As part of a mini-series on employment and its drivers of change into the near future; we have touched upon several elements. Till now this series has explored digitalisation & automation, the global war for talent, the need for enhanced quality of jobs and the green economy as key drivers. This week we look at the rise of the platform economy and its impact on employment policy and practices. The surge of the platform economy as a leading subset of the digital economy was enabled in recent years by technological advances in broadband connectivity and cloud computing which allowed for economic transactions and the exchange of large amounts of data between individuals. These developments have led to the fast growth of digital platforms in various economic sectors providing a range of services and products.
The subset ‘platform economy’ refers to any type of digital platform that uses the internet to connect dispersed networks of individuals to facilitate digital interactions between people. Within the platform economy there is a triangular relationship between three parties: (1) the platform; (2) the worker; and (3) the customer. The function of the platform is to connect people with demand (the customer) to people that provide supply (the worker). Within the context of the platform economy, the term ‘gig economy’ has emerged. This refers to a shifting trend in employment towards the shorter-term, often contract-based work that characterises the platform economy, since employment on that platform is normally remote where workers normally sell their time and/or skills on a short-term or payment-by-task basis. This is what makes the platform economy so disruptive to the traditional linear business model which creates value through creating products and services that are sold to a customer. Platform based business models create their value by connecting users (both consumers and producers) on an online network. It does not own the means of production, but rather creates the means of connection.
The outbreak of the Covid-19 pandemic in March 2020 consolidated and accelerated the rise of the platform economy, along with so many other facets of the digital economy. The rise of the platform economy is having a significant impact on labour markets and the employment relationship. Given the rapid growth triggered by the effects of Covid-19, the effects of this and how to manage them are increasingly being discussed at national and international level.
The global context
Platform work or the gig economy is an increasing phenomenon across the globe disrupting sectors including mobility, restaurants, consultancy and freelance work amongst others.
Platform-based businesses disrupt the regulatory status quo and, in many cases, can circumvent current legal frameworks, which are designed around traditional, linear business models and roles. The key loophole at play here is that platform-based companies only facilitate the work or service and has no actual role in production or service delivery. The main regulatory/legal concerns centre around: safety and hygiene standards, taxes, compliance, crime, protection of rights and interests, and fair competition.
The debate is ongoing and heating up, with two main schools of thought: the first is that the platform economy should not be regulated in the same way as the ‘regular economy’ and its very flexibility and fluidity should not be constrained. Where necessary, these proponents claim, many of the legal questions can use the set-up of existing legal and tax frameworks. Other, perhaps more dominant voices, argue that the platform economy does require regulation, and this will need a comprehensive re-evaluation of laws and regulations.
The OECD believes that for employers, platforms can provide wider and more flexible access to talent, particularly where specialised skills are concerned, as well as faster hiring processes, lower costs, and improved productivity. For workers, platform work opens opportunities to earn income regardless of where they reside. This ‘global labour marketplace,’ according to research by the OECD and the European Commission, has the potential to move labour market supply and demand closer to equilibrium and thereby to ease unemployment and underemployment. This can apply specially to disadvantaged areas.
According to the OECD and the European Commission, the platform economy does carry certain higher risks when compared to ‘offline’ work. The main issues are higher than average job uncertainty and fewer protections when compared to more traditional employment arrangements. The key issues here are that online outsourcing and ‘gig’ work do not always clearly fall under existing employment laws, many of which are still premised on the model of a full or part-time, open-ended contract with a single employer. This means that in many countries outsourcing and gig workers cannot unionise, engage in collective bargaining or benefit from minimum wage regulations. This explains why such workers are significantly more likely than traditional employees to earn less than the minimum wage.
In its 2020 survey, the ILO also focuses on platform work and adopts a multifaceted approach. One element of analysis is worker motivation and the factors that lead to choosing platform or gig work. Worker motivation to work on digital labour platforms varies across the different types of platforms and by gender. Complementing an existing income and the preference or need to work from home or for job flexibility are the two main motivating factors for platform workers on online web-based platforms. On freelance platforms, the preference or need to work from home or for job flexibility is the chief motivator, while on microtask platforms, complementing pay from other income sources is the most important factor. In contrast, the main motivating factors for workers on competitive programming platforms are to improve skills and career opportunities. The preference or need to work from home or for job flexibility is particularly important for women in developing and developed countries alike. On location-based platforms, lack of alternative employment opportunities, job flexibility and better pay compared to other available jobs are the key motivating factors. It was also evident that most workers on location-based platforms relied on this work as their main source of income, as opposed to workers in the ‘crowd work’ category. This may be related to the fact that workers with lower skills would tend to seek such work as opposed to those with higher or specialised skills which would be more in demand on other non-location-based platforms.
The ILO 2020 Survey also found that businesses are using online web-based platforms for three main reasons: to streamline recruitment processes; to reduce costs and improve efficiency; and to access knowledge and seek innovation. In the context of the global competition for talent, this channel has also allowed access to a global pool of workers with diverse skills via digital labour platforms. SMEs have benefited from location-based platforms. Many traditional businesses, particularly SMEs, have started using location-based platforms, predominantly in the restaurant and retail sectors. Such businesses are increasingly relying on digital labour platforms to cope with greater competition and the need to expand their customer base. This dependence, particularly in the restaurant and retail sectors, increased significantly since the outbreak of the Covid 19 pandemic.
The ILO has noted that several countries have taken steps to regulate platform work, focusing on:
• Extension of occupational health and safety provisions to platform workers (Australia and New Zealand).
• Extension of social security to platform workers, including accident insurance costs (France); sickness benefits (Ireland); and unemployment benefits (U.S. and Finland).
• Definition of employment status: here approaches range from broad classification as regular employees where possible to the creation of a new, intermediate category in employment legislation to allow for the provision of basic protections and benefits.
The ILO also notes that the growing regulatory concerns have raised a debate between platform companies and worker organisations which is set to intensify in the coming months and years. Platform companies have also responded to the calls for transparency and regulation with several signing up to the World Economic Forum Charter of Principles for Good Platform Work.
The platform economy is here to stay and will only transform and revolutionise an ever-growing number of sectors and economies. Employment policies and strategies as well as economic policies need to be cognisant of this growing driver of change as it will impinge on a number of sectors and jobs.
The writer is a co-founding partner of Seed, an international research driven advisory firm with offices in Europe and the Middle East.
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jp@seedconsultancy.com