THE FUTURE OF WORKAND EDUCATION FOR THE DIGITAL AGE

Transformation of Economicand Social Institutions for a
New Era of Self-employment
in High-income Countries
Reiko Kanda (NIRA)
Submitted on March 15, 2019
Revised on March 31, 2019

Abstract
Platforms now exist that allow large number of individuals to registerand accept work as self-employed workers. The self-employed in highincome countries are generally not subject to the provisions of labor
laws, and in many cases their social security benefits are inadequate. Asa result, they are exposed to economic risks such as income fluctuation.
In order to respond to this situation, it will be necessary to reconfigure
institutional arrangements including labor laws, tax laws and social
security laws to provide systems that are neutral in relation to forms ofemployment, and to enable the self-employed to receive the same
treatment as employees.

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Challenge
With the advent of job-matching platforms, it has become possible for workers
to freely select the workplace and working hours that best suit them. Theseplatforms that offer the large numbers of individuals registering with them
opportunities for work, which they take on as self-employed workers.
The economic significance of this new platform-based model of work should be
discussed from both the macro and micro perspectives. However, before
considering it, we should mention that there are significant differences in thesituation of self-employed workers depending on their state of economicdevelopment. Although the percentage of the self-employed in developing
countries is higher than in developed countries, many self-employed workers
in the developing countries may work in agriculture and retail industries whereplatforms we are focusing are not relevant. Our discussion here will therefore
focus on the situation in the advanced nations.
From the macro perspective, a mode of work that places no constraints on timeor place creates an environment ideally suited to the realization of humancreativity and innovation. However, there are concerns regarding a potential
increase in the number of individuals falling outside the scope of social security
systems predicated on corporate employment. Considered from the micro
perspective, it is possible that the ability for individual workers to adjust work
to match their own circumstances will increase their level of satisfaction. At thesame time, however, there are also concerns over increasing dissatisfaction asa result of limited social and contractual protection of self-employed workers,
lack of autonomy, and difficulties for collective representation andparticipation. [1]However, according to the “Freelance Workers Survey of 2018” conducted byLancers, Inc., the leading Japanese crowdsourcing company, work satisfactionof freelancers including corporate individual business persons and off-line
workers is higher than the rest of workers in Japan.[2] Similar results have beenobtained in other conducted online survey.[3] It is expected that the selfemployed will increase to a certain extent, and cannot be ignored.
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There is an expectation that freelance work should be left up to individual
responsibility, and that policy support from the legal system or the governmentis unnecessary. As one of the experts involved in our project, Professor ShinyaOuchi, has suggested in numerous books and reports, the advent of a digitalsociety will be characterized by an increasing number of people who are selfemployed and work via the Internet, the elimination of the economic risks
associated with this style of work, rather than their treatment as a matter ofindividual responsibility, is thus desirable as a matter of both industrial policy
and from the perspectives of promoting people’s freedom of choice.[4][5][6]“European Pillar of Social Rights” has been proclaimed by the European
Parliament, the Council and the Commission. It says that where a principle
refers to workers, it concerns all persons in employment, regardless of theiremployment status, modality and duration.[7] It means that they are trying totreat two forms of work equally.
The OECD report says that the main policies and institutional factors explain
the share of self-employment across European countries based on crosscountry time series panel regressions for the last two decades.[8] One of theresults is that the generosity of the unemployment benefit reduces long-term
share of self-employed, which means that self-employment plays the role of analternative to unemployment. More attention should be paid to the laws andpolicies that are expected to affect selection of workers between the employed
and the self-employed

Proposal
Understanding the actual situation of self-employed individuals working via
platforms
In order to formulate a basis for the design of new systems, it is essential tounderstand the actual situation of individuals who are working via platforms.
Examples of necessary data are the number of self-employed workers, thenature and conditions of the work that is commissioned from the selfemployed, the relationship between the self-employed and the providers ofwork, and income including fluctuations in income over time.
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However, understanding the situation of the self-employed is a challenging
task. In the US, although the number of self-employed workers is said to beincreasing, government statistics appear to show the opposite. Self-employedindividuals identify in a variety of different ways in response to questionnaires,making it difficult to obtain an accurate statistical understanding of thisgroup.[9][10] Because of this, measures to enable accurate data collection,including tax returns, official ID, and reporting requirements for the individual
concerned will be essential in conducting surveys.

