The digital platform economy has impacted employment in many ways. “Traditional” jobs, such as office workers and the service industry, are being enhanced by collaboration, video, and cloud-based platforms. New tech industry jobs are being created in countries that have successfully encouraged the development of platform companies. Finally, many platforms foster the sharing and gig economies and have created employment opportunities for individuals who have an asset, skill, or time to share. In this Signal post, we touch briefly on employment in the tech industry but focus primarily on employment in gig and sharing platforms and provide an update on how the early promises of the sharing and gig economies have played out in reality.
The promise of platforms
Digital platforms are disrupting established business practices and redefining the relationships between producer, consumer, and worker. By creating multi-sided marketplaces and ecosystems, they promise to democratise both consumption and production. Empowering participants and creating environments where workers have flexibility and control over the goods, services, and labour they provide are some of the key goals of platforms.
The growth of the platform economy is part of what the World Economic Forum describes as the 4th Industrial Revolution (4th IR). While the 4th IR includes technological advances in areas like robotics and artificial intelligence, it also includes eCommerce, mobile payments, as well as sharing and marketplace platforms. As these technologies spread globally they bring opportunities for people in developed as well as developing countries. Whether you’re in Spain or sub Saharan Africa, if you have an asset to share, a skill, or a product you produce, the platform economy gives you the opportunity to monetise it.
Policies to encourage growth
While the users of platforms are increasingly global, the development of the platforms, and the tech industry jobs are concentrated in a small number of countries, mainly in the US and China. Other countries, such as Finland, Canada, and the EU as a whole, are actively working to encourage the creation and growth of locally developed platforms. As we wrote in an earlier Signal post about GDP and the Platform Economy, countries recognise the need to encourage the development of platforms to ensure future growth in their economy and employment for their citizens.
In addition to fostering the local tech industry, many countries recognise that some platforms will replace “traditional” jobs. For example, Finnish researchers estimate that 23% of jobs in Helsinki, such as salespeople, waiters, and accountants could be replaced by 2030 through digitalisation technologies such as robotics and Artificial Intelligence. Re-training displaced workers, through government programs or platforms such as Udemy or Google Career Certificates, are part of the solution to increasing employment opportunities.
Other policy initiatives are focused on equity and inclusion of women and minorities in the platform economy, as both tech workers and/or participants in the sharing/gig economy. The International Finance Corporation (IFC) and the European Commission (EC) created Digital2Equal, an initiative involving 17 leading technology companies with a focus on increasing opportunities for women in emerging markets.
The challenges created by the gig and sharing economy
While platforms have technically delivered on their promise of democratising production and consumption, they have introduced new challenges. Some platforms allow producers and “workers” more control over how their work is valued, while others are highly competitive and drive earnings lower.
Producers such as those selling products on Etsy, providing skilled services on Upwork, or renting properties on AirBnB face competition but generally have control over the prices they charge and how they operate. Producers/workers operating on platforms that provide ridesharing, food delivery, or crowdwork participate in a highly competitive environment with little control over the fees they’re paid and none of the benefits associated with being a “traditional employee”.
These challenges have been written about in detail recently, including: being at the mercy of bad reviews, high levels of pressure, working long hours, no employment benefits, low-paying crowdwork, concentrating economic gains in the hands of the platform, and poor working conditions inside eCommerce warehouses.
Creating a fair and sustainable gig and sharing economy
While labour laws and social security infrastructure vary by country, addressing the challenges associated with employment in the platform economy is a key issue for policymakers. The European Foundation for the Improvement of Living and Working Conditions (EUROFound) outlined policy suggestions that include: clarifying employment status definitions for platform workers, setting minimum payment standards, setting up dispute-resolution mechanisms, and allowing platform workers to organise and establish representation.
The unique situation in the Nordic countries is highlighted by TemaNord (funded by the Nordic Council of Ministers). While platform work is still relatively small in Nordic countries, some platforms are being assimilated into the Nordic labour model, such as Foodora in Norway and Hilfr in Denmark reaching collective agreements with workers. However, other platforms are eroding the Nordic model, such as Uber instigating the deregulation of the taxi industry.
The World Economic Forum suggests four steps to build a fairer gig economy: rate platforms on fair work practices, ensure platforms are accountable to existing (or new) regulations, allow workers to organise, and allowing democratic ownership and worker cooperatives.
While Uber is advocating for the creation of a new employment classification for gig workers, some observers take the position that new policies and laws may not be required since they feel existing labour law and social security frameworks already apply to platforms and platform workers in most countries. They assert that a case-by-case assessment of different platforms will clearly identify if the workers are entrepreneurs or employees and which existing laws apply.
