The Gig Economy

The nature of paid work is changing. Part-time jobs are increasing and full time jobs are on the decline. Temporary jobs like driving for Uber or Lyft are becoming popular. In this blog we discuss what constitutes a gig economy. Left unregulated the gig economy would only increase the disparity between the haves and have-nots. We discuss some ideas that can help reduce the disparity

Characteristics of a Gig Economy

Part-time jobs are slowly replacing full time jobs (Australian Bureau of Statistics, 2017). Individual workers bidding for jobs in Uber, Lyft, Freelancer.com, and serviceseeking.com.au are becoming popular. In a recent Crossroads magazine article Paolo Pailigi and Xia Ma(2017) refer to this working arrangement as a “Gig Economy” which is characterised by trust and short duration.

Trust comes in two forms. Personal trust between the supplier and provider of a service as in a Uber driver and a customer trusting each other. Trust on a platform essentially means that providers and customers use a platform to co-ordinate their interaction and both trust the platform to create a temporary contract that the two parties tacitly agree to. It also refers to the fairness of the rating system, screening out malicious users, and the like.

Service providers in a gig economy have a short term commitment to the employer. This paradoxically is advantageous to the customer as the gig economy commoditizes the gig. More than one plumber may bid for a job thus reducing the cost to the customer.

Challenges

The authors argue that the challenge is not to convert short term gigs into a stable employment, but to work towards a regular stream of gigs. The gig economy is inevitable claim the authors. However left to itself markets will tend to exploit the vulnerable. Free markets would have 14-year olds working 12 hours in coal mines. Hence it is necessary for the state to intervene to distribute the fruits of the economy and its laboour more evenly. Pailigi and Ma suggest three things that workers in the gig economy be afforded:

  • Training
  • Benefits
  • Encourage free markets

Training

In all good organisations, every employee undergoes sometime in training usually amounting to at least a week or two of working hours. Policy makers can this kind of training mandatory for all the service providers in the gig economy. In addition it can regulate the training market and provide tax concessions for undergoing such training.

Benefits

Except in the US, in most developed countries basic health care is provided by the state. In the US, health insurance is often subsidised by the employer. In addition private organisations provide other benefits such as easier loans, tie ups with hotels and car rentals, subsidised private education for children, extended maternity and paternity leave and so on. The “lone ranger” in the gig economy has to pay full price for everything. This is where the state can intervene. They can create institutions or assist existing institutions like trade associations to help their members avail of such benefits.

Free Markets

The third suggestion is to stop protecting the interests of special interest groups. Here, in New South Wales, Australia, taxi industry forced the government to limit the number of taxi licenses. The medical, accounting and legal professions are also guilty of this type of behaviour where people from “outside” the system have a huge entry barrier to climb. Allowing a free market to operate will reduce the cost to the consumers and help the best in the trade to rise. The authors may need to be reminded that this is more easily than done. Vested interests control most aspects of policy making including major decisions like going to war.

Platforms

Given that the gig economy is inevitable, Paigiri and Ma make a few suggestions as to how to make it work effectively. They suggest the signalling theory frame work to deal with two types of signals. Assessment signals are those that reflect the quality of characteristics of the underlying service or product. Conventional signals on the other hand reflect the quality through conventional means such as promises and qualitative assessments.

Assessment signals take time to build while conventional signals are not quite reliable. The platforms used for the sharing economy should distinguish the two types of signals. The authors suggest that such platforms should hide bias and prejudice. Unfortunately that is a people problem that cannot be solved with technology unless the state intervenes.

Objections

The authors address two objections to their proposals namely: (a) the gig economy entrenches people in poorly paid jobs, (b) resulting in a large disparity between the gig economy and the conventional economy of stable employment. They point to the industrial revolution which did displace many professions but in the long run people were better off. The usual response to the issue of disparity is that the size of the pie can be increased and hence despite the disparity most people will have a larger slice than before.

There are two main issues to this type of reasoning. In the first place, workers who are displaced must be provided for. Otherwise if the number of people who are not sure of their prospects increases, people will not make long term commitments be it in housing or training. Secondly the argument ignores externalities. The market economy encourages waste. If people don’t reduce consumption, the planet is heading to towards climate catastrophe. Resources like clean air and water which we now take for granted will dwindle and large scale wars for these resources will bring human civilisation to an end before the global warming can unleash its weapons of mass destruction.

Need for alternate solutions

Paigini and Ma identify trust and short term commitment as the main characteristics of the gig economy. They suggest training, access to training and protection from vested interests as means of reducing the exploitative nature of the gig economy. Left to its course free market will exploit labour and harm the environment as the cost of such externalities are borne either by the general public or by future generations who have no say in the matter. They welcome the gig economy which they claim is inevitable and address some issues that help reduce the exploitative nature of the gig economy. However they barely address the more serious problems. A better solution would be a sharing economy that shares not just natural resources but also employment opportunities.

“The world has enough for everyone’s need, but not enough for everyone’s greed.” Mahatma Gandhi

References

Australian Bureau of Statistics, 6202.0 – Labour Force, Australia, Jan 2017, http://www.abs.gov.au/ausstats/abs@.nsf/mf/6202.0 retrieved on 22/02/2107.

Paolo Parigi and Xiao Ma, The Gig Economy, Crossroads The ACM Magazine for Students, Winter 2016, vol.23, no.2

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About The Sunday Programmer

Joe is an experienced C++/C# developer on Windows. Currently looking out for an opening in C/C++ on Windows or Linux.
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