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Why is everyone afraid of the “gig economy”?

The future.

The backlash against the “Gig Economy” is now in full swing. Or is it just fear of change?

In a couple of key areas, Phil’s 2017 Budget was aimed directly as the fastest growing working sector in the UK, small self-employed businesses, he even made mention of the “gig economy”.

What’s all the commotion about? If you’ve lived under a rock for the last decade then you probably didn’t see the gig economy coming. But it’s not some exploitative tax dodge, it is a powerful social trend across the globe and it’s only getting bigger. It is reaching deep into the heart of our social fabric, and will influence sociopolitical and economic policy for decades to come.

In simple terms, the gig economy can be characterised as a labour market dominated by short-term contracts and freelance work; as opposed to traditional permanent jobs. This manifests itself, at the two extremes, as “a fully flexible working environment designed around the needs of people” (nice), and a “form of exploitation and cost-cutting” (bad).

There are attempts to “strangle” the gig economy, demonstrations against Uber, Deliveroo, and Amazon – all focussed on these companies taking more responsibility for their staff and making them employees. Except, maybe the point is being missed: With employees having limited job security, poor pension options (and the general gutting of the traditional labour force), many people are choosing to work in a more flexible way; although, inevitably, some do feel forced into the gig economy.

This a deep-rooted change in how people work, as the traditional 8hrs work / 8hrs play / 8hrs sleep life cycle introduced during the industrial revolution ceases to be relevant to today’s society. And it’s big, huge in fact, in the UK it’s estimated that five million people are employed in this type of capacity and a recent study by Intuit predicted that by 2020, 40 percent of American workers would be independent contractors.

The government, as ever, as trying to play catch-up and feel that legal frameworks, taxation and legislation is the way to deal with this change. The National Insurance rise announced this week is part of that early salvo; taking £240-a-year more on average from the self-employed and dividend recipients – mostly to fund tax-take shortfalls elsewhere.

And it feels punitive, especially as the Tories made an election promise not to raise NI. However, the current government seems committed to trying to understand the evolving workplace. Time will tell, as will evolving taxation policy and employment law!

But there are real concerns?

Especially amongst the low paid, that the likes of van-drivers, cabbies or fast-food delivery drivers could be the worst affected and maybe the “gig economy” is not right for them. However, many of these services rely on “demand-based” models and if companies such as Uber and Deliveroo are forced to provide fixed salaries, benefits and pensions it may cease to be a viable business model (until automation replaces all the drivers/riders).

No-one has to work in the gig-economy for low rates, but in some industries it’s starting to feel like this is the only option. At the low-end of the pay scale, the absence of financial protection afforded by a full-time job could under certain conditions drive “giggers” into poverty and this should be a serious concern. The low-paid also typically do the least amount of financial planning so we could be storing up a nightmare future of bankrupt, homeless pensioners in 2075. But is that really much different to today, pension funds are mostly in a hole and companies and government seem morally indifferent to the plight.

The minimum wage this week climbed to £7.50 per hour, that’s still £70 per week short of the UK’s living wage (London figures). Yet Uber averaged around £14ph, and Deliveroo about £10 (Estimated: figures are hard to calculate as it’s not paid per hour, and there are always outliers). With the gig economy, you can argue that you have the potential to make better than the living wage – working at minimum wage guarantees you won’t.

Employment legislation created decades ago is no longer fit for purpose, nevertheless it’s being used to force the high-profile, lower-end Gig businesses to change their working conditions. Recently, Uber, CitySprint, and Pimlico Plumbers have all lost employment tribunal cases after judges ruled they should class staff as workers. And the legal battle has spread to the healthcare sector, with self-employed blood couriers joining the fight to be classed as employees.

But, “being an employee” is not always the answer

The younger generations don’t all want to work 37.5hrs a week; starting at 9 with a fixed lunch and some career climbing mixed in is simply not on their radar. Being blunt, very few folks wants this style of work life – and it’s just about the most inefficient way to work in a modern society.

People crave freedom and flexibility, employers need on-demand resourcing and flexibility and it feels that there could be a close match, certainly closer now than any time in the history of mankind.

And, this “Gig Economy” is not new, we’re just giving it a disparaging and belittling label – the gig economy is as old as the oldest profession. The modern day version, in which many design, technology, information, project management and consulting folks operate under, is called freelancing or contracting.

With freelancing, the earning capacity is typically much higher than an equivalent full-time gig, and most don’t need to work the 9 to 5 grind with obligatory 2 hr commute to survive. Typically, a freelancer might earn £50k a year by working 5 hours a day for 200 days, whereas an equivalent full-timer would probably only earn £30k a year – and would have to graft for 7.5 hrs over 230 days.

The extra £20k (before tax, mind) pays for a lot medical care, training, pension contributions, and extra holidays that they would have with 3 months off every year. Of course, the reality is not always that clear cut – booking 1,000 hours year means the freelancer must be in demand and well-organised. It’s not uncommon for freelancers move from feast to famine, much like running a business – which is, in reality, what freelancers do.