The Challenge of Gig Economy in On-Demand Companies Like Uber

The Challenge of Gig Economy in On-Demand Companies Like Uber

Over 14 million people now work in the so-called gig economy. From online freelance marketplaces like Upwork and, to “on-demand companies” like Uber and Airbnb that provide access to a peer market, the gig economy promises to make it easier than ever before to be free of a stuffy desk job and be your own boss.

Arguably, it’s succeeding – with gig work accounting for the majority of employment growth – but as recent court decisions against Uber signify, the promises of a gig economy also raise sticky problems with how to regulate work practices and provide job security in the digital age.

The Promises of the Gig Economy

The gig economy appeared to offer a veritable bevy of benefits to workers. Gig work frees them to break away from the “confining restraints” of traditional jobs and structure their own schedule, working location, career paths, freely seek the best opportunities and wages, and to pursue their passions on the side.

However, for a long time gig labor was a staple of well-paid consultants in areas such as financial services and professional and business services. These experienced, well-educated independent contractors have high earnings, and are happy with the lifestyle, bolstering the image of the gig economy.

Technology has caught up, as evidenced by Uber’s peer-to-peer ridesharing app, which creates an accessible platform that connects gig workers to a controlled marketplace. The app lists nearby customers and processes the fares and payments among other things, making it so easy to “freelance” that practically anybody can pursue the “dream”. Flexible gig work has never been so affordable, accessible and with as low entry barriers as it has now.

Uber has unsurprisingly promoted the flexibility angle, with research commissioned by Uber itself stating that  Uber’s  driver-partners are attracted to flexible schedules, and claiming that “fifteen times as many driver-partners said Uber had made their lives better, rather than worse, by giving them more control over their schedule.”

This is what the gig economy has promised: access to the benefits enjoyed by what was seen as happy, high earning workers with more freedom,

Pitfalls of the Digital Gig Economy

However, opening up gig work to lower skill gigs brought new problems. The view that these gig workers are simply mini-entrepreneurs who treasure their flexible schedules is optimistic at best. Currently, in reality, most gig workers are not high paid, well educated independent contractors, most are from low skilled sectors and actually earn less than their equally educated counterparts would in traditional employment – younger and less educated workers in particular earn significantly less. As such, some say these platforms “are taking advantage of comparatively low-wage workers.”

Gig workers’ wages also lose the value of any employer-provided benefits of a traditional job, since their income does not come with benefits such as health insurance and pension plans. They must buy insurance and coverage themselves, and the cost is much higher than what companies can negotiate via group plans.

For Uber drivers, these additional costs are not limited to social security, as drivers have complained about having to pay for their own petrol, car insurance, and maintenance costs. fares have reportedly fallen and commissions have increased, making drivers grow disillusioned with the promises of the gig economy. Uber can slash rates without  warning, on top of taking commissions of 20-30%.

These issues may not have been as problematic in the past since the highly educated consultants were well paid enough to compensate for the additional costs and risk. However, the fastest growing source of employment is now low skill gig workers who are earning less and have less bargaining power. For Uber, the drivers are at the bottom of the company and have no employment protection, no official wage, and no say over their rights. Yet a bulk of the business risk is shifted to these under equipped workers, working for often far below minimum wage standards.

Legal Issues

Presumably in part to the above issues, some workers are starting to sue companies such as Uber for inappropriately classifying them as contractors despite enjoying the amount of freedom that freelancing entails.

At first, Uber drivers do appear to have more freedom – they use their own cars, need not wear uniforms, and most importantly they work whatever hours they please.59 However the argument of freedom also has some problems. For example, Uber’s customer ranking system puts workers in an endless probation period, and more importantly, ties them to the platform. Should they move from Uber to a new competitor, their “professional career” would be irremediably lost. In this sense, the ranking systems implements rules and condition over the workers’ autonomy. If a driver’s ranking falls below a certain threshold the driver can have their Uber account deactivated. This suggests that Uber is also “exercising employer-like control over termination decisions.”

In the U.S., last year 50 lawsuits were filed against Uber in the U.S. federal court. This year, the suits continue, with an ongoing class action in California, and a group representing 5,000 Uber drivers in New York City arguing that drivers were misclassified as independent contractors. In the California suit, the District Judge in San Francisco took note of the fact that the drivers don’t seem like employees due to their freedom to control their schedule, but don’t seem like independent contractors either as contractors serve multiple clients, have more control over their work and usually possess a special skill. Uber tried to negotiate a US$100 million settlement, but was rejected by a federal judge.

In the U.K. a Central London Employment Tribunal recently ruled that Uber must provide its workers with basic employment rights. The case was raised by two of Uber’s drivers, who claimed the contractor working conditions equated to 5 pounds per hour, well below the minimum wage. The court rejected Uber’s argument that its workforce is “a mosaic of 30,000 small businesses linked by a common platform” as “ridiculous”. Uber have already appealed the decision, claiming its drivers benefit from being their own boss.

The Future of Gig Work

The ramifications of a gig economy, and the labor and regulatory issues associated with it, is not yet well understood. Addressing the opportunities and issues brought forth by the digital gig economy will be a complex and ongoing matter.

Some governments are investigating the issue. A February inquiry by the U.S. Congressional Research Service concluded that former assumptions that independent contractors have market power may not hold for workers in the gig economy, raising the question of which, if any, protections and benefits should be available to workers in the gig economy? In the U.K., British Prime Minister Theresa May has also ordered an independent review into similar questions, including investigating the trade-off between flexibility and consistent work and income, and whether it will undermine traditional policies like minimum wage, maternity rights, sick pay, and pensions.

Some of the on-demand platform companies are even taking the initiative into their own hands. AskRabbit, an online marketplace for everyday tasks, has started offering its users access to discounted health insurance and accounting systems. Lyft, a ridesharing service similar to uber, has signed a partnership with the U.S. Freelancers Union, allowing its drivers to enter a health plan and other benefit plans, and will eliminate at-will account termination.

The gig economy still poses many questions for social policy. Breaking down rigid organizations and internal labor markets can be liberating both for individual workers and for businesses. Gig work has the potential to provide greater flexibility and freedom and cultivate latent entrepreneurialism, but risks blurring the boundary  between  “mini-entrepreneur”  and  “precarious contract worker”. Furthermore, a job economy seeing most of its growth from low paid gig workers conflicts with a welfare system of employment-based social insurance. The challenge will be for policymakers to find a way to enable expanding individual autonomy while still providing security.

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