The coming of the ‘gig economy’: a threat to European workers?

When a new kind of flexible job opportunities coming from the United States – gathered under the expression ‘gig economy’ – crossed the Atlantic Ocean to reach Europe, it almost seemed like EU member states were welcoming this new way of creating jobs. Nonetheless, companies such as Uber, Airbnb or Deliveroo, which actually comes from Great Britain, have had some unforeseen social externalities on the way some EU workers are being remunerated and protected, in the case of unexpected and unwanted sick leaves for instance. Broadly speaking, they have had the effect to somehow overhaul employment standards in the European Union for the many who work for these firms, especially by taking advantage of loopholes in EU countries’ work codes. As a consequence, there has been a realization from EU institutions and officials that individuals depending on the gig economy were not working in the same conditions as traditional, stably-employed workers. They are also not as well protected as these latter. But when looking at the economic outcomes generated by this kind of task-based economy, and the number of persons who actually choose to become freelancers and to sell their services from projects to projects without any safety net, it might appear that this model could eventually prevail, shattering down the old ways of employment.

Defining the gig economy: a more flexible economic model

At first, the term ‘gig’ was commonly used to refer to musicians who would play wherever they could, going from places to places to get paid for their performance. It was mainly used in the 1920s, to describe those musicians who did not have any stable employment. The expression ‘gig economy’ has now been defined in various ways and by different kinds of actor, from both the public and the private sector. Depending on where one is looking at, the gig economy represents either a promising economic model which would enable individuals to unleash their full potential and to be more creative as freelancers; or it is a temporary and unsuitable ideal which needs to be regulated by competent policymakers before too late. The gig economy has both advocates and detractors, who can point out several relevant factors explaining why they support or in the contrary resent this economic model.

On the one hand, proponents of the independent and targeted remunerated jobs that are created by companies such as Uber or Deliveroo stress the fact that in a clogged and slow-moving work market, people can actually get paid by fulfilling such tasks. Indeed, the whole idea behind the gig economy for its supporters is that individuals – who in this case work as freelancers and do not sign any stable contract of employment – can sell their work on a task to task base. For instance, in the case of Uber drivers, customers are using a mobile app whenever they need a ride. The closest Uber driver can answer the call, pick that person up and drop him or her off at the selected location. In other words, with the gig economy model, whenever there is demand for a specific good or service, someone can answer this demand with its own individual work, not a company. Firms developing their businesses in the gig economy and thriving thanks to it are typically here as intermediaries between the demand and the supply, but do not produce any physical goods or directly provide any services. They merely connect individuals with each other, the provider and the enquirer. They also do not possess the physical capital required to make the service or good available. Again, taking the example of Uber, the Silicon Valley-based firm does not possess any vehicles, even though they are considered as a transportation company. The different transportation means actually belong to the individuals using the digital platform provided by Uber, which simply helps demand meet supply. This simple model is, for the gig economy supporters, a very efficient one, as it allows freelancers to easily find tasks to fulfil, and of course get remunerated for their labour. For the Estonian Prime Minister Juri Ratas, who intervened on the topic at Tallinn during the EU summit on the digital economy, the flexible work force that gig economy workers represent allows for “billions of euros of economic growth, millions of new jobs, flexible working hours, and more balanced work and family life”.

On the other side of the spectrum, detractors of this economic paradigm do not share the same enthusiasm about the gig economy and the related firms that come to mind when pondering about it. In fact, they usually do not believe the small tasks offered by such economy provide sufficient pay for its freelance workers. This deprives them from having any safety net if no work is available at a given time, as they deeply rely on demand for earning a living. Closely related to the previous point, opponents to the gig economy also claim that these workers do not benefit from the same working conditions traditional employees do, especially when it comes to stopping working for unwanted reasons. If one takes the example of a Deliveroo rider who would break a foot while performing his or her task of delivering food from a given restaurant to a customer, it would appear that the time this person will take to fully recover from the injury will be time he or she will not be able to work. As the company considers this deliveryman or woman as a self-employed person – another term for freelancer – it will not provide any economic compensations while this person recovers. And since the total amount of money this individual is earning thanks to the deliveries might not be sufficient for putting much money aside – what we call the safety net – it might be hard to live without performing remunerated tasks, made available by the delivery company. Therefore, the main issue for opponents to the gig economy is related to the fact that the workers depending on it do not benefit from the same employment protections other, more traditional employees might enjoy.

The gig economy workers: framing the status of freelancers

At the centre of most debates related to the gig economy, there is a great salience given to the status of the freelance workers. They are indeed at the very heart of this economic model, as they are the ones to provide the in demand good or service, not the company. This kind of work has been defined by the consulting and advising agency McKinsey in its 2016 analysis on independent workers. In the report, McKinsey defines freelance workers and more generally independent work as having “three defining features: a high degree of autonomy; payment by task, assignment, or sales; and a short-term relationship between worker and client”. This definition, according to the consulting agency, “encompasses people who provide labor services as well as those who sell goods or rent assets”. Independent workers thus provide labour, sell goods and rent assets; but they also include freelancing accountants, web designers, scientists, or journalists, only to mention these professions. Therefore, the gig economy workers can be distinguished from full-time permanent workers by the three features highlighted in the report, and they are not only Uber drivers or Airbnb hosts: they can be almost anything, as long as they can be assimilated into the three criteria pinpointed by McKinsey.

