The pros and cons of the gig economy

By Heather Cameron

The ‘gig economy’, also described as the ‘sharing economy’, ‘collaborative economy’ or ‘on-demand economy’, has grown rapidly in the UK, a trend that is predicted to continue amid post-Brexit uncertainty.

A new study from the McKinsey Global Institute suggests that work in the gig economy is even more widespread than official data suggest, with 20-30% of people in the US and UK working independently. And while the report suggests the majority of these workers are participating in the gig economy by choice, a sizable minority are there reluctantly.

So what exactly is the gig economy and what are its benefits and drawbacks?

What is the gig economy?

The gig economy comprises enterprises such as Uber, the driver hire app, Airbnb, the accommodation-sharing platform, and Deliveroo, the online food delivery company. These enterprises enable people to use digital platforms to buy services from, and sell services to, each other.

A recent PwC study identified five key sectors within the gig economy:

  • peer-to-peer accommodation
  • peer-to-peer transportation
  • on-demand household services
  • on-demand professional services
  • collaborative finance

People that work in the gig economy, as described in the McKinsey report, are independent workers, rather than employees. Three key features of these workers have been identified:

  • a high degree of autonomy
  • payment by task, assignment, or sales
  • short-term relationship between the worker and the customer

Growth

The UK has seen higher growth in the gig economy than the rest of Europe, partly due to the recent establishment of London as a global financial technology (FinTech) hub. Transactions reached £7.4bn in 2015, almost double the previous year.

The number of jobs in the online gig economy advertised by UK employers increased by 14% between May and September, according to the Online Labour Index. This is around double the 7.5% rise elsewhere in Europe, and 6% in the US.

The McKinsey research estimates that there are up to 162 million independent workers in the US and Europe combined. The number of people classified as self-employed in the UK has grown by 47% since 2000, while the number of employed has risen by just 13% over the same period.

Pros

Supporters of the gig economy argue that it enables more people to participate in the labour market by providing flexible working, provides opportunities for the unemployed and could increase productivity.

Indeed, flexible working has proven very popular among the working population as more seek to achieve the perfect work-life balance. Those surveyed for the McKinsey report who chose independent work, reported greater satisfaction with their lives than traditional workers. They were more engaged in their work, and relished the chance to be their own boss and have more control over their hours. Even those working independently out of necessity reported being happier with the flexibility and content of the work they do, although they were less satisfied with their level of income and income security.

Both consumers and organisations can benefit through greater availability and accessibility of services and improved matching that better fulfils their needs.

And there is also the benefit of minimal cost. Digital business models have lower transaction costs for consumers, and organisations can keep costs down by using independent service providers only when they need them.

Nevertheless, challenges exist.

Cons

While there are more people in work than ever before, due in large part to the increase in self-employment, and despite the high levels of satisfaction among independent workers overall, there are concerns over job insecurity and low income.

Those working in the gig economy do not enjoy the same rights and protections as employed workers, such as health benefits, overtime pay and sick leave pay.

The TUC has highlighted that the increase in self-employment has not been driven by a boom in entrepreneurship but, instead, workers are increasingly forced by employers to accept precarious employment with low pay.

Deliveroo has recently come under fire from workers over their employment practices in relation to the minimum wage. And Uber is involved in an employment tribunal where drivers have contested their status as self-employed, suggesting they should be entitled to a range of benefits such as pension contributions as well as holiday and sick pay.

In a bid to address concerns about the lack of rights held by people working in the gig economy, Theresa May has recently appointed a former adviser of Tony Blair to head a review into employment rights across the new economy.

But this will be no easy feat, as the rapid development of the gig economy poses significant challenges for policy makers and regulators to keep up.

Final thoughts

As the McKinsey report argues, “expanding economic opportunities and income security policies for this group should be a priority”. Hopefully the review of employment rights will mark the first step in the right direction.


If you enjoyed reading this, you may also be interested in our previous blog on ‘the self-employment boom.

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Equal to the task? Addressing racial inequality in public services

huddleCLR

Throughout October, a series of events to promote diversity and equality will take place as part of Black History Month. Although there are many achievements to celebrate, it is an unfortunate fact that many people in the UK today still experience disadvantage due to the colour of their skin.

Over the summer, reports by the Equality and Human Rights Commission (EHRC) and the UN Committee on the Elimination of Racial Discrimination (CERD), found that racial inequality in the UK was ‘worryingly high’.

In its biggest ever review of race inequality in the UK, the EHRC concluded that:

“while for certain people life has become fairer over the past five years, for others progress has stalled and for some– in particular young Black people – life on many fronts has got worse.”

Audit of racial disparities announced

The government responded quickly by announcing an audit of racial disparities in public services. It promises to ‘shine a light on injustices as never before’.

From summer 2017, Whitehall departments will be required to identify and publish information annually on outcomes for people of different backgrounds in areas such as health, education, childcare, welfare, employment, skills and criminal justice.

As well as enabling the public to check how their race affects the way they are treated by public services, the data is also intended to help force services to improve.

The audit is being called ‘unprecedented’ – and it certainly is – up until now, public services in the UK have not systematically gathered data for the purposes of racial comparison. Indeed, according to the FT, very few countries, if any at all, currently produce racial impact audits.

‘Worryingly high’ levels of racial inequality

The audit will have its work cut out.  The review by the EHRC found that, compared to their White counterparts, people from ethnic minorities were more likely to be:

  • unemployed
  • on low wages and/or in insecure employment
  • excluded from school
  • less qualified
  • living in poverty
  • living in substandard and/or overcrowded accommodation
  • experiencing mental and physical health problems
  • in the criminal justice system
  • stopped and searched by police
  • a victim of hate crime
  • a victim of homicide

Institutional racism

Similarly, the CERD findings into how well the UK is meeting its obligations under the International Convention on the Elimination of All Forms of Racial Discrimination (ICERD) raised serious concerns about the level of institutional racism in UK public services. Omar Khan, of the Runnymede Trust, suggested that the findings would ‘embarrass the UK on the world stage’.

