The sharing economy must share the risks
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This has been the year of Uber. “Everyone is starting to worry about being Ubered,” Maurice Lévy, chief executive of advertising group Publicis, told the Financial Times this week. The sharing economy in which online platforms co-ordinate hundreds of thousands of freelancers to drive cabs, rent rooms (Airbnb), clean laundry (Washio) and perform other services has arrived.
As companies recognise the threat, governments and regulators are struggling to adjust and consumers are unsure whether to trust the new type of business. The greatest uncertainty, however, faces workers. As self-employment, start-ups and one-person “micro-businesses” comprise a larger share of the workforce, workers are becoming more free and more at risk.
Instead of working nine-to-five on long-term contracts, with benefits such as training, pensions and healthcare, they employ themselves. Full-timers moonlight, part-timers drive cabs for cash on the side, managers leave jobs to become consultants, people juggle skills.
Many enjoy the challenge but few are secure. Meanwhile, we are stuck with 20th-century arrangements for providing work benefits and insurance — one of the hallmarks of the advanced industrial society — that do not fit the 21st-century worker. We urgently need to find new methods that do not attach all of these perks to direct employment and leave people who want to work differently out in the cold.
Some of this falls to governments and some to new kinds of mutual organisation, like 19th-century co-operatives. It also requires platforms such as Uber to take greater responsibility for the quasi-employees they keep at a distance in order to minimise their liabilities and costs. The alternative is a highly fragmented and insecure workforce that cannot support itself.
“Steady incomes and a social safety net are characteristics of a healthy economy which has moved past simply getting people to work for a living to creating a higher quality of existence,” says Arun Sundararajan, a professor at New York University’s Stern School. “I worry that this could slip away.”
The sharing economy is not solely responsible. It is the latest of a series of changes in technology, regulation and economics that have created a new employment paradigm. They have been in progress for decades but are getting a boost from the internet.
The Freelancers Union, a New York-based group, estimates that 53m people do at least some freelance work in the US — a third of the workforce. That includes 21m contractors, such as drivers and construction workers, and 14.3m who moonlight from full-time jobs. A third of the latter have considered going wholly self-employed.
The trend is similar in the UK. Of the 1.1m rise in employment between 2008 and the second quarter of this year, 732,000 were self-employed. A study by the RSA Action and Research Centre, a think-tank based in London, found that 600,000 micro-businesses (of up to nine employees) were founded in that period and 95 per cent of those set up in the past decade are one-person outfits.
This is often portrayed by unions as a triumph of capital over labour but it has benefits for workers. Many want to escape office drudgery and gain independence — the self-employed often report being happier than the directly employed. The sharpest recent growth in UK self-employment has emerged not among low-paid contract workers but senior managers and directors.
But the growth of the freelance economy brings two challenges.
First, some freelance jobs are really cheap forms of direct employment. Companies call workers “independent contractor” to avoid paying employment taxes and indirect benefits while treating them as employees — they must wear uniforms, obey rules and so on. Many are low-paid workers, such as delivery drivers or warehouse stackers.
This is legally dubious, since many countries impose laws against sham self-employment. In August, the US Appeals Court ruled against FedEx for classifying delivery drivers in California as contractors when they were in effect direct employees. One judge quoted Abraham Lincoln’s quip that calling a dog’s tail a leg does not turn the animal into a five-legged dog.
Many sharing-economy companies, including Uber, classify the providers of their services as contractors and insist on them, for example, driving their own cars. Some Uber drivers in the US have mounted a legal challenge but the sharing economy is too new for the principle to have been tested.
Second, even if workers are self-employed, the company or platform that routes work and orders to them could choose to offer more than the minimum benefits. Employers traditionally provide health and pension plans, as well as training, to create a productive, reliable workforce. It is more expensive but, if it pays off in the standard of service they offer, then it will help them to beat lower-quality competitors.
If companies abdicate the role, then society needs to devise other ways to offer long-term support and security to the self-employed, as the Freelancers Union and others have been attempting to do. Long-term changes are needed to support freelancers to work in the way they prefer, rather than forcing them into direct employment because it is the only way to feel safe.