Tomorrow's Economy

Five challenges in a platform economy

19 December 2016

Policymakers must act now to help create responsive labour markets

Florian Ranft

The ‘platform economy’ is changing all of our lives as consumers and the way how services are delivered and goods are shared, as demonstrated by the runaway success of platform businesses such as Airbnb and Uber. Some of those innovative business models are at the cutting edge of creating jobs and sourcing productivity, having added €17.5bn to EU economy in in 2013. But such a radical change also has profound implications for many of us as workers – with insecurity and lack of protection all-too-present dangers. Across Europe 2.5 per cent or one in 40 now relies on platform businesses for the majority of their monthly earnings, according to a new survey led by Ursula Hews on behalf of the University of Hartfordshire and the Foundation for European Progressive Studies (Feps).

The range of platforms is broad and their impact on the organisation of labour markets, employment rights and existing social security structures in modern economies far-reaching. Through the use of the internet they can accelerate innovation processes matching supply and demand of services and products at very low costs, restructuring business and reorganising work itself. What started out with people building small businesses on eBay or Amazon Market Place has now expanded to virtual platforms that offer a great number of services, including high-skilled IT expertise (eg Upwork), lower-skilled repetitive online tasks (eg Clickworker), manual  maintenance services (eg Taskrabbit) or transport and driving jobs (eg Uber and Deliveroo).

During the discussion at a recent event hosted by Policy Network, it became clear that we still lack sufficient evidence on the ramifications of platforms on labour markets and developed economies at a time when both are undergoing significant changes. First, labour markets are becoming increasingly polarised, which is in part caused by the use of technology more generally but also more flexible labour market policies, especially in southern Europe. And second, modern economies are ever reliant on a highly-skilled and flexible workforce, a trend best known as the knowledge economy. Platforms are embedded in these greater transformations of labour markets and remain mainly a regulatory issue of how to best reform employment laws and social security models from an industrial age so that they do not stifle innovation but foster fair competition, growth and the creation of jobs.

The five main challenges that emerged from the discussion were:

  • Employment status: Platform workers being placed somewhere in a grey zone between employed and self-employed the rules for how to classify them are unclear. This regulatory vacuum has undesired consequences for both, employers and workers. In a number of European countries tech companies, such as Uber, have been under close judicial inspection for breaching the social contract which has put their business expansion on hold. For platform workers this has led to the situation that they are deprived of collective bargaining and minimum wage coverage and access to social benefits and other workplace protection.
  • Rigid benefit systems: Most social security systems are designed to accommodate people who are either in or out of work. A more flexible 24/7 work force moving swiftly between tasks, platforms and jobs has been dealing with insufficient coverage, especially for those who are having difficulties to make a living overall but also for redistributive social insurance models relying on contributions for pensions, long term care, unemployment, etc.
  • Training and skills: As a result of the regulatory vacuum on employment status platform workers are at risk of falling behind in receiving adequate training that could lift them up the career ladder. This is particularly challenging in European countries where youth unemployment remains staggeringly high at over 20 per cent.
  • Power of platforms: There are also concerns that platforms and tech companies are not contributing their fair share to the provision of public goods, thereby having more leverage for undercutting prices and gaining an unfair advantage over competitors. In the long run this competitive advantage could lead to the emergence of monopolies where consumers are worse off, having less choice in a market where online platforms dictate the prices.
  • Global presence, local impact: As large platforms, such as Airbnb, Uber, Deliveroo or Mechanical Turk, have a global presence and operate seamlessly across borders they often have a heavy impact on local economies. Benefiting from economies of scale and innovation but also avoiding paying statutory social security payments means they are well-placed to offer customers lower prices. There is a growing discontent in some economic sectors, such as transports and logistics, where pressure on wages has spilled over to the offline economy. Policymakers should also be aware of the opportunities platforms offer for newly arrived workers as they can get quick and easy access to the labour market. On the other hand, platforms can be disruptive in local economies for those who have built a social network of businesses relations over years or decades.

The policy solutions: act now and create responsive labour markets

Across Europe policymakers have only taken faltering steps so far to try and keep up with the rapidly evolving pace of change from emerging platforms and tech. Too often, uncertainty over how to respond is resulting in inaction and lost opportunity. A policy agenda on how to resolve the regulatory issues on employment is largely absent, including thorough debates on the role of the private and public sectors in stepping up to the challenges of a modern labour market. What emerged from our conversation was a mix of putting more emphasis on retraining and reskilling but also fostering local initiatives and social partners.

On the necessity to assert authority over the grey zone in labour laws in which platforms currently operate there is an imperative for policymakers to act. This includes debating publicly how platform workers can fit into existing employment laws or whether new options need to be made available for those who are currently dropping out of dichotomy between employed and self-employed or in and out of work. It is crucial to include social partners in this debate, especially trade unions and employers’ organisations, which are both having difficulties in making their voice heard. Trade unions have been seeing a decrease in membership numbers, especially among those who are not employed in traditional industries, but also employers’ organisations have been facing difficulties as some global corporates are increasingly playing by their own rules.

Life-long learning is at the centre of a social policy agenda that recognises the changes of technological disruption, adding security to both workers’ and entrepreneurs’ lives, and constantly helps workers adapt to the sort of skillset that business needs to thrive in a digital economy. A reform proposal would rebuild the skills of young and old workers; of men and women; of workers in centre and periphery employment, in order to create a new working world in which everyone can benefit from technological advancements. The process of lifelong learning should be facilitated by directly linking learner and employer through web platforms.

Governments should also substantially improve the individual career paths and mobility of vulnerable workers. Volatility in job markets will make it necessary for workers to readjust their skills set throughout their careers. Individual lifelong learning accounts are one way to strengthen people’s employability throughout their working life. Avoiding the pitfalls of the UK experience they would incentivise employers to directly invest in staff, focus on industries most affected by disruption and target vulnerable workers on the lower end of the income scale. Individual workers accounts could also be used to create a direct link between employers, workers and regulators to safeguard employment rights, such as sick or holiday pay, maternity leave, accumulate credits for training schemes or guarantee the portability of those between different platforms. New ideas, such as the Cities of Learning approach outlined in a recent RSA report, could also guide the way to strengthen workers in the digital age. This concept focuses on the creation of local peer-to-peer networks that expand skills and learning throughout their communities.

Image credit: Dinendra Haria / Shutterstock.com