Reconfiguring labor, tax and social security laws
The treatment of workers by labor laws, the tax system and the social securitysystem differs depending on the form of their employment. The specifics varyfrom country to country, but labor laws and social security systems arepredicated on the idea of regular employees and are said to offer preferentialtreatment to employees over the self-employed. [11] These existing systems
should therefore be modified in order to make them neutral in relation to thetype of employment. However, in this reconfiguration of systems, it will benecessary to incorporate not only the perspective of worker protection, but also
the perspective of industrial policy.
First, with regard to worker protection, unlike a worker employed by acompany, a self-employed worker is not subject to regulations such as thoseconcerning working hours and minimum wage although there are exceptions
for some cases. When the self-employed worker is subject to personal andeconomic constraints, legal protections apply to the self-employed worker as
they do to an employee, for example, by treating the self-employed worker as
an employee. However, when there are no personal constraints but only
economic constraints, in many cases legal protections do not apply. Given that
it is highly likely that a superior-subordinate relationship exists between theentity ordering the work and the individual accepting the order, it may benecessary to apply antitrust laws to strengthen the protection of the selfemployed by clarifying the terms of contract.
In addition, while the treatment of matters including income tax and business

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tax in tax laws differs from country to country, taxation should be fairirrespective of the type of employment concerned. For example, in Japan,
because deductions for regular employees were generous and the selfemployed were subjected to comparatively disadvantageous treatment, thetaxation system for the latter is being revised to allow the self-employed toreceive equivalent treatment to employees. In the US, the Trumpadministration has introduced preferential treatment for the self-employed,allowing a 20% income tax deduction. There appears to be some concern
among experts that this will increase the number of self-employed fallingoutside the scope of protections, but the question as to whether to offer
preferential treatment should not rest only with discussion of neutrality but
should be discussed from the perspective of industrial policy. [12]In addition, the treatment of benefits and burdens in terms of arrangements
such as pension systems and social security schemes related to medical benefits
is normally different for the self-employed and regular employees. Other thanin certain nations, in most cases maternity and childcare leave and benefits inthe event of illness, a reduction in work orders, or the loss of the worker’s
business are lower or nonexistent for the self-employed relative to employees,
necessitating a change to a neutral system.

Granting the right to lifelong learning
In revising these systems, it will be important not only to strengthenprotections for the self-employed, but also to ensure that they are able tocontinue working in a rapidly changing environment. In order to do so, workers
should be granted the right to continue learning throughout their lives in orderto enable them to secure good employment opportunities and realize lifestylesecurity through a stable income. In concrete terms, it will be necessary toposition a career as a legal right in some sense, and to establish rights thatcreate a basis for people to prepare for, begin, and develop their working lives.
The main entities that we can nominate to fulfill this role are both of public andprivate vocational training institutes ．The important thing is that training
must be conducted in accordance with the need of the workers concerned. In5

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Japan, the government has put in place and is implementing basic policies inrelation to the development of vocational skills. In the case of public vocational
training, emphasis is being placed on fostering human resource in regional
areas via programs that reflect regional specificities and the needs of regional
industries. While this is an important perspective the institutions involved areperhaps not best suited to providing information concerning the latest
developments in technology. For this reason, it will be important to also involvea variety of other entities, including private companies, universities and othereducational institutions, and individuals. It will be necessary to conduct
comprehensive vocational training, exploiting the specific advantages of eachinstitution.
Among these entities, universities will be able to play an important role inproviding state-of-the-art technologies. Some universities allow graduates totake online courses at low cost. It will be essential to create mechanisms that
extend such initiatives uniformly throughout society, providing everyone,irrespective of their income, with the opportunity to receive a good education.
According to a report by the World Bank, close collaboration between industry
and vocational education also plays a role.[13] One of the cases discussed in
the report involves vocational training conducted by Lenovo in China, incooperation with a university. Linkages between private companies anduniversities make it possible to provide opportunities for effective training thatreflects market need to a wide range of individuals, including the self-employed.

