Over the past few years, new business models have emerged, empowered by digital technologies. These have disrupted a range of activities, from food delivery and transportation to accommodation and venture capital. Digital companies and their new business models collectively make up the so-called platform or collaborative economy. New forms of work have been created posing the question: How can the social contract catch up? By: Georgios Petropoulos Date: November 4, 2019 Topic: Innovation & Competition Policy By using information technologies, intermediaries can capture the underlying preferences and characteristics of potential providers and users and can match the supply of and demand forassets in a more efficient way. Intermediaries typically charge fees in the form of a
Georgios Petropoulos considers the following as important: digital economy and society, digitalisation, innovation, Innovation & Competition Policy, platform work, social contract, technologies
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Over the past few years, new business models have emerged, empowered by digital technologies. These have disrupted a range of activities, from food delivery and transportation to accommodation and venture capital. Digital companies and their new business models collectively make up the so-called platform or collaborative economy. New forms of work have been created posing the question: How can the social contract catch up?
By: Georgios Petropoulos Date: November 4, 2019 Topic: Innovation & Competition Policy
By using information technologies, intermediaries can capture the underlying preferences and characteristics of potential providers and users and can match the supply of and demand forassets in a more efficient way. Intermediaries typically charge fees in the form of a percentage of the value of each transaction (while few of them may prefer a subscription fee pricing model) .
These new models rely on information technologies that can incorporate multiple benefits: First, the use of technology to provide valuable information about the quality of products and services can be very beneficial for the economy by removing information asymmetries (e.g., adverse selection and moral hazard). At the same time, the flexibility that these new forms of work embody benefits to the firms that organise them and to those who perform the work. In many cases, workers who might otherwise be unemployed or underemployed have a new source of income. Workers might also benefit from greater choice over the hours they work as well as greater variety in the types of jobs that are available. Hence, any policy intervention on platform work should, therefore, be carefully targeted so they do not needlessly undermine these benefits.
However, a key concern with platform work is that it offers forms of employment without standard contracts and leaves workers without as many benefits and social protections as the ones provided in traditional forms of employment.
In fact, surveys and studies (see, for example, Codagnone et al. 2016, Forde et al., 2017, or De Stefano and Aloisi, 2018) show that platform workers face many challenges:
- Low wages: Wages earned via platforms are low, with just a few segments of workers able to earn above middle-level income. For example, Huws et al (2018) report that platform work has contributed more than half of all personal income for only 2.3 percent of the total sample in Austria, 3.5 percent in Switzerland, 2.5 percent in Germany, 5.1 percent in Italy, 1.6 percent in the Netherlands and 2.7 percent in Sweden and the UK – forming the labour source of income for an average of only 2.9 percent of respondents in the seven countries of their sample. Going one step further, Pesole et al. (2019) find that individuals in the lowest income decile are overrepresented, representing 26 percent of platform workers.
- Limited ability to save or to invest in pensions: the low earnings, together with statutory limitations and myopic savings behaviour, mean platform workers save very little for their retirement age.
- Limited access to social protection schemes: platform workers are partly or fully excluded from many forms of social protection. Many platform workers do not have access to social protection schemes in relation to disability, old age, pregnancy and care.
- Limitations on collective bargaining rights: Since, in many cases, platform workers are treated contractually as being self-employed they generally have no legal right to collective bargaining. Further factors make it difficult for platform workers to negotiate collectively the terms of their provision of work:
- As platforms leverage digital technologies, workers are often dispersed geographically and do not routinely interact with each other.
- Many platforms are designed to put service providers into competition with one another. Several platforms have rating systems that make workers reluctant to attempt to exercise their rights because of the potential reputational costs.
- The ability of platforms to monitor and exclude uncooperative service providers might strengthen platforms’ bargaining power, and might thus make workers reluctant to act collectively.
- Intrusions on other rights: platform workers are also more vulnerable to violations of privacy and to discrimination. Algorithmic systems make real-time monitoring of employees possible at low cost.
Such challenges require a well-designed action plan, a new social contract that can effectively eliminate the risks associated with the status of non-traditional workers. We observe that countries all over the world gradually recognise the importance of these points and move forward with policy reforms that capture some aspects of the problems discussed above.
For example, Canada, Italy, Germany, Spain, South Korea and the United Kingdom have included platform work a third category of employment that represents an intermediate status between the widely used categories of employee and self-employed. The rationale is that this intermediate category offers more flexibility to platform workers than the status of an employee, but might also provide social protection rights that are more proportionate and fit for purpose than the limited rights provided to the self-employed (Codagnone et al, 2016). However, in some of these cases, the inclusion of platform workers in a distinct third category resulted in arbitrage opportunities for employers leading to many employees being reclassified as dependent self-employed (Cherry and Aloisi, 2018). In addition, this third category may be of limited value to platform workers because the contractual presumption of self-employed status preempts the ability of platform workers to access the benefits of the intermediary category without first achieving reclassification through the courts. So, it should be accompanied with an enforcement mechanism that makes both easy and objectively justified for workers to shift from the independent contractor status to this intermediate state.
