Tomorrow's Economy

How can we better protect workers in the platform economy?

19 December 2016

The regulatory response to the emergence of the platform economy has neglected the issue of pay and working conditions

Jan Drahokoupil

Online platforms allow accessing labour through the market even in contexts where the use of a matching service is too costly or where market failures require reliance on an employment relationship. The extension of markets into new spheres may provide new opportunities, but it also undermines the key institution through which our societies organise protection of workers and set their pay, namely the employment relationship.

The market-making matching of supply and demand defines the platforms. Platforms can thus allow for the re-organisation of activities that traditionally relied on the employment relationship into activities of self-employment. This, perhaps, is the most radically transformative potential and deserves attention from policymakers. So far, however, the successful platforms, such as Uber, have mainly reorganised sectors that had already relied on some forms of self-employment. However, even in this context, platforms bring greater pressure on pay and working conditions as they increase competition by lowering barriers to entry.

There is now a considerable body of evidence on the extent of platform work as well as working conditions. The majority of workers appear to use platforms to top up their regular income, but there is also a sizable minority, probably exceeding well over 1 million workers in the EU, that rely on platforms as the main source of income. Only a small fraction of platform workers reach local minimum wage. Most of transactions on platforms are not taxed or covered with social insurance.

Low pay and, somewhat paradoxically, a lack of control over their work time are by far the top grievances of platform workers. The lack of insurance is a major concern for those delivering food. Accidents, including serious injuries, are common among bicycle riders.

Unfortunately, the regulatory response has neglected the issue of pay and working conditions. At best, we hear about the importance of a need to ensure portability of insurance systems. However, portability cannot bring security, particularly if the problem is low pay.

Given the precarious position of platform workers, additional measures should be considered to address the risks related to platform-mediated work. First, while many platform workers are likely to be eventually recognised as employees, specificities of the work on platforms calls for updating existing labour legislation. More specifically, it can be argued that platform workers represent a category of workers in need of special protection, similar to the regulatory provisions for part-time, fixed-term, and agency work that exist also on the EU level. This kind of protection should also address platform-specific issues.

Second, anti-trust regulation should not prevent platform workers from self-organising, as might be the case at the moment. Instead, policymakers should consider the extension of collective agreements to wider categories of worker than ‘employee’, with a view to including platform workers. Third, workers who do not qualify as employees should be protected through regulations on self-employment, or through a platform-specific protection.

At the same time, it is important to distinguish a variety of platforms, with different impacts on the labour markets as well as opportunities and limits for regulatory responses. Matching platforms that set pay and contract conditions, such as Uber or Deliveroo, are most compatible with protection that approximates, or fully complies, with standard worker protection. In fact, Uber pays guaranteed minimum pay per hour in a number of markets. In Belgium, Deliveroo workers benefit from an agreement, negotiated by the agency SMart, that includes a minimum pay rate per hour, a minimum work time, insurance against injury at work, and is covered by social insurance.

Platforms that reorganise local markets are also easiest to regulate as both customers and suppliers fall under single regulatory jurisdiction. The oligopolistic tendency which comes with the network effects also makes it easier for the regulator to target the handful of dominant platforms. In such a context, platforms in fact provides an opportunity to regularise undeclared activities, as it allows for an efficient monitoring of micro-transactions as well as for their incorporation into insurance and tax systems.

On the other side of the spectrum are the platforms that facilitate the remote provision of services, thus potentially leading to the offshoring of work from local labour markets, often across borders. This is one of the reasons why an EU-wide framework is needed, but additional solutions need to be sought for outsourcing of services to low-income countries.

Finally, platforms that allocate work through various types of contests, such as Upwork or Mechanical Turk, call for new institutions of protection to address contest-specific issues, such as a lack of grievance mechanism in case of non-payment, or unfair practices in specifying work content. Again, ensuring a decent pay is the main challenge.

In any case, in practice, the question is not whether platform work can be left without regulation, or not, as we have already seen platforms developing their own codes of conduct. The question is whether the new regulatory environment will reflect the narrow interest of some business, or a balance of interest among all stakeholders.

Image credit: Hadrian / Shutterstock.com