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Illustration: Jayachandran/Mint
Illustration: Jayachandran/Mint

Opinion | The trust deficit in the gig economy

The flexible nature of the relationship between gig employers and workers has its downsides

On Thursday, representatives of Ola and Uber drivers will meet management from the cab aggregator platforms. On the docket is the list of demands that had led to the drivers going off the road last month. This is not the first such strike. It will not be the last, whether an amicable agreement is struck this week or not. And the core issue extends considerably beyond cab aggregators: where do workers stand in the evolving gig economy?

Wage bubbles in various sectors of the gig economy cannot last. The transportation sector is perhaps the best example. According to The Online Platform Economy in 2018: Drivers, Workers, Sellers, and Lessors, a study by J.P. Morgan Chase & Co. Institute, the average monthly income of gig workers in this sector in the US fell by 53% from 2013 to 2017. This is not surprising. Network effects in multi-sided digital platforms form positive feedback loops. Consequently, for such platforms—such as aggregators—market share is paramount. Thus, initial terms are generous towards both consumers and service providers at the cost of revenue—a business model investors have shown themselves comfortable with. Once market share is secured, however, those terms change.

The same dynamics are playing out in India. Driver incentives have declined steadily over the past few years. Drivers who have taken out loans to purchase vehicles on the back of promises of assured incomes now feel shortchanged. Granted, this may play out differently in different gig economy markets. For instance, the report also found that workers in the hospitality industry—Airbnb and the like—had seen their incomes trend up. But this may just be the prelude to the bubble bursting.

Besides, there is another worker issue that is common across sectors. By definition, gig economy workers are not employees. This means their status when it comes to workers’ rights and protections written into legislation—from medical insurance and protection from sexual harassment to health and safety laws and compensation in case of accidents— is ambiguous at best.

A third factor is the transient nature of gig work. The gig economy is built on what economist Branko Milanovic has called the commodification of leisure time. As such, it is often part-time and temporary, forming a supplementary income stream. Add to this the lack of contractual obligations. Worker turnover rates are thus high with workers often switching employers.

For all the benefits of the gig economy—and there are many, particularly in a country like India with its lack of formal sector jobs—these three elements combine to weaken one of the pillars of a market economy: trust. The belief that a transaction will be carried out fairly or that an employee will benefit from an employer’s success or that unethical or unlawful actions will be penalized underwrites the system of economic transactions. This is why contract enforcement is considered an important element in assessing a country’s business environment, for instance. However, an important element in establishing trust is repeated ‘games’ between the same players. High turnover rates weaken this. And employees feeling hard done by when it comes to their employers adds to the trust deficit.

Governments around the world are beginning to cotton to the problems this could cause. And they are looking at ways to address it. For instance, the US Securities and Exchange Commission is considering modifications to a law known as Rule 701 that would enable gig economy workers to receive stock in private companies. As matters stand, Rule 701 prohibits private companies from issuing shares to workers who are contractors rather than employees. Companies like Uber and Airbnb are on board; such a move could defuse worker dissatisfaction.

In the UK, meanwhile, draft legislation has been floated that would put gig workers working for companies over a certain size on par with regular employees when it comes to minimum wage laws, holiday pay and the like. The draft law also recommends enabling class action by groups of workers to establish employment status. In Australia, a Senate committee was established last October to look at “the adequacy of Australia’s laws to deal with the employment landscape of tomorrow"—including the crucial question of whether gig workers are contractors or employees. Predictably, the European Union (EU) has gone the furthest down the road. Brussels has been pushing EU governments to ensure that “irregular" workers receive social security protection such as unemployment benefits and maternity leave.

The newness of the gig economy means that finding ways to address the status of workers will be a process of trial and error. Heavy-handed regulation that puts gig workers fully on par with employees would be counterproductive, undercutting platform business models and leading to gigs drying up. Subtler touches—enabling competition so that platforms have to compete to attract workers, or appointing industry ombudsmen—would perhaps be more effective. This much is clear, however: ignoring the trust deficit will not make it go away.

What can be done to reduce the trust deficit in the gig economy? Tell us at views@livemint.com

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