Vulnerable workers in the shadow economy: is there an app for that?

Non-standard or contingent forms of work are a growing feature of OECD economies. Katz and Krueger (2016), for instance, find that non-standard work arrangements (temporary help agency workers, on-call workers, contract company workers, and independent contractors or freelancers) accounted for all net employment growth in the U.S. economy between 2005 and 2015. Across the OECD, non-standard work now makes up a third of total employment.

Work performed in non-standard arrangements commonly takes place beyond the reach of unions, employment standards, and health and safety laws, and without the advantage of secure and decent wages and benefits.

At its most vulnerable, non-standard arrangements taking the form of “gig” or “on-demand” work resemble what historically has been termed “informal sector work”:  small-scale or casual activities carried out by outworkers, subcontractors, freelancers, home-based workers, and the ‘self-employed’ in the shadow of the formal, regulated economy.

A rapidly-growing share of this “on-demand” work is done through on-line intermediaries, like Mechanical Turk or Uber, via a digital platform or app. Estimates range from less than 1% of total U.S. employees, to as high as around 10% in some European countries, engaging in digital platform work in any given month.

Can digital platforms provide a technological fix to the problems of work in the informal sector, where work is unprotected and even unrecognized by public authorities?

The Economist magazine thinks so. In an article in the October 15th issue, it suggests that by substituting digital platforms in place of cash transactions, thereby allowing authorities to track, tax and even regulate commercial exchanges, digital platforms “may persuade informal businesses and workers to become formal.”

Professor Ursula Huws, a leading authority on digital platform work, has given some support to this view, writing that

“One way of looking at the recent exponential growth of online platforms in service delivery is to see it as a formalization of the informal economy, with the transparency of an open market replacing the old word-of-mouth methods of finding work, and the replacement of unrecorded cash-in-hand payments by trackable online payments, opening up at least the possibility for taxes to be collected and fairness to prevail.”

This view fits comfortably within  the dominant narrative (espoused by the Economist and others) that informal activity expands because of over-regulation, and that technological rather than regulatory fixes are best suited to reducing the obscurity around informal economy work.

Yet as I suspect Dr. Huws would agree, this is ultimately a very narrow understanding of both informality, and the forces behind growing insecurity of work and declining job quality, in both the unregulated sector and in formal sector employment.

In fact, there are arguably strong economic pressures reinforcing the growth of informal sector activity and work. The World Bank warned several years ago that an additional 600 million new jobs will be needed globally over the next 15 years to keep up with working-age population growth. Thus far, as the Economist points out, growth in the working-age population has outstripped the increase in officially employed over the past decade, implying growth in the (poorly documented) informal sector.

This suggests that not only is there no technological fix for the unregulated character of ‘gig economy’ work, there are limits to the ability of regulatory efforts alone to contain the expansion of informal work. The slow growth and weak labour-market policy apparent in the grinding economic “recovery” of recent years will continue to force many to scrounge work in the interstices of the formal capitalist economy, turning consumption goods into capital assets, and piecing gigs and jobs together as best they can.  Far from “formalizing the informal sector,” in the short run, pressures to “informalize the formal sector” look to set to persist.


Photo credit: Jeffrey Pott


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