With the growth of independent work set to continue, policymakers should carefully construct regulations that will steer firms and gig workers to engage in employment relations designed to maximise efficiency: that’s the message from economist Paul Oyer in a new report on the gig economy from US think tank IZA World Labor. 
In the report, Oyer notes: “The number of people holding non-traditional jobs … has grown steadily as technology increasingly enables short-term labour contracting, and fixed employment costs continue to rise. For many firms that need less than a full-time person for short-term work, and for many workers who value flexibility, this has created a great deal of surplus. During slack economic periods, non-traditional work also serves as an alternative safety net.”
In a statement heralding the report’s publication, the think tank writes: “One challenge in regulating the gig-economy landscape is that workers are highly heterogeneous, not only in their personal preferences: they vary in age, income and education in a manner that is surprisingly similar to the traditional workforce.”
With that in mind, it adds: “Crafting regulations that treat fully committed and occasional gig workers as one group is unlikely to be an efficient solution. The most contentious regulatory question in the gig economy is whether to classify independent workers as ‘employees’. However, the variation in workers on these platforms may make it sensible to have some (relatively unattached) workers who are independent contractors and some (full-time or near full-time) who are employees.”
Oyer himself concludes: “As the gig economy develops, some policy changes are likely necessary to give independent workers portability of benefits and protection from exploitation. Specific areas for policymakers to consider include levelling the playing field, tax-wise, between various employment models; ensuring that internet-based platforms do not develop monopsony power; and enabling independent workers to access and move benefits such as retirement and health dollars.”
Should the gig economy be more closely regulated in the ways that Oyer and the think tank describe – or is it too full of variation for that type of approach?
The Institute of Leadership & Management’s head of research, policy and standards Kate Cooper says: “IR35, set to take effect on 6 April, is a sure sign that some form of regulation is taking shape within the UK gig market. That legislation addresses employers, ensuring that if they’re treating workers as self-employed, when in actual fact they’re employed, then they as organisations are liable for any uncollected tax.
“However, as I have often argued in our blogs, no matter how you arrange a contract of employment – whether it covers a blend of full- and part-time staff, or freelancers who supply occasional services – the onus is on the employer to treat those individuals fairly and ethically. And if you’re not treating people well, not only will that leave your firm with long-term, reputational damage – it will show that your underlying business model is flawed, because someone in the cycle is not being adequately rewarded. And as our Institute Companion Charles Hampden-Turner so often points out, if that is the case, the business model will surely break down.”
Cooper notes: “If more and more people are going to be working in this way – and will therefore get better and better at working in this way – then they will naturally gravitate towards the procurers who treat them the best. Those procurers will be the ones that gig workers end up going the extra mile for. It’s not just those who are on formal, salaried contracts that employers are going to want the best work from. So, reward gig workers adequately, and treat them fairly. Ensure that the rate you pay them recognises the fact that they don’t receive paid holidays – or, in the US, that they’re not part of an employer-related healthcare scheme.”
She adds: “Although the bustling and dynamic nature of the gig economy makes it look on the surface like a regulatory nightmare, we must remember firstly that HMRC manages to track us all down through our National Insurance numbers, and secondly that insurance firms share data in order to limit false claims. Technology likes a complex problem. So we can safely expect that, for something as relatively straightforward as regulating activities within the gig economy, there will be a technological solution. But this really goes back to the social and psychological contract between gig workers and their procurers. In the end, all any supplier wants is to work with great customers.”
For further insights on the themes raised in this blog, check out the Institute’s resources on ethics
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Image of Lyft driver courtesy of Tero Vesalainen, via Shutterstock.