The Economist has an article on freelancing: Serfs up – Worries about the rise of the gig economy are mostly overblown.
I have a couple of thoughts whenever this comes up.
‘Twas always thus
There has always been a freelance / independent / gig economy / zero-hours sector. Indeed, if you take a long view, it’s the 40 hour nine-to-five that’s the exception.
My early career was in the hotel industry, a sector that couldn’t exist without what we used to term “casual staff”. You need 20 waiting staff for a banquet on Saturday night, then maybe nothing for a week.
It was always a two-sided market. If the individuals involved were good – i.e. reliable, skilled, etc. – they moved up the mental list of who to call first. But, you had to treat them right, too. If you didn’t offer the going rate, you couldn’t get the staff. They would go and work for another venue. Similarly, if you didn’t feed them well, messed them around or if their manager on the night was a buffoon, they wouldn’t work for you. That all seemed fair enough.
That’s not really dissimilar from the work I do, today. If I do a good job and provide a great service, I get invited back. If I messed up, the phone (or inbox) would go eerily quiet. Along the way, of course, I’ve “sacked” a few clients, too.
Coase was correct
Back in 1937, the economist Ronald Coase explained why firms exist. One of those things that no-one had thought to question before. It was, he realised, all down to transaction costs. Where work is regular, predictable and ongoing, it makes sense for two parties to enter into an employer-employee relationship. Where the requirement is more ad-hoc, the business finds a supplier and enters a purchase relationship.
The last decade has seen a dramatic drop in these transaction costs. Firstly, through the email and the web, more recently through the advent of platform companies.
In so many ways, nothing else is different. It’s simply that the break point (for both parties) is lower, making it easier for individuals and larger client organisations to transact lower-value projects or tasks.
The answer (to anything) is rarely more legislation
If the courts rule that vast swathes of gig workers are in fact employees, they could raise costs, killing innovation and hitting jobs. Yet inaction brings risks, too. If a growing chunk of the workforce has to make do with poor pay and worse pensions, governments will eventually have to pick up the pieces.
It seems that the real trouble only occurs in the grey area where a client / employer seeks to have all of the benefits of an employment relationship (mainly control over time and schedules, the way work is performed, and the individuals’ ability to work for other firms) without the costs of employment taxes, statutory benefits etc.
And, that cuts both ways as well. There have been several cases where individuals have enjoyed the higher cash benefits of being classed as a long-term, self-employed provider of services, only to bring a court case for employee-related stock benefits that they had been “denied”.
But, in most of these cases existing employment law, sensibly applied, should cope. The last thing we need is the burden of “employment rights” on individuals who are perfectly happy with their independent, sovereign professional status.
That said, there is a political motivation for greater legislation. With most workers tucked up in nice, simple and centralised employee contracts, HMRC could contract out its tax collection to employer firms. Managing many more independent small businesses is harder. Today’s Times carries a report that the Chancellor Philip Hammond is planning a “tax crackdown on synthetic self-employed“.
The Treasury reckons:
The Treasury believes a third of people claiming self-employed status as a “personal service company” are actually full employees and should pay more tax.
It says without reform, high levels of non-compliance with tax rules could cost HM Revenue and Customs, which collects taxes, £1.2bn a year by 2023.
Note: “high levels of non-compliance … could…”