Future of work: Challenges from the changing organisation of employment

Future of work: Challenges from the changing organisation of employment

Phuah Eng Chye (25 August 2018)

Advances in information technology facilitated the expansion of work forms; to be diverse, intangible, modular, autonomous, transient and transactional in nature. A multitude of terms such as fissure, flexibilization, platform, gigs, sharing, crowdwork, non-traditional, irregular, alternative, contingent, freelance, self-employed, independent, temporary, part-time, agency, on-call, on-demand and contract have sprung up to describe the new features of the changing organisation of work.

The non-traditional work forms, which increasingly account for a large share of new job creation in many countries, are viewed as disruptive. There are concerns these work forms are being used to cannibalise traditional employment and to render the traditional employment framework obsolete. Hence, the expansion of work forms has been met by an increasing number of disputes, lawsuits and enforcement actions.

Policy research on the future of work has intensified. The International Labour Organisation (ILO) is spearheading its Centenary Initiative[1] “to explore and examine the future of work in order to gain a better understanding of the drivers of the current unprecedented change, such as technological innovation, the changes in the organization of work and production, globalization, climate change, regulatory environment, demographic and migration shifts.”[2] It has structured its exploration into four “centenary conversations” covering the economic and societal consequences from the diversification of work (work and society), the prospects for achieving full employment and decent work standards (decent jobs for all), the changing employer–employee relationships (the organisation of work and production) and the possible responses to the erosion of established frameworks, norms and institutions regulating work (the governance of work).

The ILO divides work arrangements into Standard Employment Relationships (SER) and the Non-Standard Forms of Employment (NSFE)[3]. The SER “refers to work performed in the framework of full-time, formal and open-ended (non-time-bound) arrangements in a subordinate employment relationship. The central feature of the SER is its hierarchical organization: the employer has power to direct employees in their work; to control their work by monitoring their performance; and to discipline them for poor performance. The employment relationship, however defined, is the key regulatory device for allocating rights and obligations between an employee and an employer: it is the worker in an employment relationship who has access to benefits and rights established by public law. The employment relationship also allows the employee and employer to agree on working conditions above minimum legal requirements.”

“While there is no official definition of NSFE, it includes any work done outside a standard employment relationship…While many forms of non-standard employment provide businesses and workers with an important means for achieving flexibility, they are often associated with significant decent-work gaps such as lower earnings, reduced social security coverage and diminished working conditions.”

Under the NSFE, platform work, often loosely described as the gig economy, can be further delineated into two segments. The first segment[4] is the digital gig economy where work comprises a continuum of online labour from crowdwork (microwork or contest-based)[5] to online freelancing. The work is contingent (task- or project-based) and intangible. The other segment is the physical gig economy where the service is tangible and delivered to a client in a physical location[6].

The proportion of NSFE workers to total employment has accelerated. It is not just the new businesses. Traditional businesses have followed suit to reorganise their operations to take advantage of virtuality, automation and flexible labour. In the process, businesses are shrinking their core of long-term employees.

In tandem with the sharing economy, platform work has often been glamorised as enabling workers to be their own bosses, grow their own businesses or having the flexibility of determining their own working hours. The reality is turning out to be starkly different for many individuals, who has been forced to rely on part-time or contingent work as their main source of income. Terms such as precariat[7] or freeters[8] have sprung up to describe the emergence of a new underclass “formed by people suffering from precarity, which is a condition of existence without predictability or security, affecting material or psychological welfare”. “Unlike the proletariat class of industrial workers in the 20th century who lacked their own means of production and hence sold their labour to live, members of the precariat are only partially involved in labour and must undertake extensive unremunerated activities that are essential if they are to retain access to jobs and to decent earnings“.

The ILO notes a “consequence of this process is that the employer becomes indirect/invisible or disappears altogether, along with any possibility of a clear attribution of responsibility. Invisibility implies that the work is not attached to a particular location and the employment relationship is often not recognised. Hence, the emergence of complex global supply chains, platforms and diversification of work has given rise to invisibility and fragmentation. The dramatic changes in the organisation of work increases the difficulty of regulating due to the confusion over how existing legal standards can apply or be even modified.”

The changing organisation of employment poses several challenges.

