Gig economy and worker welfare - February 2018
Proposition: "The wages and conditions of Australian workers providing services in sectors affected by the rapid growth of digital on-demand subcontracting platforms will, on average, be expected to fall without further government intervention."
Collaborator credits: we would like to thank Julie Toth for her assistance in framing this poll question. We would also like to thank Dr Josh Healy and Julie Toth for their expert overviews of the results.
Overview of poll results by Adjunct Professor Julie Toth
The latest wave of digital technologies are enabling a ‘gig economy’ that is changing the way in which supply chains and work tasks can be organised. Questions now being asked about it include: is this the start of a permanent structural change to all work arrangements, an incremental step change, or merely a passing fad? How will it spread? And what (if anything?) should be done to address any costs or concerns that might arise?
Overview of poll results by Dr Josh Healy
On-demand (or ‘gig-based’) working arrangements are moving rapidly into established industries. But, according to a new poll conducted by the Economic Society of Australia, economists are divided over whether this development is good or bad news for workers.
Responses (31)
Peter AbelsonUncertain (neither agree nor disagree)
8
This is a classic "it depends" problem.
Rachel ArmstrongUncertain (neither agree nor disagree)
8
Garry BarrettAgree
7
Harry BlochAgree
8
The lack of government protections to remuneration and working conditions in the gig economy is likely to lead to continued erratic and substandard incomes for many of the workers who are being treated as independent contractors. This may very well spill over into downward pressure on wages and working conditions for workers who are treated as employees under current regulations, although many of these workers are already receiving close to minimum legal rates of pay and working under insecure arrangements with variable hours of work. Effective action to ensure the gig economy doesn't undermine community standards regarding the conditions of work requires much more research on current practices and conditions to determine the full extent of the threat and devise regulatory regimes to ensure all workers in Australia have a fair go.
Alison BoothDisagree
5
The proposition is rather imprecise. The answer surely depends on whether the workers’ services are complements or substitutes for the digital on-demand subcontracting platforms, and we are not given this information.
Matthew ButlinAgree
6
Lisa CameronUncertain (neither agree nor disagree)
6
I am concerned about the impact of sub-contracting through platforms such as Uber as the "employer" takes very little responsibility for the "employee" (including not even acknowledging that they are an employer) and most of the risk falls on the worker. These sub-contracting arrangements undermine many of the hard fought for protections for workers. Wages and conditions of workers in these sectors are low and are likely to remain low, whether they will fall further in future is unclear.
Ken ClementsDisagree
5
Deborah Cobb-Clark2Agree
8
Lin CraseStrongly disagree
9
The supposition that government can somehow shield any set of workers from technological change is very hard to support. This is not to say there is no role for government - rather it's important to acknowledge the limits of the state in (a) predicting some of these changes (b) instigating responses that allow incomes to grow while dealing with potentially excessive inequality.
Kevin DavisAgree
7
I'm assuming the question refers to relative wages (versus rest of economy), and answer is premised on elastic supply of labour to that sector reflecting relatively low specialised skill requirements. But response could be expected to vary depending on whether the new business models create new demand for the products/services.
Brian DolleryDisagree
8
Workers who still retain their positions in the industries in question will be employed under conditions where capital/labour ratios have risen. It can thus be expected ceteris paribus that total factor productivity will rise, thereby exerting upward pressure on the wages of workers who remain in these industries.
Uwe DulleckDisagree
7
As always, it is not so much about the industry you work in but the extent to which your work is substitutable. For simple work in then digital economy (plain vanilla web development, but also proof reading, etc.) wages will drop as the international competition will bring down rates and it is difficult to see how to regulate against that. For customised and specialised work, and this in my [opinion] includes the social capital agents bring to the market, the effect will not lead to a downward pressure it may even lead to better and more opportunities.
ALLAN FELSDisagree
8
Gigi FosterUncertain (neither agree nor disagree)
8
On the one hand, the reduction in involvement of central wage-bargaining bodies that should be expected to accompany a rise in contractual labour in a given occupation should be expected to put downward pressure on wages. On the other hand, many of these workers' wages will already be bound by award rates or the minimum wage. Also, the conditions of workers who are sub-contracting might improve from the perspective of having greater flexibility to choose their working hours and types of jobs, although other conditions might become worse.
john FreebairnDisagree
8
As argued by Jeff Borland and Mick Coelli in December 2017 edition of the Australian Economic Review, structural changes of the Australian labour market are roughly the same over the last decade as in previous decades-for example, changes in industry and occupation mixes, job turnover and experience. Assuming close to a full employment economy, competition and the ability of employees to pick and choose across established and new type jobs should force similar working conditions across the labour market. Current general economy labour market protection policies seem more effective than the suggested option of additional "new industry specific" policy interventions.
Paul FrijtersAgree
8
The platforms effectively reduce the market frictions involved in offering services, which means more service providers taking up the possibilities for offering their services. This means the market power of the current providers reduces, which will reduce after-tax wages and conditions in the shorter run. In the long run the size of the market expands and conditions stabilise. The other main effect is on taxes: the online platforms run on a tax-evasion business model, so the key problem for the government is how to tax the platforms or monitor the service worker's activities and tax those. The tax authorities are so far not addressing this challenge.
Prue KerrAgree
8
Geoffrey KingstonDisagree
6
I agree that wages relative to skills will be lower on average in the gig economy than elsewhere, because there is greater freedom of entry into the gig economy, implying lower rents to the productive factors employed within it. However, I expect that the rate of change of wages in the gig economy will be roughly the same as the rate of change of wages elsewhere.
