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The European gig economy at the crossroads
Could the EU’s proposals to extend workers’ rights backfire? asks Arturo Bris, Director of IMD’s World Competitiveness Center.
Regulators and policymakers must avoid falling into the trap of trying to govern the world as it always has been. Rather, they must devise the rules for the world of tomorrow. The new rules governing how companies must provide for the 28m workers currently operating in the European gig economy suggest that the EU may be moving forward with its eyes closed.
New rules for a changing market
At first glance, the EU is making commendable efforts to ensure that changes in the labor market do not leave workers unprotected. In June 2023, member states agreed in principle to a new package of rules designed to afford greater employment protection to gig-economy workers. The deal means that, in time, workers such as taxi drivers and food-delivery riders will qualify for employment benefits such as social security payments and parental leave.
A decade ago, when the inchoate gig economy existed only on the fringes of the labor market, these reforms would have been deemed unnecessary. Workers had to choose between permanent employment for a single employer with a set range of benefits or self-employment with greater autonomy but few other advantages.
Today, gig-economy workers operate in the gray area between these two categories, in which companies often control workers’ hours, tell them what to wear at work, and are strict about what work they must accept. While enforcing these rules, these companies continue to classify these workers as self-employed, allowing employers to escape their traditional responsibilities.
Clearly, there is a strong case for legislative intervention. The consensus in the EU has long been to reject the type of limited regulation imposed upon the US employment market, in favor of legislation governed by the broad agreement to eliminate exploitative practices.
Would the new rules give workers what they want?
It should be noted that not all informal employer-employee relationships are exploitative. Indeed, some gig-economy workers welcome a less binding arrangement. They value the advantages of such relationships and are happy to accept the downsides.
For example, research from McKinsey suggests that around three-quarters of gig-economy workers have actively chosen to work in this way, with only a quarter feeling they have no choice in the matter. Moreover, the number of gig-economy workers actively choosing this path has increased.
How to explain this? Research from BMO suggests the top three reasons to embrace the gig economy are that people want to make extra money; they see it as a route to a better balance between career and family; and they value the additional autonomy it offers.
I have reached similar conclusions in my own work. In my book, Flex or Fail: The Future of Work and Pay, co-authored with Dr Tony Felton and Robby Mol, I argue that labor markets will evolve to the point where most workers perform distinct paid tasks, rather than accepting permanent positions. Most will have multiple sources of income, offering their expertise and experience to a range of organizations. Workers increasingly value benefits such as flexibility, control, and purpose over a regular salary.
In light of this, policy interventions from the EU that could limit workers’ access to gig-economy roles would be counter-productive, limiting their freedom, rather than offering them greater protection.
That, in any case, is the warning from gig-economy businesses such as Bolt, Deliveroo, Delivery Hero, Uber, and Wolt. In June, the CEOs of these companies penned a joint letter to The Financial Times, cautioning against regulation that undermines the “independence” of workers. The implication is that should the EU move forward in implementing rules that some commentators consider overbearing, the gig economy will inevitably begin to shrink.
Towards a new employment model
How, then, can businesses continue to offer protection to temporary workers without undermining the gig economy that they (and, increasingly, employers) depend upon?
The answer could be a more imaginative approach from policymakers. New social-security arrangements, for example, which are not built around existing models of work, could include occupational pension provision that is not tied to a single employer. Another possibility is employer insurance schemes that provide protection across whole sectors or industries.
Government may also have a more direct role to play. In Denmark, the Flex Security model shifts more responsibility for worker wellbeing onto the state, which is obliged to help people find work following dismissal, through the provision of education and training, for example. Unemployment benefits are also relatively generous, offering high rates of replacement income.
Conventional wisdom is that looser industry regulation makes it easier for employers to exploit employees; however, that has not been the outcome in the liberalized US labor market. Wages are consistently higher than in Europe; employers feel able to offer higher pay because they know they can shrink and grow their workforce in response to market conditions.
Policy interventions from the EU that could limit workers’ access to gig-economy roles would be counter-productive, limiting their freedom, rather than offering them greater protection.
This is not to argue for carte blanche for employers; they will need to modernize benefits and remuneration structures, too. But with people now looking for different things from work, the employer-employee relationship will inevitably change. For both sides, the relationship will be more transactional, with less emphasis on long-term relationships.
Legislate for the future
The sensible approach for the EU to take is to acknowledge these shifts, rather than trying to legislate for the status quo. The current proposals represent an effort to classify a larger number of gig-economy workers as permanent employees – with the accompanying benefits and restrictions – rather than to design a framework that reflects what workers and businesses actually want.
Finally, let’s not forget that end-customers also value what gig-economy workers bring to the market. The EU’s new legislation could be a retrograde step for customers, returning them to a pre-convenience age when taxis and food delivery were scarce and expensive quantities.
All in all, the EU would do well to weigh its options and ensure that, for all its good intentions, its first principle is to do no harm to the gig economy that has made the working existence of many workers and customers, as well as businesses, more viable.
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