Platform businesses have long been on the rise. Tech firms, such as Deliveroo and Uber, have reduced search frictions and revolutionised labour market structures as a result. This appeals to ‘workers’ for a variety of reasons: flexible hours, workplace independence and self-allocated holidays are just a few of the many non-pecuniary benefits reaped by users of the service. However, the integrity of these platforms is being challenged. The David stepping up to these Goliaths is the idea that the individual’s relationship with these companies is one that is more closely aligned with employment. The solution proposed is a change in the legal definition; the one we should seek is educates ‘workers’ on what they’re subscribing to.
One case in particular epitomises the turning of the tide against the tech firms. The clash between Pimlico Plumbers and Gary Smith, a London plumbing service and an engineer respectively, has reached the Supreme Court. At is centre is the question whether Mr Smith was correctly classed as self-employed by the firm or if his association with the firm was classically defined as employment. This is the crux of the wider issue with the ‘gig economy’. Namely, are firms required to offer the services and legal requirements a formal employment contract mandates?
The final decision on Mr Smith’s status under Pimlico Plumbers will have ramifications for the larger firms we are more accustomed to. Deliveroo recently resisted a charge concerning the legal status of its staff. This was based on the proposition that if a ‘worker’ can send someone else to do their job for them, then they should not be classified as employed. However, a ruling in favour of Mr Smith by the Supreme Court may pave the way for a broader interpretation of a worker’s rights making it more difficult for companies challenge ‘workers’ protestations. Uber is currently fighting a legal battle that is of a similar nature to Mr Smith vs Pimlico; this will be a good bell-weather of the court’s attitude to matter at hand.
However, the non-committal relationship of the platform business has its perks. Flexibility is an obvious benefit. Both hours and holidays can be chosen independently meaning individuals can take time off when needed without hassle. Moreover, joining the service often takes the same amount of time an app takes to download. All this contributes to reduced search frictions that, theoretically, should reduce unemployment. Indeed, the empirics match the theory: Britain’s working-age employment rate peaked at 75% recently.
Undeniably, there are downsides. Individuals employed by platform businesses often unknowingly forfeit rights they would otherwise receive. Sick pay tends not to be provided and there is no legal means to contest unfair dismissal. Additionally, the minimum wage of £7.50 does not apply to gig economy occupations. Yet, these can be remedied without sacrificing the essence of the platform.
Scared of (non)-commitment?
Educating individuals about the differences between standard and gig economy employment would reduce the number of workers being sucked into unfavourable work contracts. To see the benefits of this, we can turn to classical economic theory; moving closer to perfect information eliminates deadweight loss and improves market efficiency. Furthermore, we may resolve paternalistic concerns about whether a job in the gig economy improves their utility in the long run with simple nudges towards formal employment. Better to keep the option of the gig economy open with better information rather than eliminate it all together.