer receive in compensation? And what percentage of their compensation will they receive as income, after work-related expenses are paid (fees to access the platform, commissions paid to an agency, etc.)?

The Gig Worker

The gig economy doesn’t function without people willing to do the work. These gig workers include many different demographic groups — single parents earning supplemental income, new immigrants, students, even retirees looking to supplement their pensions — and they span a wide range of ages and ethnicities. What they all have in common is that they are mostly left to fend for themselves for anything beyond their basic pay. Gig workers are generally less able to access credit, are unable to carry their work profile and reputation with them when they leave a market and are not typically protected by workplace insurance or health benefits. They don’t receive employment perks, nor are they supported in career growth and personal goals.

Legislative Response

In response to these challenges, legislators have started to act, with the most active work being done in California under a newly passed legislation known as AB5.

This recent article in The Tyee summarizes it as follows: “The law included a clear and strict definition of contractors. Those workers have to be free from “direction and control” in doing their jobs. They have to be doing something “outside the usual course of business of the employer.”…And they have to be contributing some specialized skills, like a trade or profession.”

Essentially, the intended outcome of these laws is to require large gig economy companies to start treating these workers as employees. And although I don’t doubt the positive intent behind legislative efforts like AB5, it doesn’t fully consider the economics of these markets, and it proposes solutions that are overly simplistic and unlikely to solve the problem.

Do the benefits of flexible work outweigh the downsides? We’re building solutions that will address these gaps.

Solutions Rooted in Technology

Our work at The OAN proposes a solution rooted in technology, whereby workers can create digital profiles independent of any one market operator (e.g., Uber). Using these profiles, workers can view the sum of their work effort over time and across various markets, effectively giving them ownership over their established work experience, reputations, and earning history. Using these profiles, we’re developing methods to provide products to these workers to satisfy the gaps that are left unaddressed, with an initial focus on access to small amounts of credit.

Over time we see a future state where gig workers are provided with access to all of the various advantages of traditional employment, with the added benefits of flexibility and autonomy — all with a view towards helping these workers grow in their gig careers and establish more stability, earning capacity, and personal fulfillment.

A solution to the unintended consequences of the gig economy needs to be built on an Open Application Network.