Selected articles and websites
Past Signals related to this one
Work revolution and digitalisation – what changes are promised for the labour market in the Helsinki metropolitan area? (Työn murros ja digitalisaatio – mitä muutoksia on luvassa pääkaupunkiseudun työmarkkinoille?)
Markus Äimälä: Platform economics and labor law – a lot of noise from nothing? (Markus Äimälä: Alustatalous ja työoikeus – paljon meteliä tyhjästä?)
Rantahalvari: The platform economy challenges social security – perhaps not (Rantahalvari: Alustatalous haastaa sosiaaliturvan – ehkei kuitenkaan)
This signal post gives a short summary of a literature review on GDP and it’s usability as a measure in the increasingly digitalised economy. For more details, download the full report.
A measure for the manufacturing age
Gross Domestic Product was adopted in the 1940s, the age of manufacturing, to measure the strength of a country’s economy and it also became a proxy for well-being. It’s a measure of the monetary value of all goods and services produced by a country. A rapidly increasing portion of today’s economy is technology services, including platforms that offer “free/add-supported” products or act as international online intermediaries to facilitate the exchange of goods, services or information. By definition, the GDP doesn’t measure “free” products. In economic terms, the value a consumer gets from the “free”, and potentially higher quality products is measured by utility or consumer surplus, which is also not captured in GDP.
The slowing of GDP growth
While the GDP of most of the world’s economies has been increasing since its inception, the rate of GDP growth has slowed recently. More importantly, the growth rates of GDP per capita and GDP per hour worked (labour productivity) have also slowed. While the root cause of the slowdown in GDP growth has been debated for several decades, most economists agree that a portion of the slowdown is real and not solely an issue with capturing the growth of the platform and technology sector. Structural issues like demographics as well as the fact that past innovations like the electric motor likely had a larger impact on productivity than recent innovations are all contributing factors.
The uniqueness of the platform economy and the technology sector
While the reasons above partially explain the slowdown in GDP growth, many agree there is a growing proportion of the economy that isn’t being captured as part of GDP. There are a number of unique aspects of the platform economy and the technology sector that make it challenging to measure, manage, and ensure fair taxation. These include: ability to scale at low cost; “free/ad-supported” pricing models; borderless reach; blurred lines between consumers and producers; venture funding that encourages long-term market capitalisation over short-term profitability; digital services that replace physical products; and there’s a decreasing marginal contribution to GDP as the technology sector grows.
Given the unique aspects of the platform economy and the technology sector described above, it is possible that some aspects are having a negative influence on GDP growth while other aspects are having a positive influence that is difficult to capture using the current definition of GDP. The growth of the platform economy has been partially based on a culture of “free/low cost” products and services that provide utility and happiness to people beyond their economic value. This consumer surplus adds up to substantial uncaptured GDP.
This additional utility and happiness create a positive feedback loop that drives growth in the technology sector and the platform economy. As people seek to increase utility and happiness, they consume more in the platform economy which leads to its continued expansion as well as growth in uncaptured GDP.
Soft Innovation Resources
Understanding how to encourage the expansion of the platform economy may be key to increasing the rate of GDP growth. Watanabe, et al., postulate that countries (and companies) can increase their rate of growth by diverting a portion of their resources away from R&D and towards enabling Soft Innovation Resources (SIRs) as a complement to traditional R&D. These are soft resources that can be harnessed to drive innovation and growth at individual companies, which rolls up to growth at the country level.
Enablers of Soft Innovation Resources are listed below:
- Supra-Functionality: People seek out products and services where they experience satisfaction beyond utilitarian functional needs. They desire social, cultural, aspirational, tribal, and emotional benefits.
- Sleeping or Untapped Resources: These are existing resources that are under-utilized resulting in an unused capacity that may be spread sparsely and difficult to access without technology.
- Trust: People’s level of trust in various aspects of their lives, society, and the economy can affect their participation and contribution to innovation and the creation of economic value.
- Maximizing Gratification: Seeking gratification of needs is a key pillar of Maslow’s theories about motivation and human behaviour. As increasingly sophisticated needs are gratified, there is a desire to maintain and build upon the increased level of gratification.
- Assimilation and Self-Propagation: Sustainable growth can be obtained when past innovations are assimilated into future innovations, effectively creating a self-propagating cycle of innovation.
- Co-Evolution: The coupling of two or more items which then innovate and evolve along a common path.
