Gig economy

AUG 31

Mains   > Economic Development   >   Indian Economy and issues   >   Labour reforms

WHY IN NEWS?

  • Economic Survey for 2020-21 stated that “the COVID-19 induced lockdown gave a boost to the gig economy, while it had an inevitable impact on the vulnerable and informal sector”.

BACKGROUND:

  • A gig economy is a free market system in which temporary, flexible jobs are commonplace and companies tend toward hiring independent contractors and freelancers instead of full-time employees.
  • It undermines the traditional economy of full-time workers who rarely change positions and instead focus on a lifetime career.
  • Workers perform “gigs,” in which they are employed for a specific task or time. This is done to achieve advantage of cost, quality, and flexibility. Once the task is complete, the worker is free to move on.
  • At its core are app-based platforms that dole out work in bits and pieces - making deliveries, driving passengers or cleaning homes - leading some to prefer the term "platform economy".
  • Companies like Uber, Airbnb, Zomato have made a huge success with this concept.
  • Not all gig economy roles are based around a technology platform. Gig economy workers can also work for more traditional companies, which have changed how their staffing system operates

DEFINITION:

  • Code on Social Security, 2019 introduces definitions for ‘gig worker’ and ‘platform worker’.
  • Gig workers refer to “a person who performs work or participates in a work arrangement and earns from such activities outside of traditional employer-employee relationship”
  • Platform workers are “those who access organizations or individuals through an online platform and provide services for payment”.

STATISTICS:

  • Global:
    • A 2016 McKinsey report found that up to 20-30% of the working-age population in Europe and the US engages in gig economy
  • India:
    • The Global Gig Economy Index report,2020, which highlighted world’s fastest-growing freelance markets, has ranked India among the top 10 countries
    • The report says there has been an increase in freelancers in India from 11% in the third quarter of 2018 to 52% in the second quarter of 2019, thanks to various initiatives including Startup India and Skill India.

PROSPECTS:

  • Technology:
    • Technology played an important role in consolidating remote and mobile workforce, enabling rapid growth of the gig economy.
    • Platforms enabling centralized communication, real-time scheduling and tracking, dashboard, video conferencing, etc. created a marketplace for gig like ecommerce did for goods.
  • Cost saving for business:
    • Firstly, most businesses started factoring cost into their competitive strategy after the Great Recession 2008. Corona pandemic situation will further aggregates this trend
    • As a result, companies started to rationalize number of full-time employees and focuses on improving operational efficiency
    • In a gig economy, they save resources in terms of benefits like provident fund, paid leave and office space.
    • Short term contract will be safe for the firms, as it avoids long term obligations
  • Greater efficiency in talent acquisition:
    • From a talent-acquisition point of view, gig workers supplement skills provided by the existing workforce, reduce hiring costs and can be a viable solution in filling temporary vacancies in teams.
  • Seasonal increase in demand of the workers:
    • Seasonal spikes in customer service across most businesses helped in the rise of the gig economy
  • Adaptable working conditions:
    • Gig economy can benefit workers, businesses, and consumers by making work more adaptable to the needs of the moment and demand for flexible lifestyles.
  • Not bound by geography:
    • In the digital age, the worker need not sit at a fixed location - the job can be done from anywhere, so employers can select the best talent available for a project without being bound by geography.
  • Satisfies aspiring needs of younger generation:
    • The millennial generation seems to have quite a different attitude to careers. They seek to do work that they want to do rather than have careers that may not satisfy their inner urges.
    • They are willing to give up some financial security for living life on their own terms.
  • Taps a large pool of people:
    • Retired people can also pursue job after retirement
    • Freelancing is said to be effective in improving the rate of participation from women in India’s labour-force.
    • Students can engage in this sector after their college hours
  • A way for additional income and to test-drive a new career:
    • Gig work for some people is for additional income. But for some people, it’s a way to test-drive a new career
  • Important role played by gig workers during a pandemic
    • Platform workers were responsible for the delivery of essential services during the pandemic at great personal risk to themselves.
    • They have also been responsible for keeping platform companies afloat despite the pandemic-induced financial crisis.
    • This has cemented their role as public infrastructures that also sustain demand-driven aggregators.