Michael KnoxStrongly disagree
9
Let us take the case of UBER drivers. UBER generates increased productivity by allowing drivers and passengers to find each other more quickly and efficiently. On a trip to the USA in January I witnessed the results. In the three cities I was in Los Angeles, Philadelphia and New York, UBER was MORE EXPENSIVE than Taxis. Because of the income sharing system of UBER this suggests that UBER drivers were better paid than ordinary Taxi drivers. UBER drivers were benefiting from the higher demand for a more productive service.
Tony MakinDisagree
8
New job opportunities are sure to arise in applying new technologies. Think of Uber. During periods of significant structural change what is needed is a highly adaptable and flexible labour market. Governments are incapable of processing information like markets do, and intervention runs the risk of worsening overall working conditions and wages.
Doug McTaggartDisagree
3
The first part of the statement is possibly true. However, a more accurate statement would be -- existing wages in affected areas will, on average, fall. It is hard to know what kinds of new jobs in affected areas will be created and what those jobs might pay -- possibly more. The second part referring to government intervention is more problematic. What could the government do that would not negatively affect wages generally, perhaps in terms of lost or forsaken productivity growth which would increase wages elsewhere.
Flavio MenezesUncertain (neither agree nor disagree)
7
For some type of jobs or tasks (e.g., those requiring low or generic skills), new platforms may increase the supply of labour by increasing labour market participation. New platforms, however, are unlikely to increase overall demand for low or generic skills. Thus, new platforms may put downward pressure on wages and conditions for workers with low or generic skills. In contrast, for other types of jobs or tasks (e.g., those requiring high or specific skills), new digital platforms may improve the quality of the matching between labour demand and supply, and it may lead to an increase in wages and conditions, depending on specific conditions. Although is plausible that there may be more low or generic skills tasks/workers across all subcontracting platforms – and therefore it is plausible that wages may decrease on average, the average impact on wages from new digital platforms is ultimately an empirical question.
James MorleyStrongly disagree
8
Real wage growth for the Australian economy has been slow in recent years, as part of the "secular stagnation" phenomenon. But that is unlikely due to the so-called "gig economy", which really doesn't employ that many people. A more plausible explanation is slow aggregate productivity growth and a continuing weakness in domestic and global labour markets following the GFC. As the US economy recovers further and given a lower unemployment rate in Australia, we can expect wage pressures to pick up. As for the gig economy, wages (and working conditions) are poor for, say, bicyclists delivering food. But why would they fall further? Are more people really going to sign up to become poorly paid bicyclists than already have? And why on earth would we think government intervention to prop up wages of bicyclists delivering food is a good idea? I can see some regulation of working conditions for those poor bicyclists (although there's not much the government can do about early sunsets, hills, and driving skills in certain capital cities). But wage regulation sounds like a bonkers idea in response to the gig economy.
A Abigail PayneUncertain (neither agree nor disagree)
5
John QuigginStrongly agree
8
The link to digital technology is misleading. The "gig" economy is a recreation of conditions of precarious and contingent employment that always arise when employers have enhanced bargaining power (eg the Hungry Mile on the Sydney waterfront in the 1930s). The disruptive effect of digital innovations acts as a catalyst, breaking down existing arrangements. The inequality of bargaining power ensures that the new conditions are less secure.
Jeffrey SheenUncertain (neither agree nor disagree)
5
Hugh SiblyUncertain (neither agree nor disagree)
8
It may be the case that at the moment some people working as subcontractors for these new types of firms will have inferior conditions to those who work in traditional jobs which are covered by traditional awards and conditions. However some of these new forms of employment do offer incredible flexibility. For instance, Uber drivers drive only at those times they choose. Over time there will be new entrants, hence increased competition, in these new digital industries. This will mean increased demand for labour. It will be very easy for workers to switch between platforms (as some drivers now switch between driving for Uber and Taxis). This will place an upward pressure on wages in these industries. It will also be relatively easy to identify good workers, who may end up receiving a wage premium for their performance.
Nigel StapledonDisagree
6
I started off agreeing but then thought about [it]. The factor which might be expected to put downward pressure on wages is the competition it will generate. However, to the extent that this and other new technology increases productivity, that will ultimately feed through into higher real wages, including for workers in this sector. As with the impact of all technology, the notion that government intervention is required must be highly problematic. On what basis is this technology different? Do we advocate against making markets competitive?
Julie TothDisagree
8
New technologies change the nature of work, workplaces and societies in a myriad of ways. Individuals and society as a whole generally benefit from new technologies, from resulting productivity improvements and from new/improved/cheaper goods and services. The transition from one technology to another can be disruptive (and even redistributional) however, as demand for some skills and resources falls but demand for others rises. This is the dynamic process of 'creative destruction' at work. The technologies themselves are neutral. It is up to each community to adopt, adapt and regulate technological and human activity in order to maximise the benefits of change and to minimise any transitional or unintended costs.
Elizabeth WebsterStrongly agree
9
Australia largely avoided the low-wage US-style secondary labour markets post-WWII due to policies of strong minimum employment conditions and large Government budget deficits. Without both these conditions, we are likely to follow the US path. Strong employment conditions may have a small effect on demand for workers but this can be countered by an expansionary monetary and fiscal policy stance.