The future of GDP measurement
Although the GDP measure has been revised over time, there is widespread recognition that more changes are needed if it’s to remain relevant as the digital economy grows. There is debate about how platforms and the digital economy are contributing to GDP and the amount of uncaptured GDP. For example, the US Bureau of Economic Analysis (BEA) concluded uncaptured GDP would increase the rate of GDP growth by less than 0.01% per year. On the other hand, Brynjolfsson, et al. developed a measure they call GDP-B and they concluded that the consumer surplus from Facebook alone would increase the rate of US GDP growth by 0.1% per year and platforms such as internet search, e-mail, and maps would contribute significantly more. And somewhere in between, an independent study commissioned by the UK government concluded that annual GDP growth is understated by 0.3% to 0.6%, largely due to the platform economy.
It’s clear there are wide-ranging opinions on the magnitude of uncaptured GDP. International organisations such as the OECD and World Economic Forum are also trying to bring clarity to the situation. Additionally, a number of measures are being developed such as the Human Development Index (United Nations) and the Better Life Index (OECD) with a focus on well-being to augment GDP.
Strategies for future growth
The slowdown in GDP growth is complicated and multi-faceted. Perhaps some of the structural impediments to growth can’t be mitigated. Perhaps because digital platforms and their ecosystems function as highly efficient intermediaries that increase the flow of goods and services at substantially lower costs, we’re experiencing a temporary downward adjustment and growth will resume from a new baseline. As a result of this complexity, strategies to encourage future growth are challenging and diverse.
At the country level, the literature suggests strategies such as: developing economic measures to supplement GDP and better inform public policy in the digital age; create policies to increase skills training and corporate technology purchases to increase adoption of new technologies; develop policies to encourage experimentation in new technologies and business models; focus on improving the quality and lowering the cost of healthcare and education; increase immigration; enable Soft Innovation Resources; and refine international taxation and shipping practices to increase fairness in the shipping and taxation of digital goods and services.
At the company level, the literature suggests strategies such as: lagging firms should invest in skills training and increase the adoption of new technologies; leading firms should include the enablement of Soft Innovation Resources into their R&D and product development activities; and expand current products and services into platforms and expand platforms into platform ecosystems.
Selected articles and websites
The Economist – Measuring Economies – The trouble with GDP
Harvard Business Review – How Should We Measure the Digital Economy?
OECD – Are GDP and Productivity Measures Up to the Challenges of the Digital Economy?
Robert Gordon – Declining American Economic Growth Despite Ongoing Innovation
Watanabe, et al. – Measuring GDP in the digital economy: Increasing dependence on uncaptured GDP
Tou, et al. – Soft Innovation Resources: Enabler for Reversal in GDP Growth in the Digital Economy
MIT – GDP-B: Accounting for the Value of New and Free Goods in the Digital Economy
British Government – Independent Review of UK Economic Statistics: Final Report (2016)
US Bureau of Economics Analysis – Valuing ‘Free’ Media in GDP: An Experimental Approach
Investopedia – Definition of consumer surplus
OECD – Measuring the Digital transformation
World Economic Forum – Welcome to the age of the platform nation
Forbes – Uber will lower GDP
United Nations – Human Development Index
OECD – Better Life Index
OECD – Unified Approach to taxation in the digital economy
The platform economy is much more than business giants Uber, Amazon or Google. Platforms can facilitate a transformation in ways of organising work, value creation, sharing, and resources. While the currently dominant development direction tends to favour large platform companies with monopoly statuses, alternative undercurrents can be identified.
Why is this important?
The focus in the platform economy has largely been on how it enables new ways to create value. Value comes from both users and producers while the platform adds its value to the ecosystem by providing tools for matching and curating the content. Network effects further multiply the value based on the extensiveness of the network.
The sole focus on value creation has, however, lead to ignoring the mechanisms by which value is distributed in the network. Platforms both mediate value creation and add value through connecting actors, sharing resources, and integrating systems, but the question is, how is this value shared? Especially platforms with near monopoly status tend to aggregate much of the value to the platform itself and not share it back to the users of the platforms in a fair amount. Platform companies, like other companies, give the surplus to their shareholders. In some cases, it could even be said that platforms exploit their users by treating them as workforce without benefits or as sources of data to be sold to advertisers. At the same time, little attention is put into how platforms serve society. The discussion is more about how they disrupt existing industries and navigate in the gray areas of legislation.