Longstanding inequalities in access to services, the quality of care received and patients’ health outcomes were criticised, as was the over-representation of persons belonging to ethnic minorities in psychiatric institutions.

The committee echoed the EHRC’s concerns regarding higher unemployment rates and the concentration of persons belonging to ethnic minorities in insecure and low-paid work.  They also criticised the use of discriminatory recruitment practices by employers.

In education, there were concerns regarding reports of racist bullying and harassment in schools, and the lack of balanced teaching about the history of the British Empire and colonialism, particularly with regard to slavery.

The committee also concluded that there had been an outbreak of xenophobia and discrimination against ethnic minorities, particularly since the EU referendum campaign.  Indeed, the rise in post-Brexit racial tensions has been widely acknowledged.

Equal to the task?

Although the audit has been welcomed by many, including the EHRC, others have raised concern about the extent to which it will tackle the root of the problem.  Danny Dorling, of Oxford University, remains sceptical, stating that “within two or three years every single one of these audits is forgotten”.

Some have noted that in order to be effective, the audit will also have to capture outcomes for migrant families, and for poorer White people, who also suffer from discrimination and disadvantage.  Others, including Labour’s Angela Rayner, shadow equalities minister, have noted that there is a ‘huge gap’ in the review as it would not include the private sector.

The EHRC have called upon the government to createa comprehensive, coordinated and long-term strategy to achieve race equality, with stretching new targets to improve opportunities and deliver clear and measurable outcomes.”

Certainly, the data produced by the racial equality audit may well provide some basis for the establishment of such targets.

So while this October there is cause for celebrating the progress made so far, the findings of the EHRC and the CERD underline just how entrenched and far-reaching race inequality remains.  As the EHRC states:

“We must tackle this with the utmost urgency if we are to heal the divisions in our society and prevent an escalation of tensions between our communities.”


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Spreading the word on the living wage

By James Carson

Last week, Church of England bishops issued a letter calling for a new direction that they believe political life in the UK ought to take. Among the bishops’ recommendations was support for the living wage:

“It represents the basic principle that people are not commodities and that their lives cannot adapt infinitely in response to market pressures.”

It didn’t take long for the media to find flaws in the Church’s own approach to paying its staff. This week it was reported that a Church job in Canterbury was being advertised at £6.70 per hour. The living wage, calculated from the basic cost of UK life, is currently £7.85 an hour outside London.

Low pay seems likely to be one of the key issues in the general election campaign, so a new report from the Joseph Rowntree Foundation (JRF) is especially timely.

Low pay is endemic

The report describes low pay as “endemic” in the UK labour market, noting that more than one in five workers in the UK experience low pay, a proportion that has changed little in more than 25 years.

Among the research findings:

  • More than a third of low-paid workers (38.4%) experience a period of worklessness over a four year period;
  • Being low paid increases the probability of experiencing a period of worklessness by around 10%, after accounting for a host of individual, family-level and employment characteristics;
  • Those low-paid workers on temporary contracts, and those with work-limiting health conditions or disabilities, are the most likely to experience a spell of worklessness over a four-year period.

The authors of the report express concern that when many of those workless individuals who were formerly low paid return to employment, it is to a similarly low level of earnings.

“This low-pay, no-pay cycle means many find it difficult to escape low living standards and advance in the world of work.”

In addition, the JRF report highlights  the significant burden on the state of having large numbers of low-paid workers alternating between employment and worklessness, and suggests that significant fiscal savings could be made if job security for those in low-paid positions was strengthened.

While the paper does not propose any specific policy recommendations to tackle the employment insecurity of low-paid work, the authors suggest that several areas of policy offer potential for co-ordinated solutions to this problem, including:

  • extending access to skills and training to those who are in work and lack qualifications;
  • limiting the burden of unplanned absence from work to employers through the targeted re-introduction of schemes such as statutory sick pay recovery;
  • providing support alongside incentives for low-paid workers to progress through in-work conditionality within Universal Credit.

The movement to encourage more employers to pay the living wage has picked up pace in recent months. Organisations such as Citizens UK and the Living Wage Foundation have campaigned to encourage more employers to pay the living wage. Even so, by the end of 2014, only 60,000 people in the UK were covered by this pay rise, with none of the big supermarkets or large care firms involved. Some local authorities, however, including Glasgow, Cardiff, Birmingham, Newcastle and the Greater London Authority, have adopted the living wage.

As the JRF report underlines, paying the living wage to employees results in reduced welfare benefits and extra taxes. Which means that, whether the employer is Tesco or the Archbishop of Canterbury, the living wage can give people basic rights and a sense of dignity in work, while making good economic sense for the nation’s coffers.


Further Reading

We’ve previosuly blogged on the living wage and addressing the causes of in-work poverty.

Other resources which you may find interesting (some may only be available to Idox Information Service members):

Wealth: having it all and wanting more

The benefits of tackling worklessness and low pay

Ten years of the GLA’s London Living Wage

Bare minimum is not enough (living wage)

Low pay Britain 2014

Is it a happy birthday for National Minimum Wage?

wage-packet

by Donna Gardiner

Today, (Tuesday, 1st April), is the 15th anniversary of the introduction of the National Minimum Wage in the UK.  The anniversary occurs during the second week of the Trade Union Congress’ (TUCs’) ‘Fair Pay Fortnight’, which aims to raise awareness of the problem associated with low pay, in-work poverty and the increasing cost of living in the UK. Continue reading