Recent events have cast doubt on the long-term viability of the so-called ‘gig economy’ model of work, but a much larger proportion of the UK workforce than is often realised experience some kind of contingent arrangement. In a new policy brief, Abi Adams-Prassl, Jeremias Adams-Prassl and Diane Coyle set out the wide-ranging requirements needed to combine flexibility of work for those who want it with a productive economy.
In February this year, the UK Supreme Court concluded that a group of Uber drivers were not self-employed, as the company had claimed, but rather had ‘worker’ status that entitles them to the minimum wage and holiday pay. This was the latest in a series of legal decisions in the UK and elsewhere posing a challenge to the digital platform business model. It was followed in March by Deliveroo’s flotation on the UK stock market, considered to be a disappointing launch because some major institutional investors had decided to opt out of buying shares. They cited concern about long-term prospects for the company’s similar business model.
These events in the UK have echoes in many other countries. Concerns about the gig employment model have focused on digital platforms such as Uber and Deliveroo, but the model is far more prevalent. There are no systematic figures on the number of people experiencing this kind of contingent arrangement, as official surveys do not ask the question that matters for the courts: to what extent does an individual have control over their working pattern? But looking at the available evidence covering zero-hours contracts, solo self employment, and questions about whether workers can control their hours, we estimate that about a quarter of the UK workforce is affected. For example, as well as mini-cab drivers and couriers, many people working in hairdressers, gyms, hospitality, retail and social care have to accept such arrangements.
The Uber judgment focuses attention on those at the margin of self-employment who lack control over the basic terms of their product offering and customer base. It has long been recognised that the self-employed are an exceptionally diverse group and that particular care should be taken to distinguish between “opportunity” and “necessity” entrepreneurship: those actively choosing self-employment to take advantage of a business opportunity or to take advantage of the flexibility it affords, have higher life satisfaction and more stable economic outcomes than those who are forced into self-employment because of a lack of better options. On balance, the available evidence suggests many gig economy workers do not have better choices available.
A flexible labour market does have advantages – when it is two-sided flexibility, and the individual can exercise control over their working times. The current system of one-sided flexibility, for the platform or the employer, means that considerable economic risk has been shifted to individuals far less well able to bear it. This has adverse broader economic effects, reducing productivity and putting additional strain on the social safety net when individuals run into hard times.
The policy implications of the successive court judgments and doubts about the gig employment model are therefore wide-ranging. The group of people affected is quite varied, and some appreciate the flexibility. However, for a large number of people, their incomes are low and precarious; they have no incentive or ability to invest in either additional training or equipment (thus reducing the economy’s productivity overall); they are not auto-enrolled in pensions and have little ability to save for hard times or retirement and will be more likely to need benefits or experience poverty.
In addition, as individuals they are generally not liable to pay taxes such as VAT or corporation tax as they earn less than the thresholds, so the model reduces the UK’s tax base. There are implications for competition policy too: there is growing concern about big platforms’ or gig employers’ ‘monopsony’ power in local labour markets – that is, the extent to which they are the only work option available to many people.
Concern about the spread of contingent employment arrangements is not new. The UK Government in 2017 (under Theresa May) commissioned the Taylor Review which recommended a range of policy changes. These have not yet been implemented. But change is needed. At a minimum existing labour law needs to be enforced – groups of individuals should not have to go to court for the law to be observed. Policymakers need to consider the implications, however, for the tax base, and for skills and productivity. If major investors can see the gig model is unsustainable, it is time to think about the wider policy framework.
Read policy brief: Uber and beyond: Policy implications for the UK
The views and opinions expressed in this post are those of the author(s).