The European Commission has also sought to strengthen and modernise social protection in the EU through its European Pillar of Social Right. The policy measures of the pillar show that the problem is not only the social protection of platform workers but of all non-standard workers and self-employed people. It therefore targets broader reforms that will lead to the convergence between the rights and protection of employees and the other categories of employment. Given that labour law falls in the competences of the EU member states, it would be interesting to see how effective such an EU-broad initiative will be and whether the necessary political consensus will be reached.
More recently, the state of California decided to adopt a new legislation which makes easier for platform workers to be classified as employees instead of independent contractors. Specifically, the new law codifies and clarifies the application of the so-called ABC test, shifting the burden of proof at the platform’s side: An employer who wants to treat someone as an independent contractor rather than an employee has to show that the work is:
- Done without the direction and control of the employer
- Performed outside the usual course of the employer’s business
- Done by someone who has their own, independent business or trade doing that kind of work.” (see Assebly Bill No. 5, Chapter 296 of State of California’s Legislative Counsel Bureau).
In other words, California’s new law attempts to expand the definition of formal employment to some forms of platform work to address the challenges of weak work protection and work benefits. To do that, a crucial element is the demonstration that the platform controls (or better has the right to control) the provision of the service, so, the supplier of the service is not totally independent (independent contractor). It is interesting to see how broad of a scope this new regulation will have in practice. However, we should note that platforms whose primary objective is to match supply and demand without exerting excessive control on the transactions take place in the platform are less likely to be affected by this new law.
A more promising way to move forward would be to design the new social contract without relying on the definition and classifications of employment, but instead to adopt some broad principles that should be satisfied for any worker, regardless if he/she is an employee or not. Key objectives of this new contract for the non-standard forms of employment should be:
- Adequate social protection: The new contract should ensure that workers have access to social protection by extending formal coverage on a mandatory basis to all workers, regardless of the type of their employment relationship. This would cover on a mandatory basis sickness and healthcare benefits, maternity/paternity benefits, old age and invalidity benefits and benefits in respect of accidents at work and occupational diseases.
- Portability of benefits: Benefits portability refers to the ability of individuals on the labour market to transfer certain benefits that they have accrued from one job to the next, across economic sectors and across employment categories. Benefits portability should apply in the future not only to traditional and non-traditional workers, but also to the self-employed. There are good reasons to attach relevant benefits to an individual rather than a position, an employer or even a status of work. Portability of benefits can be instrumental in ensuring both flexibility and protection. In France, for example, portability is established through a Personal Activity Account that preserves accumulated rights to training, hardship compensation, work time recuperation and more. This portability provides better coverage in the event of professional transitions.
- Collective bargaining: Freedom of association and collective bargaining are fundamental labour rights allowing workers to avoid exploitation, and are established in the ILO Constitution and reaffirmed by the 1998 ILO Declaration on Fundamental Principles and Rights at Work. Unionisation helps to prevent abuses of human rights and of fundamental labour rights, which are allegedly common in some segments of the platform economy.
- Mobility for workers: The new social contract should also support labour market transition for individuals who switch jobs, start a company or decide to close it down. In this way we can further increase the benefits from flexibility and promote labour market dynamism.
- Preserving the dignity of workers: Firms have a right, in the interest of efficiency, to monitor the performance of their employees, but this cannot be at the expense of turning the workplace into a surveillance state where fundamental privacy rights are violated.
Cherry, M. and A. Aloisi (2018) ‘A Critical Examination of A Third Employment Category for On-Demand Work’, in N. Davidson, M. Finck and J. Infranca (eds) Cambridge Handbook on the Law of the Sharing Economy, Cambridge University Press.
Codagnone, C., F. Abadie and D. Biagi (2016) The Future of Work in the “Sharing Economy” – Market Efficiency and Equitable Opportunities or Unfair Precarisation? JRC Science for Policy Report, Publications Office of the European Union.
De Stefano, V. and A. Aloisi (2018) Fundamental Labour Rights, Platform Work and Human-Rights Protection of Non-Standard Workers, Bocconi Legal Studies Research Paper Series Number 1, Universita Bocconi, Angelo Straffa Department of Legal Studies.
Forde, C., M. Stuart, S. Joyce, L. Oliver, D. Valizade, G. Alberti, K. Hardy, V. Trappmann, C. Umney and C. Carson (2017) The Social Protection of Workers in the Platform Economy, Study for the EMPL Committee, European Parliament.
Huws, U., N.H. Spencer, D.S. Syrdal and K. Holts (2017) Work in the European Gig Economy: Research Results from the UK, Sweden, Germany, Austria, the Netherlands, Switzerland and Italy, European Foundation for Progressive Studies, UNI Europa and University of Hertfordshire.
Pesole, A., M.C. Urz. Brancati, E. Fern.ndez-Mac.as, F. Biagi and I. Gonz.lez V.zquez (2018) Platform Workers in Europe, JRC Science for Policy Report, Luxembourg: Publications Office of the European Union
Petropoulos, G., J. S. Marcus, N. Moes and E. Bergamini (2019) Digitalisation and the European Welfare States, Bruegel Blueprint Series, Volume 30.