9 min read.Updated: 18 Oct 2021, 01:34 AM ISTTN Hari
Expecting a nascent industry to transform labour market conditions overnight is both unrealistic and unfair
Many of today’s gig workers were self-employed even before the platforms emerged. However, their earnings have gone up because of the ease of discovery and predictable flow of business
In August this year, Zomato launched the Har Customer Hai Star ad-campaign on TV featuring Katrina Kaif and Hrithik Roshan with the obvious intention of communicating that every customer was as important as a celebrity customer.
While some called it creative, the majority felt that the campaign was an attempt to divert attention from the payouts and working conditions of its gig workforce. Similarly, the on and off protests by the drivers of cab aggregators and the delivery partners of e-commerce and food delivery companies also underlined some of the issues faced by the gig workers. Apart from criticism around the harsh working conditions, the quality of work and the temporary nature of engagement, absence of a social security net, long hours, delayed payouts, and needless pressure to maximize speed of delivery even at the risk of road accidents have all invited disapproval.
E-commerce in India is a nascent industry that is probably less than 13 years old. In this short period, it has captured the collective imagination of the nation. The covid-19 crisis has accelerated its adoption, and even die-hard fans of shopping at a physical store have switched to shopping online. The rapid growth, astronomical valuations and runaway success of this industry has drawn a mix of both admiration and loathing, some deserved and some undeserved.
Some of the concerns are fair and call for introspection on the part of e-commerce companies, and highlight the inconvenient truth—the bigger an industry gets, and the more successful it is perceived to be, the more responsible and thoughtful it needs to be in everything it does. However, some of the criticism is unreasonable and could potentially lead to premature and unrealistic regulation, which in turn could harm the stakeholders including the gig workers.
To understand this issue holistically and take a balanced position, we need to step back a bit and look at some of the realities of India’s ‘jobs problem’. If you forget where you came from and what got you here, you are likely to take the wrong decisions.
India is a demographically youthful nation, and every year between 17 and 20 million people look for jobs. This includes around 5 million people who are abandoning highly exploitative and less remunerative farm jobs every year to find employment in other sectors, mostly in the nearest urban districts. To put this in perspective, the information technology (IT) and business process outsourcing industry that has been the pride of the nation created, on an average, less than 200,000 jobs a year during its 25 years of existence. This is just a minuscule 1% of the total number of jobs that need to be created.
Let’s quickly do another interesting and back of the envelope calculation: India’s gross domestic product (GDP) is nearly $3 trillion and assuming a realistic annual growth rate of 6%, it translates into a GDP expansion of $180 billion a year. It’s a well-known fact that in India, the share of wages is around 50% of GDP. This amounts to $90 billion.
If you divide this by the number of jobs that need to be created every year (20 million), the average wage rate per job is ₹3.4 lakh per annum or roughly ₹28,000 per month. And given the fact that the really well-paying jobs (roughly 10% of the total) account for approximately 50% of the wages, it’s quite evident that a majority of jobs will pay significantly lower than the average of ₹28,000.
This is clearly borne out by data from the Central Statistics Office’s (CSO) report on jobs dated 15 September 2016. If the average wage rate of these 20 million new jobs had to be say ₹60,000 per month, the economy would have to be growing at a rate of 15% per annum. So, creating high paying jobs was never easy and will never be easy; and nor is it realistic that every one, or even a majority of the 20 million, will be employed in high paying jobs.
According to CSO, only about 17% of India’s workers are regular wage earners and less than 23% of Indian households have a regular wage earner. In other words, 77% of our households did not have a steady flow of income. Self-employed (46%) and casual labour (33%) together account for nearly 80% of the workforce and claimed to earn less than ₹10,000 per month. These are the realities that cannot be ignored.
Expecting a nascent industry to not only move the needle but also transform the conditions of the labour market overnight—by an order of magnitude—is both unrealistic as well as unfair. Anyone complaining about the quality of jobs being created by the e-commerce industry probably needs to spend some time understanding the history of job creation in India.
So, where are these 17-20 million youth being absorbed every year currently? Clearly there is large-scale under-employment. And frankly what many of the new-age platforms have done is nothing short of a miracle both in terms of creating jobs as well as paying a fair wage.
Why marketplaces matter
Neither skill nor knowledge is enough to ensure one generates income. Creating jobs is also dependent on the ability to channelize both skills and knowledge into developing products and services that customers are willing to pay for. And this in turn sets the wheels of the economy in motion.
Economic activity is akin to traffic on a busy highway. From time to time, bottlenecks develop along this highway that choke the traffic and slow it down to a crawl or even create a complete gridlock. It needs the right triggers to unlock these bottlenecks. At times, these triggers are a result of conscious and thoughtful planning, but mostly a result of innovative application of existing or new technology. Once a bottleneck is released, the traffic flows smoothly for a while until another choke point gets created elsewhere that may probably need a different trigger to de-bottleneck.