As previously stated, self-employed people using the new ways of answering demands – such as Airbnb or eBay – are rather independent from any overarching traditional companies, setting rules and wages, taking place in offices and gathering capital. These individuals are only using the platforms that have been made available to them to sell their labour to others, consequently having a high level of autonomy, as they can choose which task they want to fulfil and at which time they want to do so. Moreover, as underlined in McKinsey’s report, each job they undertake or each good they sell – using the digital platforms mentioned above – brings gig economy workers an income, as they are remunerated after any job or sale they perform. Finally, freelancers indeed shortly get in touch with the people they serve through the service or the good they provide. Taking the example of an Airbnb host, the freelancer who puts his or her place at the disposal of someone else for a short period of time actually gets to meet their ‘customers’, and sometimes share the accommodation with them. Thus, there is a real human contact created between the supplier and the buyer, which usually cannot be found when it comes to huge firms producing a given good, pack it and sell it without having any interaction with its clients.

When taking into account these features for defining gig economy workers, it appears that a lot of working people could fit into these criteria, much more than government statistics might reveal. Indeed, statistics from the European Union depicting the economic state of the EU-15 – which represent the 15 biggest economies in the EU – shows that only about 11% of the working age population in these countries have had to go through independent work in their life. Whereas if the McKinsey definition is taken as a reference for analysing and tallying up independent workers, it turns out that 20 to 30 % of the working age population can be considered having already been part of the gig economy. Finally, if a deeper analysis is made considering the age groups of these workers, it appears that independent workers are primarily young individuals who usually have never had a permanent full-time job for more than 18 months, even though they have skills and education.

Now, when looking at the actual choice independent workers make when they work within the framework of the gig economy, it also seems that not all of them are undertaking short-term, targeted tasks or jobs because they willingly chose to do so. According to the same McKinsey report above-mentioned, “there are four key segments of independent workers: Thirty percent are ‘free agents’, who actively choose independent work and derive their primary income from it. Approximately 40 percent are ‘casual earners’, who use independent work for supplemental income and do so by choice. ‘Reluctants’, who make their primary living from independent work but would prefer traditional jobs, make up 14 percent. The ‘financially strapped’, who do supplemental independent work out of necessity, account for 16 percent”. When looking at this distribution, it appears that most of the gig workers are in fact making a rational choice and eventually willingly decide to work as freelancers. According to the report, about 70% of freelancers have chosen to work this way, with 30% of them choosing to fully earn a living by doing so, and 40% as an additional source of income. This however leaves a proportion of about 30% of independent workers who would rather be in another professional situation, or cannot live without the income generated by the small jobs or sales they undertake.

The gig economy: a threat to the EU’s conventional working conditions?

The European Union has since its very genesis been an advocate of social rights and social protection for workers, no matter which kind of jobs they were performing, even though historically social matters were state-centred prerogatives. Still, in the past, some measures have been put forward at the EU level in an attempt to improve EU workers’ social conditions, such as the harmonization of social regulations and standards among EU countries, specifically focusing on health and safety at work, enhancing working conditions and equality in the workplace. These social measures are usually being gathered into the expression ‘Social Europe’, which represents the wish of the EU institutions to do more considering social rights and security EU-wise. The EU has known some successes and faced some failures in this policy area, but still strives to do more to reach a fully developed Social Europe, a European Union where economic liberalization would go alongside social rights protection. In the case of flexible workers and freelancers, the Union does not intend on letting this specific group of people undergo social inequalities without trying to improve their personal situations either.

The real issue the European Union expects to tackle in the context of freelance work is related to the social protection of gig economy workers. The European Commission especially seeks to give the same rights for both full-time, permanent workers as well as short-term, part-time ones, in order to erase social inequalities that might arise from social protection disparities between these two statuses. The Commission’s plan, entitled “the European Pillar of Social Rights”, hopes to realize exactly what has been previously stated: equal working conditions and social protection for every type of workers. The plan lays out 20 principles, distributed between three overarching categories, as follows: Chapter I: Equal opportunities and access to the labour market; Chapter II: Fair working conditions; and finally Chapter III: Social protection and inclusion. The second chapter is actually the one that is most interesting in terms of protecting gig economy workers, and giving them the same working conditions as more traditional employees. Under this theme, the Commission wrote the following statements about flexible and independent employment:

Regardless of the type and duration of the employment relationship, workers have the right to fair and equal treatment regarding working conditions, access to social protection and training. The transition towards open-ended forms of employment shall be fostered. In accordance with legislation and collective agreements, the necessary flexibility for employers to adapt swiftly to changes in the economic context shall be ensured.

