The evolv­ing in­de­pen­dent econ­omy

Financial Mirror (Cyprus) - - FRONT PAGE -

Work­ing full-time for a sin­gle em­ployer is no longer the norm in ad­vanced economies. In­stead, mil­lions of “in­de­pen­dent work­ers” – self-em­ployed, free­lance, or tem­po­rary em­ploy­ees – sell their labour, ser­vices and prod­ucts through dig­i­tal plat­forms to nu­mer­ous em­ploy­ers or clients.

The grow­ing share of in­de­pen­dent work, which typ­i­cally en­tails flex­i­ble hours, prom­ises to bring sig­nif­i­cant ag­gre­gate eco­nomic gains, by rais­ing labour-force par­tic­i­pa­tion rates, in­creas­ing the over­all num­ber of hours worked, and re­duc­ing un­em­ploy­ment. But the “gig econ­omy” also cre­ates com­plex new pol­icy chal­lenges in taxation, reg­u­la­tion, and ac­cess to so­cial ben­e­fits and pro­tec­tions that tra­di­tion­ally have been pro­vided through stan­dard em­ployer-em­ployee re­la­tion­ships.

Ac­cord­ing to a McKin­sey Global In­sti­tute study, up to 162 mil­lion peo­ple through­out the United States and the EU-15 are cur­rently en­gaged in some form of in­de­pen­dent work. Based on a rep­re­sen­ta­tive on­line sur­vey of 8,000 work­ers in six coun­tries (in­clud­ing the US), McKin­sey found that 1015% of the work­ing-age pop­u­la­tion re­lies on in­de­pen­dent work for their pri­mary in­come. An­other 10-15% – in­clud­ing stu­dents, re­tirees, house­hold care­givers, and those with tra­di­tional jobs – take on such work to sup­ple­ment their in­come.

McKin­sey’s find­ings chal­lenge sev­eral com­mon be­liefs about in­de­pen­dent work. First, the in­de­pen­dent work­force is not dom­i­nated by young peo­ple: peo­ple un­der age 25 rep­re­sent just 25% of in­de­pen­dent work­ers. The in­de­pen­dent work­force is also di­verse in terms of in­come level, ed­u­ca­tion, gen­der, oc­cu­pa­tion, and in­dus­try.

More­over, 70-75% of those en­gaged in in­de­pen­dent work do so by choice, rather than out of ne­ces­sity – a find­ing that is con­sis­tent with the re­sults of other re­cent stud­ies. In­deed, al­though 40-55% of low-in­come work­ers (earn­ing $25,000 or less per year) en­gage in some in­de­pen­dent work, they com­prise less than 25% of all in­de­pen­dent earn­ers. Only about one-third of sur­vey re­spon­dents said they rely on in­de­pen­dent work be­cause they can­not find con­ven­tional jobs or need sup­ple­men­tal in­come to make ends meet.

That mi­nor­ity, how­ever, still amounts to a large num­ber of peo­ple. It is es­ti­mated that more than 50 mil­lion Amer­i­cans and Euro­peans are en­gaged in in­de­pen­dent work out of ne­ces­sity, and more than 20 mil­lion rely on in­de­pen­dent work as their pri­mary source of in­come. Many are low-in­come work­ers who would other­wise be un­em­ployed. This sug­gests that stronger eco­nomic – and, thus, em­ploy­ment – growth would re­duce the num­ber of work­ers en­gaged in in­de­pen­dent work.

But, re­gard­less of macroe­co­nomic con­di­tions, in­de­pen­dent work is likely to ac­count for a ris­ing share of work in the long run, ow­ing to tech­no­log­i­cal ad­vances and in­di­vid­ual pref­er­ences. While dig­i­tal plat­forms for in­de­pen­dent work are still in the early stages of their de­vel­op­ment, and are be­ing used by only 15% of in­de­pen­dent work­ers, they are pro­lif­er­at­ing and ex­pand­ing rapidly. McKin­sey es­ti­mates that 30-45% of the work­ing-age pop­u­la­tion would pre­fer to earn an in­come, whether pri­mary or sec­ondary, from in­de­pen­dent work.