A series of these bottlenecks and choke points had collectively grid-locked India into a ‘middle income trap’ for decades. One of the innovations that removed some of these bottlenecks is efficient online ‘marketplaces’ enabled by technology.
A startup such as the Urban Company is an example of a technology-powered marketplace for common services such as plumbing, carpentry, beauty, and house-cleaning, among others. They brought consumers and suppliers of services (based on skills) on a common platform and made the whole process of matching demand and supply pretty seamless.
Plumbers, for example, no longer have to depend upon word of mouth or other inefficient methods for sourcing business. Inefficiencies that existed in matching demand and supply prior to the advent of platforms like these resulted in consumers having to live with substandard services provided by poorly skilled workers. Further, these workers did not have an incentive to up-skill because they knew that the inefficiencies in the discovery process for skills left the customers vulnerable and without a choice. Another disincentive to up-skill was the fact that earning capacity had little or no relationship with skill levels.
Technology platforms created by companies such as Urban Company improved the discovery process multifold. Every instance of service on these platforms was rated by the consumer. Plumbers with higher consumer ratings were given more business and hence an opportunity to earn more. Plumbers, therefore, learned the value of up-skilling and paying, if necessary, to up-skill.
A higher payout
A user is prepared to pay for learning something if the linkages to the benefits of learning are straightforward. And a consumer of a service is willing to pay more for better quality of service if there is a consistent and reliable process of evaluating the capability of service providers. Most of these workers were always self-employed and even with these platforms, they operate in a gig mode which isn’t structurally different.
However, the earnings have gone up significantly because of the ease of discovery and predictable flow of business. Most platforms have compensation structures that result in payouts beyond the minimum wages specified by the government, and this has implications on what it does to the broader consumption story of the economy. Many of the more enterprising gig workers on Urban Company platform consistently make more than ₹50,000 a month.
It’s not just Urban Company. Many of the recent startups such as Ola, Uber, and a host of others have unconsciously kicked off a revolution in the skilling and earnings journey. Youth from rural India had been joining the Ola and Uber platforms in large numbers. Many of them had migrated from rural farmlands, where they were either unemployed or heavily under-employed, to the nearest city or town to sign up for driving lessons by paying a fee.
No one had to push or nudge them because they knew that there was a real job at the end of it that paid them far more than what they had been making earlier. When skilling is voluntary and driven by a free market mechanism, the outcomes are magical.
One might wonder why these platforms should be considered game-changing. The platforms, per se, did not create a product or service that did not exist before. Cab services always existed. Plumbers, beauticians, carpenters and technicians were always around selling their services.
What these platforms did was ‘industrialize’ the services—industrialization allowed effortless consumption and created structured mechanisms to scale services and service capabilities. And here, lies the power of de-bottlenecking a serious choke point.
This de-bottlenecking was sufficient for free market forces to take over subsequently and create systemic trends and scale. Elimination of a single large bottleneck results in activating a virtuous cycle of ‘income growth’ for service providers.
This, in turn, results in ‘new consumption’ which, in turn, leads to creation of more goods and service providers. We have been seeing a lot of this.
In short, these platforms lowered the barriers for consumption and production, which is an essential lubricant for the wheels of economic activity. They also shortened the feedback cycles which are such powerful triggers in a free market. The shorter the gap between an action and reward (or penalty), the faster the system tunes in to the right rhythm. So, the idea of rating every transaction by the consumer on these platforms shortened the feedback loop and led to instant course corrections and alignment.
The road ahead
India’s labour movement is more than a century old and quite mature. Entrepreneurs, too, have periodically formed industry associations to protect their interests. One of the main reasons why the IT industry has been able to avoid the formation of unions has been because of abundant opportunities in a growing industry for the employees, coupled with a fair pay structure and good working conditions.
As far as the e-commerce industry is concerned, there are several obvious lessons that can contribute towards its growth, going ahead. For instance, companies cannot seek rising valuations, on the one hand, and treat their gig workers unfairly, on the other.
At the same time, it is not fair to paint the entire industry as exploitative or be unduly critical of the gig model which is actually a very good model. Many of the gig workers themselves would be reluctant to take up full time and fixed salaried jobs. Pushing for premature regulation is like throwing the baby out with the bath water.
And finally, it is unrealistic to expect the e-commerce industry to create jobs that are probably as well paying or as fulfilling as their more upmarket cousin—the IT industry.
The writer is the HR head of BigBasket and co-author of an upcoming book, Exploding Middle India—Winning the next 400 million Consumers.
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