Solving the Great Gig Economy Dilemma

If you’ve read some of the other posts on this blog, you’ll know that I’m both fascinated and worried by how we adapt to the social impact of automation and new ways of working.

In particular, I’ve argued that whether this work revolution turns out to be a blessing or a curse depends largely on how willing we are to reinvent our social structures and norms.

When John McDonnell presented the UK Labour Party’s proposals to protect workers in the gig economy this week, it prompted me to the return to the subject yet again.

I believe the Labour proposals are based on the right principles, but in practice they would take us in  the opposite direction to where we should be heading.

I agree wholeheartedly that we need action to tackle the great dilemma of the gig economy, as it’s painfully clear how the gig economy allows exploitation of workers as much as it creates essential flexibility in a changing labour market.

Labour appear to be proposing applying an industrial age model to the problem, one which forces all  employers to provide the full apparatus of sick pay and holiday arrangements for all workers from day one.

This model, with its paraphernalia of sick notes, leave cards and annual leave allowances, works well  where employers have many employees on permanent or long term contracts, but I believe it’s entirely inappropriate for the transactional model of the gig economy.

To solve the gig economy dilemma, I believe we need to break from the models of the industrial age and go back to first principles.

Paying someone less than a decent living wage is clearly exploitative;  that’s why the UK national minimum wage was introduced.

Paying someone a decent living wage without any provision for sickness or holiday is still exploitative.

Paying someone a decent living wage every day they are sick or on holiday is not the only answer.

One alternative is to provide a permanent safety net: redistribute some of the wealth created by automation to the workers it displaces, in the form of a universal basic income.

Another is to pay people more when they are working to cover them when they aren’t. Instead of creating mechanisms and overheads to manage sickness and leave, you simply pay people a higher daily rate to cover it.

This isn’t a new idea – in the contracting world it is well established that a contractor will get more for the same job as a full-time employee, and this is partly because they don’t get sick pay, paid leave, pension or national insurance contributions paid by the employer.

Adding a second tier to the national minimum wage – a national minimum contractor rate, if you like – would give employers the option to offer either the minimum wage with sick pay and holiday, or the higher, minimum contractor rate, to cover an employee for when they can’t work or need a break.

A minimum contractor rate covering 25 days sick or holiday per year would be around £8.70 per hour versus the current minimum wage of £7.83 per hour.

There might even be scope to include national insurance and pensions contributions in this minimum rate, which takes us towards the sensitive territory of IR35.

Like the Labour proposals, IR35 was brought in for completely laudable reasons, to prevent exploitation and ensure employers meet their obligations to their employees and government.

It protects workers in some areas at the cost of stifling the market and discouraging enterprise in others: you only need to look on any freelancer forum for the fear and loathing it has generated there.

Some would argue that meddling with the minimum wage like this would reduce the number of jobs available. The additional costs of sick and holiday pay, or paying the higher contractor rate, would mean some jobs were no longer economically viable for employers to offer.

But if we accept the basic principle that paying less than a living wage, including provision for sickness and holidays, is exploitation, then these aren’t really jobs, they’re just opportunities to exploit workers.

The way we work is changing radically. If we try to apply the old structures to ensure people are treated fairly, we will stifle the benefits of the gig economy for workers and employers alike.

We need transactional mechanisms to guarantee a fair day’s pay for a fair day’s work, and I believe that universal income, minimum day rate, or some combination of the two, could provide a viable solution.

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