  • Declining labour share, wage stagnation and inequality. De Nederlandsche Bank (DNB) research on eight Dutch industries estimates “more than half of the decline of the labour income share (LIS) can be attributed to the increase in the flexible segment of the labour force.” “The increase of the aggregate share of flexible labour by 15.8 percentage points between 1996 and 2015 in the industries reviewed led to a decline of the LIS by 3.6 percentage points. The aggregate LIS in the industries reviewed dropped by 7.1 percentage points, to 73.1% from 80.2%. DNB researchers explained “the expansion of the number of workers on flexible contracts weakens the negotiating position of employees on permanent contracts, as this group must compete with flexible workers that are generally cheaper and easier to dismiss due to different legal and tax regimes. According to calculations made by the Ministry of Finance, own-account workers at minimum-wage level cost up to 40% less than employees.” Flexible work is regarded as generally unfavourable to labour as much of the surplus value is perceived to be captured by firms at the expense of workers. Servaas Storm notes “the tightening of the labor market no longer automatically results in higher nominal wage growth, because the employment relation has fundamentally changed…a much higher proportion of workers is working in such flexible alternative work arrangements must also contribute to the greater elasticity of the labor force itself.” Servaas Storm suggests “millions of workers have been pushed out of permanent employment into often non-standard, precarious forms of self-employment in service sector jobs in technologically stagnant activities” or have been discouraged and “gave up searching for a job…dropped out of the statistics and are not reflected in the official unemployment rate”’ contributing to a fall in labour force participation. Flexible workers are thus disadvantaged in that they may not earn enough income to support a reasonable standard of living. In addition, DNB notes “employers are less keen to invest in education and training of their flexible workforce” while flexible workers faced difficulties in switching to regular jobs.
  • Worker misclassification. The classification of platform workers as independent contractors rather than as employees is a key issue. “A worker who is classified as an independent contractor is not covered by some of the most basic labor standards like the minimum wage and overtime protections, the requirements of the Occupational Safety and Health Act, and the opportunity to be represented by a union…also not covered by important social safety net protections like unemployment insurance and workers’ compensation. The increasing practice of employers misclassifying workers…can lead to the underpayment of wages, the absence of benefits, and workers being increasingly exposed to a variety of risks. It also leads to a race to the bottom: employers who misclassify workers are at a competitive advantage relative to responsible employers who comply with labor standards and responsibilities”.[9] Other vulnerabilities include unfair working conditions, unfair and non-timely payment of income (wage theft), insufficient or sudden terminations of work, work and health safety issues, lack of access to training, maternity, childcare and housing benefits and channels to challenge unfair treatment. Zachary Kilhoffer, Karolien Lenaerts and Miroslav Beblavý notes “the European Commission has taken the view that employment consists of every working relationship according to three criteria: the subordinate relationship, the nature of the work and the remuneration provided. It further notes that many of the arguments made by platforms, such as that workers are not constantly monitored and do not work continuously, are insufficient to avoid classification of platform work as a working relationship”. In 2018, the California Supreme Court ruled that “employers could only classify as independent contractors those workers who meet the conditions laid out in the ABC standard.” This standard required “(a) that the worker is free from control and direction over performance of the work, both under the contract and in fact; (b) that the work provided is outside the usual course of the business for which the work is performed; and (c) that the worker is customarily engaged in an independently established trade, occupation or business”.[10] However, court judgments tend to apply to specific cases and do not provide a decisive resolution to the uncertainties.
  • Unfair scheduling. A significant percentage of part-time workers are subject to irregular and on-call work shift schedules. “Not only are involuntarily part-time workers scheduled for fewer hours, days, or weeks than they prefer, but the daily timing of their work schedules can often be irregular or unpredictable, imposing significant costs on those workers”. “The employer practice of assigning unstable work hours means employers are benefiting economically not just from employees’ hours worked but also from their mandatory flexibility”[11]. Unfair scheduling lead to irregular and unpredictable earnings and impedes the ability of workers to fulfill family responsibilities.
  • Social protection. The new work forms are often viewed as a cost-reduction subterfuge to deprive workers of the benefits and social protection associated with permanent employment. In their review, Monique Kremer, Robert Went and André Knottnerus note while temporary workers may have access to certain rights but “they cannot always monetise them in practice”. Temporary workers are disadvantaged by the “difficult transitions between unemployment benefits (unemployment benefit and social assistance) and work” while low-skilled and older workers lag behind due to insufficient training and learning opportunities. The position of self-employed persons is more difficult to access. Self-employed persons are almost completely excluded from employee benefit and insurance schemes. But they “enjoy tax advantages, allowing them to arrange their own insurance and build up their own pension” and may have access to public welfare schemes. “But the remarkable thing is that self-employed persons hardly ever protect themselves. Only one in five self-employed persons has arranged insurance against incapacity for work…do not earn enough to insure themselves…premiums are perceived to be too high…do not trust the insurance companies (the small print) and people with an existing condition may be excluded or faced with higher premiums”. Monique Kremer, Robert Went and André Knottnerus note there is a debate on the protection of self-employed persons. The underlying concept that “self-employed persons are not employees but entrepreneurs who work at their own risk” raises the question as to why a distinction is made between workers who are not allowed to have this freedom and self-employed persons who do have freedom to opt out of collective arrangements”. Many self-employed persons cherish their freedom from the obligation to participate in the collective system and not have to pay premiums “although, at the same time, they would like the government to organise social security for them”. But this attracts criticism that “self-employed persons are sometimes also regarded as undermining solidarity” and that their non-participation may reduce the sustainability of insurance schemes in the social security system. In addition, there were risks that “because they are not insured through employee schemes, self-employed persons could be making greater demands on social assistance and other social security schemes in the future.” “In the case of temporary workers, there is certainly evidence that they make a considerably higher demand on social security, unemployment benefit, social assistance and redundancy pay/sick pay than permanent employees”.