CHALLENGES:

  • For workers:
    • Largely unregulated
      • Therefore workers have little job security and fewer social security benefits like pension, gratuity etc
    • Lower bargaining power of employees:
      • Unless a person is extremely talented, his bargaining power will necessarily be limited.
    • Unionization of workers will be difficult.
    • Less scope for workers to get skill up-gradation:
      • While companies routinely invest in training employees, gig-economy workers will have to upgrade his skills on his own at his own cost.
    • Lower credit access to workers:
      • Financial institution resist extending credit when steady income is not assured
      • Demand-supply mismatch may results in fluctuating wages in labour market.
    • Lack of legal protection:
      • Companies like Uber demands obligations from its drivers as any full-time employer, but without any perks or protections
      • Uber insists that its drivers are independent contractors and not employees
    • Unstable income:
      • As workers are paid based on the completion of task/project, the total amount a worker earns at the end of week/month remains uncertainty
    • Not flexible as it seems:
      • Roles of workers aren't as flexible as they seem, as workers are incentivised or pressured to work when the companies need them.
    • Exploitation:
      • Gig workers are exploited by giant tech companies with poor wages, punishing hours, and lack of labour rights.
    • Financial dependencies of workers on the gig economy
      • Workers require existing assets like vehicular assets for entry into the platform economy, thus they have to rely on intensive loan schemes provided by workers rely on intensive loan schemes.
      • It creates a dependency of workers on Platform Company.
      • It removes the flexibility benefit provided by the economy to its workers and make him liable to work under their terms and conditions.
  • For Government:
    • Difficult to regulate due its flexible and dynamic nature
    • Hence execution of tax laws and labour laws becomes largely ineffective.
    • Companies often use the terms such as ‘driver-partner’ or ‘delivery-partner’ instead of ‘employees’, allegedly to evade any responsibility towards them.
  • Issues in Labour laws coverage for gig workers:
    • Employees by law are guaranteed minimum wages, regulated hours of work, healthcare and other benefits.
    • Independent contractors, however, do not have a valid claim to these benefits, since they merely use the platform provided and do not work directly for the corporations.
    • This distinction has played a critical role in the emergence of the gig economy as it allows tech corporations to avoid labour regulation altogether.
    • Companies such as Uber have successfully avoided their contributions to employee benefits by reconfiguring the relationship and classifying workers as independent contractors
    • Due to the absence of clear provisions in the labour codes, gig workers can claim benefits, but not labour rights.
    • Though gig workers are covered under social security schemes none of these benefits are secure, which means, the Central government, from time to time, can formulate welfare schemes that cover these aspects of personal and work security, but they are not guaranteed.
  • Inequality:
    • Regional disparity:
      • Gig economy may not be accessible for people in many rural areas where internet connectivity and electricity is unavailable.
    • Inequality among gig economy workers:
      • People with higher skill set (video producers, software engineers etc.) have higher bargaining power and hence earns fair remuneration, while people at lower strata (delivery boys, chauffeurs etc) have neither financial security nor dignity of labour.
  • Legislative hurdles:
    • Labour falls under the Concurrent List of the Constitution.
    • Therefore, both Parliament and state legislatures can make laws regulating labour >> this brings differences in regulation of gig workers in different states

RECENT STEPS TAKEN BY GOVERNMENT:

  • Code on Social Security:
    • The code has provisions to ensure labour benefits for gig-economy workers.
    • The code provides that central or state government may notify specific schemes for gig workers to provide various benefits, such as life and disability cover. Such schemes may be financed through a combination of contributions from the employer, employee, and the appropriate government.
    • The code also provided for the establishment of a national and various state-level boards for administering schemes for unorganised workers, gig workers and platform workers
  • National Social Security Board:
    • It aims to recommend to the Central Government for framing suitable schemes for unorganised workers, gig workers and platform workers and to such monitor social welfare schemes.
  • State level initiative:
    • Karnataka drafted a bill to ensure basic facilities for labour employed in the gig economy sector, such as cab aggregators and delivery partners

WAY FORWARD:

  • Legal framework:
    • Required changes in the law to redefine what a “worker” means.
    • Amendments in labour laws to reflect the changing nature of gig economy
    • Taking inspiration from UK Labour Party, India could ensure full employment rights for gig economy workers, including sick leave and maternity leave.
    • Government can create a new category of worker known as a "dependent contractor" that sits between contractors and those in full employment, and brings with it some benefits and wage protections
  • Improve work environment:
    • Companies can introduce peer-to-peer mentoring and establish sharing platforms, both offline and online, to enable workers to connect with each other.
  • International engagement:
    • India can engage with the European Union and the United States, where discussion on protections in a gig economy is already underway.
  • Empowering gig economy workers:
    • Networking is essential to getting good assignments. It is important to get the terms of the agreement right before signing up for a project. Freelancers should read through the agreement carefully, and look for clauses about payment timeliness, the time period and deliverables.
  • Introduce tripatriate system
    • Introduce tripatriate system which includes labour unions, managements and the government to resolve disputes in gig economy

BEST PRACTICE:

  • California's gig worker law
    • The state of California in U.S recently has legislated that workers in the gig economy be classified as workers and not as independent contractors >> thus guaranteeing minimum wage and welfare benefits

PRACTICE QUESTION:

Q. “Gig or platform workers lack basic labour rights and social security in most of the economies including India”. In the light of this statement analyze the provisions of Code on Social Security 2020?