Innovation is good, just not an excuse for not meeting the minimum
By: Alex Seemann
Tags: Digital Economy, Gig Economy, Regulation, Sharing Economy

The development of new technologies has enabled the creation of an infinity of new services. The emergence of the digital economy has meant fundamental changes to the way in which societies are organized, producing new paradigms in our systems of cooperation and coordination. The extraordinary growth that the companies of the so-called Digital Economy have had, has meant an important challenge for regulators in the different dimensions of economic activity, for instance we have seen important differences between some of the biggest tech companies and France on how they should be taxed. A similar situation has developed on labor regulation and benefits.

The discussion on how labor relations between workers and firms should be regulated is particularly important for those organizations that are within the so-called Gig-Economy. Gig-Economy or collaborative economy is understood as those business models in which through a digital infrastructure it is possible to make transactions between users and suppliers for different types of goods and services. These transactions can be for basic goods or services or for partial processes in more complex tasks of the production chain. Following is a brief discussion about the regulatory scope of labor in this kind of organizations.

How things are organized?

In order to discuss the regulation of work in this type of firms, it is necessary to agree on certain concepts. There are several studies on the subject that elaborate the concepts of the different economic models that exist in the industry. It is possible to identify both crowd-work and work-on-demand as types of work in the Gig-Economy. According to De Stefano (2016)[1], crowd-work refers to those systems that, through a digital platform, connect organizations, companies and individuals through the Internet, allowing the connection of clients and workers on a global scale. On the other hand, the work cited defines work-on-demand as those traditional tasks that can be offered through mobile applications. The interesting thing about this conceptual discussion is that it allows identifying certain patterns in the functioning of organizations.

In general, the tendency has been to segment their supply based on different type of service provided as well as the different “qualities” of the same service. An example of these differences is the case of Uber that has been segmenting their offer based on both the demand of the users, but also on the basis of their collaborators (to be UberBlack it is necessary to have a certain car). The interesting thing is that despite the fact that the supply of companies is unquantifiable, in essence the business model is quite similar which allows us to think of similar solutions to certain problems.

As mentioned above, it is possible to identify business models that follow similar patterns, particularly regarding the relationship with their collaborators. The emergence of countless companies that use the same model for different activities (transportation, household chores or even more complex services such as physicians) accounts for a recurring mechanism as a business model.

In many of these models they rely on the flexible supply that they can set up. Because of this, companies decide not formalize the relationship with their collaborators. It is important to consider that this is (at the moment) a rational and conscious decision of firms. Much of the success of these companies, with their significant efficiency gains for the whole society, were the product of innovation and creativity that meant organizing things differently through technologies. This may have meant that legal gaps have been used at some point in time to adapt models of organization and cooperation that did not exist before. In the same way it can be considered that this type of labor relations can also be of interest to workers, benefiting for instance, from greater freedom in work schedules that can complement other activities.

However, due to the economic size[2] and social importance of these activities nowadays, it is necessary to move towards regulatory frameworks that safeguard the safety and equity of workers, users and also ensure that these companies meet the same legal requirements that any other company.

Why regulation is necessary?

It should be considered that there are structural characteristics of these business models that justify the need to regulate their behavior. The network economies and the resulting economies of scale of many of these companies mean that in some cases the idea of ​​freedom in the decision to work can be challenged. Conceptually, this principle is decisive when defining a job and a worker as a dependent or independent.

It should be considered that due to the way in which many of these markets are organized there are important economies of scale, this implies that companies would be more efficient delivering their services, the larger their sales volumes are. This can undoubtedly mean significant gains for consumers, but it can represent significant challenges for workers who may face a single employer, becoming monopsonies in certain markets. This can be aggravated when workers have high degrees of specialization or when it is the only economic activity they perform. Recent evidence has shown how many of the firms that carry out these activities have been acquired or merged to achieve greater volume[3] (maybe this is a topic that market regulators should consider into their competition analysis).

When there are fewer employers, freedom of decision can be jeopardized. This added to certain mechanisms used in these companies can affect the idea of ​​independence in the decision to work or not. Because the company can handle a kind of monopsony in this labor market, it can incur certain abuses in terms of salary, hours of work and tasks to be performed that must be regulated.

What should be regulated?

This is probably the most difficult question to answer, due to the effects it may have on the operation of the system. However, it is possible to approach this challenge by ensuring certain minimums in terms of protection for workers and consumers. In this sense, countries must move towards labor statutes that consider the characteristics of these types of work. For this it is decisive to separate the regulations according to the nature of the task performed. In general terms, regulations should consider minimum wages per hour worked in accordance with current laws, and maximum hours to work per day and per week should also be considered in those tasks that are paid per hour. Finally, regulatory frameworks should consider minimum coverage in terms of labor accident insurance, health coverage and pension contribution.

It is necessary to move towards labor statutes that adapt to new technologies, that promote innovation and economic development, and that also allow improving the lives of workers and users. This must be done by ensuring the principles of social justice and minimum guarantees for all, principles that must be the center of development. This means that countries must update their regulations to ensure that all workers have minimum guarantees at the time of their work. The job security of a worker should not depend on the type of work he does, be it the driver of public transport or an Uber driver.