The gig economy and the welfare state

Technologies affecting the way businesses produce goods and services are disruptive. This abstract word disguises the upheaval in organizations and consequently livelihoods and social relations resulting from digitization. The upheaval is what enables the economy to deliver greater prosperity in the long term, but in the midst of the disruption that prize is hard to discern, and especially for the individuals whose incomes and employment are affected.

The effects of the digital economy on work are a particular focus of concern now, and there has been much debate on issues ranging from the potential loss of employment due to automation to the pay and conditions of ‘gig’ work through digital platforms. The Government commissioned Matthew Taylor to report on work in the platform economy, and his recommendations will be published post-election. Meanwhile a House of Commons Work and Pensions Select Committee report on the latter recently concluded – despite accepting that, “Self-employment can be a positive choice” – that the growth of contingent forms of work has been due to businesses evading responsibility. It recommended that individuals should be assumed to be ‘employed’ by default unless companies can prove otherwise.

It is important to recognize in this debate – as I explain in my article in May’s issue of the National Institute Economic Review –   that the platforms have no business if they cannot attract suppliers or workers, because the value they create lies in the matching of supply and demand. If nobody wants to work as a Deliveroo courier, say, Deliveroo has no customers. So the work opportunities the platforms create need to be more attractive than the outside options in the labour market. This means that policies to address concerns about this specific type of employer need to take account of the whole job market landscape. It is not good public policy to target specific business models or companies.

Good policy also needs to be informed by adequate data. There is a statistical gap when it comes to ‘gig’ employment at present. Self-employment is a broad category and includes many traditional activities. Questions on zero hours contracts, agency working and home working are included in the Labour Force Survey but in a context that indicates these are sub-categories of employment or self-employment. Someone working under one or more zero hours contracts, at the casualised end of the market, might not think of themselves as ‘in employment.’ Business surveys provide additional statistics on the number of zero hours contracts; this exceeds the number of individuals as some people will sign up for more than one. There has been growth recorded in the use of zero-hours contracts, although some of it is likely due to increased awareness. Altogether, including the rapid growth in self-employment since 2000, about a fifth of the employed workforce is not in a conventional job.

A recent RSA/Ipsos Mori survey trying to fill the data gap indicated that 59% of respondents working the gig economy are in professional, creative and administrative fields, with 18% providing skilled manual services (such as plumbing); 20% of the respondents worked as couriers or drivers, and another 17% in personal services such as cleaning.

Again, for good policy, it is important to know how extensive the ‘problem’ category is.

The new government will need to decide whether policy change is needed, and may want to try again to equalize National insurance Contributions across categories of worker. However, the debate about contingent work in the specific context of the digital platforms offers an opportunity to re-evaluate the way the state delivers social and employment protection to individuals. If more than a fifth of people (and rising) are now working in some form of non-traditional employment, the question is whether it is sensible or even feasible to continue to deliver social protections (from sick pay to pension saving) and other policies (such as training or immigration control) through conventional employers. The question is raised not only by the emergence of the platform business model, but also by the growing requirements on all but the very smallest firms to administer government policies. Governments’ use of employers as policy delivery vehicles has expanded steadily, even as the proportion of people in conventional jobs has declined.

Indeed, some would argue that the attractiveness of the platform model or other forms of self-employment is regulatory arbitrage. The Select Committee report certainly painted the growth of these forms of work as an attempt by employers to “excuse themselves” from “responsibilities towards their workers”. But even if true for some employers, this does not mean that regulating away the business model is the way to increase social welfare. Politicians should consider whether the conventional firm and employment model continue to be suitable vehicles for delivery of the welfare social contract, as individual patterns of work diverge ever further from 20th century model of the full-time job, held long-term, with one employer. As the Select Committee report acknowledges, this continued growth in self-employment, “Presents fundamental challenges for the welfare state.”

Perhaps in that case the social contract in the digital economy should not involve any intermediary institution, or a different kind of intermediary, between the individual and the government. Indeed, this might make it easier to reinvigorate the contributory principle that lay at the heart of the Beveridge welfare state but has been eroded over the decades. But this discussion is one for substantial political debate, just like the original creation of the post-war welfare state, rather than limited changes to tax law and employment regulation to force digital businesses back into the pre-digital mould.