Home >Opinion >The gig economy can help ageing populations

The Chinese government is attempting to defuse China’s “silver time bomb". Recently, state media applauded parents in Shandong province for their fertility; there were more children born in the province last year than in any other. There have also been policy measures in the ether since last year aimed at encouraging people to have more children. This is a stark turnaround from over three decades of a heavy-handed one-child policy that began to be phased out only in 2015. With good reason. China is poised to face a problem a number of developed economies have been grappling with for years now: the fiscal and labour market implications of an ageing population. Can technology, seen as the harbinger of painful labour market disruption, ease the shift? Enter, the gig economy.

China’s working age population has been declining since 2012 and is projected to shrink by almost a quarter by 2050. This is not a slope, it is a cliff edge. The government’s about-face is unlikely to help much. The causal links between rising prosperity and declining fertility have been conclusively established. For a preview of what awaits China further down this path, look to Europe.

According to the European Union’s (EU’s) statistical office, Eurostat, the union’s median age as on 1 January 2016 was 42.6 years, with an old-age dependency ratio that clocks in at a hefty 29.3%. This has two major consequences. First, it strains social safety nets and pension systems. It’s no coincidence that the EU countries with among the highest old-age dependency ratios—Italy with 34.3% and Greece with 33.1%—faced some of the toughest social spending reforms in the EU to deal with the North Atlantic financial crisis. The second consequence is a drop in labour productivity, exacerbating the fiscal strain. Productivity tends to peak in the 40s with experience accumulation and decline thereafter as skills and knowledge become dated.

Last week, Google chief economist Hal Varian pushed the idea that technology could provide the solution to these problems caused by shrinking birth rates. Big tech is big on promises right now given its annus horribilis, but he has a point here. The Artificial Intelligence advances he was referring to are one aspect, but the gig economy is another.

It’s supposed to be a young man’s game. Perception, however, might not match fact: A quarter of Uber’s drivers are over 50, for instance. Medical advances and quality of life improvements mean that the deterioration of physical and mental faculties that lowered the productivity of older workers is increasingly less of an issue. The financial crisis, on the other hand, boosted their incentive to keep working past traditional retirement age. Conventional labour markets and institutions have not yet caught up with the fact that a cliff-edge retirement is increasingly unviable. A gig economy that has evolved from low skill jobs to encompass a range of employment—including high skill services such as legal aid, finance and insurance where lack of experience with the latest technology is less of a handicap—is a different matter entirely. It offers both post-retirement flexibility and the ability to supplement and lighten the burden of strained social safety nets.

The first Europe-wide study of the gig economy carried out by the University of Hertfordshire, the Federation for European Progressive Studies, UNI Europa and Ipsos Mori, released last year, points to the potential. While there is considerable variance across countries, the number of gig economy workers in EU countries is generally substantial, going as high as 22% in Italy, with 17% of them over 55—again, not coincidentally, a country compelled to bite the bullet on pension reforms in recent years.

Admittedly, viability, in terms of remuneration, is currently somewhat muddled. In general, full-time gig work pays less than the offline labour market. But this obscures important distinctions. For one, in some markets, gig work actually pays more. In a Centre for European Studies report, The Impact Of The Collaborative Economy On The Labour Market, Willem Pieter De Groen and Ilaria Maselli find that in some European markets, payment for certain services sourced via online platforms is actually more than for similar offline jobs. Second, post-retirement gig work is intended to supplement savings or social benefits, not replace them. Third, EU countries are taking the lead in formalizing gig work and linking it to social benefits. This could scupper such jobs if it results in over-regulation—but if handled right, it could make gig work more viable.

Dealing with greying populations will require a host of other responses as well, from social spending reform to an evolution in investment models. And the gig economy’s evolution will come with its own share of pain. But that is, in many ways, a walk in the park compared to the political difficulties of changing pension or healthcare models. Gig employment might not be able to defuse that bomb—but it can certainly slow down the timer.

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