That trend poses chal­lenges and op­por­tu­ni­ties for pol­i­cy­mak­ers, work­ers, and em­ploy­ers. Pol­i­cy­mak­ers need to col­lect bet­ter data on the in­de­pen­dent work­force through reg­u­lar sur­veys. They must also up­date how in­de­pen­dent work­ers are cat­e­gorised, in or­der to adapt taxation, reg­u­la­tion, and ben­e­fits and pro­tec­tions (in­clud­ing an­tidis­crim­i­na­tion laws and min­i­mum wages) ac­cord­ingly. The pol­icy is­sues for high-skill pro­fes­sion­als act­ing as in­de­pen­dent agents are not the same as those for low-skill work­ers sell­ing their ser­vices through large dig­i­tal plat­forms like Uber.

Up­dat­ing the pro­vi­sion and de­liv­ery of ben­e­fits may be par­tic­u­larly chal­leng­ing. Some Euro­pean coun­tries are tack­ling the is­sue by cre­at­ing new clas­si­fi­ca­tions of work, with new ben­e­fit sys­tems. Bri­tish law dis­tin­guishes be­tween tra­di­tional em­ploy­ees and “work­ers,” who are en­ti­tled to only some em­ployee rights.

In the US, there is a grow­ing in­ter­est in a sys­tem of por­ta­ble, pro-rated ben­e­fits – such as un­em­ploy­ment and dis­abil­ity in­sur­ance and pen­sions – tied to work­ers, rather than em­ploy­ers. An­other op­tion in the US would be new unions or col­lec­tive or­gan­i­sa­tions (guilds) of work­ers, both to ne­go­ti­ate the terms of in­de­pen­dent-work con­tracts and to track and or­gan­ise ben­e­fits for work­ers who serve many clients and em­ploy­ers. Sim­i­lar sys­tems are al­ready in place for the con­struc­tion and en­ter­tain­ment in­dus­tries.

En­trepreneurs also have op­por­tu­ni­ties to cre­ate new prod­ucts and ser­vices tai­lored to the needs of the in­de­pen­dent work­force. Th­ese could in­clude shared of­fice spa­ces, fi­nan­cial so­lu­tions that smooth out in­come be­tween work as­sign­ments, train­ing pro­grams, and the cre­ation of widely recog­nised cre­den­tials to en­able in­de­pen­dent work­ers to ad­vance their work and in­come op­por­tu­ni­ties.

Em­ploy­ers, for their part, will need to learn when to rely on in­ter­nal tal­ent and when to turn to in­de­pen­dent work­ers. Many fac­tors will in­flu­ence that de­ci­sion, in­clud­ing cost, qual­ity, pro­duc­tiv­ity, and the se­cu­rity of pro­pri­etary in­for­ma­tion.

Fi­nally, there is the re­spon­si­bil­ity of work­ers them­selves to as­sert more con­trol over their own ca­reers, seek­ing op­por­tu­ni­ties and de­vel­op­ing dif­fer­en­ti­ated skills to avoid be­ing rel­e­gated to a low-wage gen­er­al­ist tal­ent pool or dis­placed by in­tel­li­gent ma­chines. This may prove to be the most im­por­tant el­e­ment of the emerg­ing labour-mar­ket trans­for­ma­tion: work­ers are a driv­ing force be­hind it.

Of course, dig­i­tal tech­nolo­gies have also played a vi­tal role in fa­cil­i­tat­ing the rise of in­de­pen­dent work. Dig­i­tal plat­forms like Airbnb, Etsy, and Uber have been crit­i­cal in re­duc­ing the fric­tion and in­creas­ing the trans­parency of the mar­kets that sup­port in­de­pen­dent work. And in­no­va­tion in this area re­mains ro­bust.

But it is th­ese plat­forms’ users who are re­ally re­shap­ing the la­bor mar­ket. Aided by dig­i­tal tech­nolo­gies, they are ad­vanc­ing their own in­ter­est in earn­ing more, while ben­e­fit­ing from more flex­i­ble work­ing ar­range­ments.

The likely re­sult of this trend will be a shift from the old model of busi­ness or­gan­i­sa­tion – in which most work­ers carry out spe­cialised func­tions for a sin­gle em­ployer within a rigid hi­er­ar­chy – to one cen­tred on lean core or­gan­i­sa­tions that rely on a loose net­work of ex­ter­nal providers for many tasks. Whether this new sys­tem is ac­tu­ally good for work­ers, em­ploy­ers, and economies, how­ever, will de­pend on how all of the rel­e­vant ac­tors ad­dress the chal­lenges in­her­ent in the tran­si­tion.

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