Gig work may not measure up to full-time employment, but that does not mean it has no place in modern economies
While the gig economy falls short of providing gainful employment, it does provide an approximate for people who cannot find full-time work that caters to their circumstances. In the face of a looming unemployment crisis, governments should embrace and improve the gig economy, rather than try to force it into our existing models for employment.
Uber, like much of the gig economy, is a two-sided marketplace, disruptive to the taxi industry in many markets, which connects riders (consumers) with drivers (service providers). Uber's most prominent competitors largely share the same business model. In the decade since its founding, Uber has received significant scepticism from governments and incumbents, adoration from the tech community, and mixed feelings from consumers. Apparently, you need to break a lot of eggs to make an omelette.
As the controversies of Uber-circa 2017 have waned, the public has largely conceded that the consumer side of Uber’s marketplace is generally an improvement over the pre-Uber status quo. Uber is probably safer than taxis, often cheaper, very convenient, and generally boasts greater rider satisfaction. So, while criticisms of the company absolutely persist, criticisms of the business model have become more focused on the driver-side of the marketplace, particularly how low prices can impact drivers.
In a pure marketplace, pricing is tied to supply and demand. For example, eBay sellers are able to set their own prices and do so based on what the other side of the market will tolerate. Shoppers and retailers negotiate pricing through the mechanisms of the marketplace (i.e., set a price, measure sales, adjust pricing accordingly). With the exception of surging in extreme circumstances, most rideshare apps do not function as a pure marketplace where pricing is negotiated between participants on both sides. Rather, prices are set by the owners of the marketplace based on what works best for consumers and the owners. To maintain this equilibrium, prices for riders, and therefore returns for drivers, must remain low. Low prices, while a perk for riders, is the root of much of the indictments of the rideshare business model.
The reality is:
- Drivers are considered contractors, not full-time employees, so do not receive key benefits. These vary per market but include the likes of superannuation, paid leave, and healthcare plans. Providing these benefits would inevitably result in drastically higher prices for riders. Not providing these benefits puts the wellbeing of long-term drivers at risk.
- After factoring in asset depreciation (i.e., vehicle wear-and-tear), returns for frequent drivers dwindle. Asset depreciation is not an immediate cost to drivers and is therefore potentially invisible to them.
- Drivers essentially have no influence on pricing in the marketplace. They can take it or leave it. This results in many drivers earning below the minimum wage.
There are, however, benefits:
- Driving for Uber is extremely flexible from a schedule perspective. Due to extenuating circumstances, some people require a very high degree of flexibility that only the gig economy can provide.
- The only barrier to entry is ownership of a suitable vehicle and the passing of a reasonable background check. Many people who have otherwise struggled to find employment have found refuge in the gig economy.
- The gig economy provides a safety net for the under-employed. During periods of unexpected unemployment, individuals can stay afloat through gigs.
Despite the flaws, these benefits are unique. Forcing the gig economy to conform to the parameters for traditional employment will, in many situations, make these business models untenable. At best, prices would need to increase significantly, leading to a reduction in demand that would mean that the marketplace would support fewer drivers, significantly limiting the opportunity for willing participants. Governments would benefit from finding better ways to fit gig work into the larger job market in a more equitable way.