Back to the future: The gig economy and underemployment

These ought to be happy times for workers: unemployment rates in the UK, US and parts of the EU are at historically low levels. However, underemployment (people working less than they would prefer) is increasing, and wages have not been keeping up with rising prices. How did this happen, and what role is technology playing? Part of the answer may lie in the resurgence of the so-called ‘gig’ economy, illustrated by the following story:

It’s 1985, where Bob’s and Jimmy’s are two pizzerias on the same street. Bob is doing well and hires Marty to deliver for him. But demand for pizza is variable, and so at times during his shift Marty is idle. Jimmy cannot afford to hire a delivery person. If Jimmy could use Marty when his demand is high and when Bob’s is low, then he would happily pay some of Marty’s wages, benefiting both Jimmy and Bob. But again, it’s 1985. It’s just too difficult and costly for Jimmy and Bob to make this kind of deal. For example, who would be responsible if Marty falls off his bike delivering for Jimmy? Who pays for Marty’s sick days? How would Marty know which restaurant to return to after each delivery?

Back in 2018, technology in effect makes this deal possible. Enter a tech firm, with software enabling Bob and Jimmy to coordinate with Marty according to the peaks and troughs in pizza demand. This firm becomes an intermediary between all three parties. In fact, Bob fires Marty, and the tech firm ‘hires’ him as part of a float of delivery people, leasing workers to restaurants all over town. New employment and economic activity is created as the likes of Jimmy’s can now deliver using the float. Labour productivity increases as well: Marty is only paid for making deliveries. But because of this, Marty’s working hours and income are less certain.

So far, the resurgence of the gig economy, a.k.a, Marty’s story, has mostly affected just low-skilled jobs in the services sectors, but its influence is likely to spread. This is also no new phenomenon. Travelling even further back in time, for example, Marty’s story mirrors the changes taking place in the docks of East London in the late 19th century:

It’s 1898, new transport technologies (steam boats) decrease trade costs across the British empire, creating surging demand for casual dock labourers. These labourers work only when a ship docks, and as a result many live in poverty, unable to save for sickness or times with no work.

However, we know this much earlier story had a happy ending. During the 20th century, employment protection laws and social security mechanisms, such as unemployment insurance and the old-age pension, were introduced to make these low-skilled workers’ lives much less uncertain, with unionisation playing an important role. As a result, the situation of casual workers like Marty in 2018 is nothing like as bad as it was in 1898.

Nonetheless, regulation is still playing catch-up to how new technologies are affecting the world of work. The challenge facing policy makers today is similar to what faced them in 1898: how to protect workers in casual employment. Governments today face pressing gaps in current labour legislation. For example, is Marty employed by the tech firm, the restaurants, or is he self-employed? Should he have paid holidays and sick leave? What if he is injured during a delivery? These were the questions which stopped Bob and Jimmy making a deal in 1985, but simply they have been brushed aside by technology, and are currently the subject of litigation around the world.

In the long term, governments may look to a more ‘radical’ approach. They could ban casual work altogether, but at the cost of the welcome productivity and employment gains the gig economy generates. Others have suggested (and trialled) a radical change in social security, a universal basic income, whereby all adults receive the same no-strings attached amount from the state to cover the basic cost of living. But is this policy so radical? The idea of a basic state pension would have seemed radical and impossible to those living in 19th century Britain. If underemployment continues to rise, perhaps those living in 22nd century Britain will see the universal income in much the same way as we now see the state pension: a necessary feature of modern society.