  • Regulations, tax and liabilities. Platforms have argued they are not direct service providers but are intermediaries or technology providers. They have used this argument to avoid paying taxes, to evade local regulatory requirements and to disavow potential liabilities. This has led to complaints from (1) traditional players (hotels, retailers, taxis) of unfair competition (2) tax authorities on the loss of revenue and (3) regulators on the loss of accountability for meeting safety, health and other standards and also for bearing liabilities. It is anticipated regulations will evolve to close these gaps over time.
  • Algorithmic surveillance, information asymmetry and discrimination. Cristiano Codagnone, Fabienne Abadie and Federico Biagi note the use of algorithms and ratings has given rise to new forms of surveillance and rigid control “which result in asymmetries around information and power for the drivers.” This includes close monitoring to exert tight control, disciplinary restrictions on the ability of contractors to decline assignments, not disclosing relevant information or providing misleading information to influence contractor choice. “This seemingly supports the claim that digital labour markets bring us back to Taylor (automated control), Smith (division of labour into piece work), and to pre-industrial levels of work precarisation (lack of social protection)”. In crowdworking markets, requesters are provided substantial information on workers but workers only receive limited information. There is “no equal mechanism for workers to filter employers” as well as to “make judgements about the moral valence of their work.” In addition, workers “have no guarantee of receiving payment for their work. Employers can retain the work and not pay, without having to provide any justification”. The “costs of requester and administrator errors are often borne by workers”. These practices raise important questions about the fairness and transparency of these systems. Gender and ethnicity-based discrimination “is not uncommon and workers have no way to protect themselves from it.” Dawn Gearhart notes “unions cannot collectively bargain with an algorithm, they can’t appeal to a platform, and they can’t negotiate with an equation. The amount drivers might earn is limited, not by a mutually negotiated rate of pay, or by a driver’s willingness to work long hours. Instead, worker incomes are limited by real-time adjustments to the rates passengers pay. Earning a living suddenly looks more like a videogame than a job: only with more tangible consequences”. Thus, the new work forms are subject to information asymmetries and workers are not provided adequate recourse or protection against arbitrary decisions, privacy violations and discriminatory actions.
  • Exploitation, casualisation and the precariat. The new work forms seem to have led to situations of worker exploitation. In the case of platforms, Zachary Kilhoffer, Karolien Lenaerts, Miroslav Beblavý note workers may not receive compensation for all their work and are not paid for the considerable time they spend searching for work. In the case of competition-based platforms, only the winners are rewarded. “An additional particularly relevant aspect for Mechanical Turk is that if a client is unhappy (or claims to be) about the quality of received work, they can refuse to pay while retaining the work and providing no explanation. Amazon rarely mediates disputes between clients and service providers, and service providers for Mechanical Turk or Turkers often rely on unofficial forums to share information and protect one another from predatory clients.” Steve Viscelli relates the experience of employees who were “convinced to work as independent contractors by trucking carriers trying to rid themselves of the financial responsibilities of employers and shift the risk of owning and operating trucks to workers”. He notes the contracting strategy aimed at “keeping experienced workers from moving onto those better jobs…Turning employees into contractors instead of paying experienced employees better is a clever strategy because, for a time at least, drivers end up working harder and cheaper – and sometimes even essentially for free”. In this regard, the independent contractors are “responsible for nearly all of the costs associated with driving his truck, which he was leasing from a subsidiary of his new company. Under his lease agreement, he wasn’t allowed to work for any other companies, and the company decided all of the loads he was to haul”. “Their leases on trucks bind them to the job. When they want to quit, the company can hold tens of thousands of dollars in debt over their heads…all payments that would have ever been made over the course of the lease term (which can be up to four years in many cases) are due upon violation of the contract…In other words, most contractors will continue to work for less than they are worth because they can’t afford not to”. Hence, there is considerable research[12] suggesting many gig workers do not earn decent income, work long hours and have little autonomy and flexibility. Janine Berg and Valerio De Stefano suggests “gig work needs to be considered along with broader trends of casualisation of the labour market such as the spread of zero-hour contracts and bogus self-employment…Ironically, with day labourers, dockworkers, and agricultural hands – probably the types of casual work that most readily come to mind – their work is at least for the day.” Labour market flexibility has resulted in the transfer of risks and insecurity onto workers and their families. This has led to the creation of a global precariat, which is “becoming a new dangerous class”. Guy Standing guess “in many countries, at least a quarter of the adult population is in the precariat”. Guy Standing notes the term precariat was first used to describe temporary or seasonal workers. But its usage has broadened to “mean more than just people doing casual labour and with low incomes, implying a precarious existence as a normal state of living.” Precariousness is now used to describe “a status that offers no sense of career, no sense of secure occupational identity and few, if any, entitlements to the state and enterprise benefits.” “The outcome is a growing mass of people – potentially all of us outside the elite, anchored in their wealth and detachment from society – in situations that can only be described as alienated, anomic, anxious and prone to anger. The warning sign is political disengagement”.
  • Anti-trust and data privacy. The dominant position of the global platforms raised anti-trust concerns on the monopolistic practices of platforms such as their ability to lock-in third parties and to indulge in collusive or discriminatory behaviour.[13] In the US, however, the concern is that antitrust policy currently places greater emphasis on maximising consumer welfare at the expense of labour bargaining power. The courts tend to support “any gains at the expense of workers would be passed to consumers in the form of lower prices, since product markets would be competitive” and “to overlook the use of market power to reduce labour welfare by reducing demand for labor and lowering wages.”[14] There are also concerns on the potential misuse of workers’ personal data collected by the platforms.