Creating mechanisms to realize collective representation and participation
Self-employed workers are exposed to the risk of loss of work due to factors
such as fluctuations in the economy, childbirth, or illness. In order to respondto this risk, self-employed workers should be able to unite and form
organizations, allowing them to create the groundwork for a new sense of
belonging and solidarity with other self-employed in the same field.
Generally, intermediary organizations such as chambers of commerce,employer organizations, and trade unions allow the membership of selfemployed workers.[14] (In Japan, however, it is not the case.) However, in such
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organizations the claims of these workers, who are neither company managers
nor contracted employees, tend to be drowned out. It will therefore benecessary to secure a safety net by creating intermediary organizations formed
independently by the self-employed, enabling them to determine conditions
such as working hours and a minimum wage amongst themselves.
However, such practices are regarded as bid rigging under existing antitrust
laws, making it difficult to set fixed conditions in relation to remuneration. Inorder to address this situation, it will be necessary to implement the measures
outlined above as revisions to existing antitrust laws.
The types of roles that intermediary organizations take on will be dependent
upon how they are rooted in society in specific countries. The important thing
will be to ensure that existing laws do not impede the activities of intermediaryorganizations. We must establish an environment in which individual selfemployed workers are able to form a range of organizations as needed.

References
1. Eurofound(2018), “Automation, digitaisation and platforms: Implications for work andemployment”, Luxemburg: Publications Office of the European Union
2. Lancer(2018),”Fri-ransu jittai chosa(Survey on actual conditions of Freelance)”
3. Professional & Parallel Carrer Freelance Association(2019). “Fri-ransu hakusyo
2019(Freelance White Paper 2019)”, https://blog.freelance-jp.org/survey2019/
4. Ouchi, Shinya (2017). AI jidai no hatarakikata to hou-2035nen no roudou hou wokanngaeru (“Modes of Work and Law in the AI Era- Labor Law in 2035),Kobundo
5. Ouchi, Shinya (2016). “AI jidai no koyou no ryudouka ni sonaeyo(“Preparing for thefluidization” of Employment”)”, NIRA Opinion Paper No.27
6. Ouchi, Shinya (2019). ““Free Workers” ni taisuru houseisaku ha douaubekika(WhatDirection should Legal Policy for “Free Workers” take?)”, NIRA Opinion Paper No.44
7. European Commission (2017). “European Pillar of Social Rights”
8. Baker, M., Balazs Egert, Gabor Fulop, and Annabelle Mourougane (2018). “To what extentdo policies contribute to self-employment?” OECD Economics Department WorkingPapers, No.1511, OECD Publishing, Paris. http://dx.doi.org/10.1787/74c044b1-en
9. Abraham, Katharine G., John Haltiwanger, Kristin Sandusky, and James R. Spletzer(2018). ”Measuring the Gig Economy: Current Knowledge and open issues,” National
Bureau of Economic Research Working Paper24950. August
10. Jackson, Emilie, Adam Looney, and Shanthi Ramnath (2017). ”The Rise of Alternative
Work Arrangements: Evidence and Implications for Tax Filing and Benefit Coverage,”

7The Future of Work and Educationfor the Digital AgeOffice of Tax Analysis Working Paper 114. January
11. European Foundation for the Improvement of Living and Working Conditions (2017),“Exploring self-employment in the European Union”, Luxembourg: Publications Office ofthe European Union
12. Shu-Yi and Ring, Diane M., Tax Law's Workplace Shift (November 16, 2018). Available at
SSRN: https://ssrn.com/abstract=3285591
13. World Bank (2019). World Development Report 2019: The Changing Nature of Work.
Washington, DC: World Bank. Doi:10.1596/978-1-4648-1328-3.
14. See 11. above.

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