Three approaches challenging the dominant platform business
Although the big platform companies produce most of the headlines, there are interesting initiatives for alternative forms of platform economy. One is the revitalisation of the idea of commons. In the context of platforms and peer-to-peer economy, commons is understood as a mode of societal organisation, along with market and the state, and combines a resource with a community and a set of protocols. A key question related to platform economy is what data, tools or infrastructure should be treated as commons, how to govern them and how to build both for-profit and non-profit services on top of them. These and other questions of a “commons economy” are being experimented with in peer-to-peer initiatives, platform cooperatives, and blockchain-based distributed autonomous organizations.
In the same way that commons challenges the notion of ownership, a growing number of companies called “Zebras” are challenging the notion of growth. “Zebras” are companies that aim for a sustainable prosperity instead of maximal growth like “Unicorns”. They can still be for-profit but also do social good. An interesting question is whether platform economy can be used to transform the current growth-based economic system towards a more sustainable version, or will the “Zebras” as well as cooperatives and commons be left to the margins in the dominance of platform monopolies.
A third interesting idea utilising the new possibilities of connecting and collaborating through digital platforms is the idea of team economy by GoCo. It challenges the idea of a permanent organisation. In team economy, groups form around an issue or a problem and disperse once the work is done. In contrast to gig economy, the tasks aren’t simplified or clearly defined, but rather what needs to be done is jointly explored with the customer. A platform is needed to connect and offer a collaborative workplace but also provides a record of everything a person has done, a sort of online CV for the platform age.
It remains to be seen to what extent commons, “zebras” and team economy can influence the development of platform economy, but they are interesting ideas to keep an eye on.
Selected articles and websites
- ETUI Policy Brief: The emergence of peer production
- Transnational Institute: Commons Transition and P2P
- Hinesight: Commons or commodities?
- Medium: Zebras Fix What Unicorns Break
The new ways of working enabled by platforms are referred to with term such as gig economy, on-demand economy or open talent economy. What is common to all of these is that they redefine the relationship between the employer and employee. While connecting supply and demand of work through a platform is nothing new, there is currently a massive growth in the size of the gig economy, fuelled by increasing online access and willingness to do disparate tasks.
Why is this important?
The welfare system, especially in the Nordic Countries, is based on the assumption of a steady employment with one employer. The current legislation and regulation is not capable of dealing with the new ways of working emerging from the platform economy as traditional criteria for what is considered as taxable income or work regulated by labour legislation no longer fits the scheme. Is everyone an entrepreneur in the platform economy or should the platform be viewed as an employer? How can social security and fair working conditions be ensured?
Gig economy proponents highlight the flexibility and freedom that platforms provide for the worker as well as the company. Especially SMEs benefit from the gig economy, as they are often agile enough to recruit quickly and are more prone to experience changing demand. Critics state that the work is unstable, isolating, stressful and devoid of welfare benefits. Gig economy favours highly skilled people with good health and thus may contribute to societal polarization. Furthermore, it is driving wages down globally, as platforms enable outsourcing of a variety of tasks, thus expanding the global marketplace.
Things to keep an eye on
To ensure fair and decent working conditions, a mix of regulation, new practices and worker collective action is required. The big benefit but also the central challenge with gig economy is that it is global. Regulation puts countries at different positions and workers have a tough time coming together and bargaining in a dispersed global network. For new practices and ways of operating, platform cooperatives are worth keeping an eye on.
For a company wanting to benefit from gig economy the focus should be on improving human relation practices. Employing should be swift and there should be a good balance between full-time and temporary workers. Different metrics to gauge employee satisfaction and working conditions should be in place and up-to-date.
Selected articles and websites
What’s After The Gig Economy? The Talent Economy
What the Gig Economy Looks Like Around the World
How The Gig Economy Will Change In 2017
The Gig Economy Celebrates Working Yourself To Death
Harnessing The Power Of The Open Talent Economy
10 Ways the Gig Economy Can Help Small Manufacturing Businesses
LinkedIn Finds Small Businesses Driving Gig Economy
Ukko.fi saa tuhat uutta asiakasta kuukaudessa – “Lainsäädäntö ei pysy mukana”
Mistä on kevytyrittäjät tehty?
Why is this important?
Moving towards platform economy is changing the way people work. Platforms enable more flexible and efficient matching of labour and tasks, provide new ways of working (e.g. Uber) and offer ways to monetize existing assets (e.g. Airbnb). Simply talking about platform entrepreneurs or gig workers leads to a narrow view of the diversity of the workers in the platforms of tomorrow.
Things to keep an eye on
Working through global platforms is a problem especially for governments: how to make sure taxation and welfare works? From the worker’s point of view the interesting question is whether it is possible to earn a decent living from a platform, or will platform economy lead to a polarization of wages: some top experts can earn huge amounts, while a majority is competing at very low salaries.