Here, the Commission wanted to ensure that gig economy workers should indeed have access to the same rights as conventional permanent workers, even though they are not considered as employees by companies evolving in this kind of economy. Therefore, as being part of the 20 principles gathered in the Pillar of Social Rights, this initiative will be considered at the level of the EU, and the Commission’s proposals could lead to further social rights for these independent workers. It would also give more legitimacy to the European Union considering social issues, and could help the cause of a Social Europe. Later in this second chapter, the Commission adds that:

Innovative forms of work that ensure quality working conditions shall be fostered. Entrepreneurship and self-employment shall be encouraged. Occupational mobility shall be facilitated. Employment relationships that lead to precarious working conditions shall be prevented, including by prohibiting abuse of atypical contracts. Any probation period should be of reasonable duration.

When the gig economy started to gain ground in Europe a few years ago, the European Union had actually been criticized for wanting to hamper the advent of gig economy firms such as Uber, Deliveroo or Airbnb. By stating this, the Commission wanted to reaffirm its support to any means available – gig economy comprised – for creating new job opportunities for European workers, as long as it does not negatively impact self-employed individuals. Therefore, the aim of the Commission is to regulate this rising economic model, because it believes that if it does not try to set some ground rules, freelancers will suffer the consequences of not having equal social rights with more traditional workers. However, regulating companies thriving thanks to self-employed workers – also referred to as contractors – means hindering the very reasons why these firms developed in the first place: being flexible and not having to worry about the contractors’ working conditions.

The EU, the gig economy and social inequalities: toward more regulations?

To counter the negative social externalities stemming from the gig economy model that have been highlighted throughout this paper, the EU and more precisely the European Commission seeks to institute more rules and regulations surrounding gig economy firms. Furthermore, not only the EU but its member states have acted against the harm freelancers depending on these companies might undergo because of the lack of social protections. Countries such as the UK or France have indeed started to condemn the aggressive cost-cutting and expansion tactics Uber and Deliveroo-like firms have always used as a business model. For instance, the UK and especially the City of London have condemned – through the traditional judicial system – the firm Uber for not recognizing some of its drivers as employees, and forced the US-based enterprise to do so. The firm appealed the ruling, but if the judges’ decision holds, it would mean that these newly recognized ‘employees’ would benefit from the same social protections and working conditions any employee from more conventional businesses already enjoy. In the ruling, the judges justified their verdict by saying that: “The notion that Uber in London is a mosaic of 30,000 small businesses linked by a common ‘platform’ is to our minds faintly ridiculous”. “Drivers do not and cannot negotiate with passengers”, the judges added. “They are offered and accept trips strictly on Uber’s terms”. By stating this in their legal decision, these UK judges considered that as Uber drivers follow rules and apply prices that are being set up by the company and not directly by them, they cannot be only viewed as freelance workers. They are therefore entitled to the same social benefits any employee should be entitled to. If the ruling is upheld, it could create a precedent for future rulings against gig economy companies, not only Uber.

Even though it might appear like a victory for gig economy workers, the fact that courts are starting to condemn these businesses at both the EU and national levels could also turn out to be counterproductive. Similarly, if the EU Commission wishes to more deeply regulate gig economy firms, it could lead to the end of this business model as we know it, and therefore to the end of all the job opportunities it has been able to generate. In fact, by trying to create a legal framework around these firms, which would be similar to the regulations that are currently in place for more traditional businesses, the EU could alter the very nature of the gig economy, and threaten it. The increasing of social protections for freelancers and contractors working within this kind of economy would have a negative impact on the millions of jobs that have been caused by it, as it would also mean an increase of costs for gig economy companies. As a consequence, they could no longer be as flexible as they currently are, and the people depending on them would be the first ones to take the hit, as they would most likely stop having as much small jobs and tasks to fulfil. Firms such as Uber, Deliveroo or Airbnb would become more traditional in the way businesses are usually run, and could no longer rely on as much freelancers as they do now, because of the increasing of costs stemming from more social protection.

In this setting, the EU as well as national governments will have to make a tremendous choice, or strive to find a balance between too much regulations and too few social protections for gig economy workers.

Raphaël Moncada

For further information:

Bloomberg: https://www.bloomberg.com/view/articles/2017-01-19/europe-stands-up-for-gig-economy-workers

CEB Global: https://www.cebglobal.com/talentdaily/eu-commission-sets-sights-on-job-security-in-the-gig-economy/

Euractiv: http://www.euractiv.com/section/social-europe-jobs/opinion/how-the-gig-economy-is-changing-employment/

European Commission: ec.europa.eu/social/BlobServlet?docId=17614&langId=en

European Commission: http://ec.europa.eu/epsc/publications/strategic-notes/future-work_en

European Commission: https://ec.europa.eu/commission/priorities/deeper-and-fairer-economic-and-monetary-union/european-pillar-social-rights/european-pillar-social-rights-20-principles_en

European Commission: https://ec.europa.eu/info/sites/info/files/ip049_en.pdf

European Commission: https://publications.europa.eu/en/publication-detail/-/publication/2fb24306-afc1-11e7-837e-01aa75ed71a1/language-en/format-PDF/source-47204201

European Economists: https://european.economicblogs.org/voxeu/2016/mischke-exploding-myths-gig-economy

McKinsey: https://www.mckinsey.com/global-themes/employment-and-growth/Independent-work-Choice-necessity-and-the-gig-economy