Overall, the new work forms have created economic and legal uncertainties. A large part of the challenge stems from the difficulty in squaring the new work forms, that rely on a model of on-demand transactional pricing of labour, with the traditional employment framework that provided assurance, stable wages and social protections. The costs arising from the erosion of the traditional safeguards has largely been borne by workers and their families. The social consequences raise the question of whether firms or governments should take on greater responsibilities on mitigating household vulnerabilities. To be fair, most firms, excepting the most successful, will not be in a position to bear the burden of social costs. This is consistent with the diminishing role of firms[15] in organising economic activities in a landscape disrupted by information. But governments also seem reluctant to step up to the plate; preferring instead to facilitate business dynamism. To be fair, governments face mounting pressure to cut public sector expenditures. But this leaves policy at an unsatisfactory place and there is a need to clarify the policy framework for the changing organisation of employment; otherwise it will be difficult to plan for the economic future with a sufficient degree of confidence.

References

Cristiano Codagnone, Fabienne Abadie, Federico Biagi (2016) “The future of work in the sharing economy. Market efficiency and equitable opportunities or unfair precarisation?” Institute for Prospective Technological Studies, JRC Science for Policy Report. http://publications.jrc.ec.europa.eu/repository/bitstream/JRC101280/jrc101280.pdf

Dawn Gearhart (2017) “Giving Uber drivers a voice in the gig economy”. Edited by Graham, M. & Shaw Towards a Fairer Gig Economy. Meatspace Press. http://meatspacepress.org/go/tafge-internet-archive-pdf/

De Nederlandsche Bank (1 February 2018) “Flexibilization of the labor market leads to decline in the wage share”. DNBulletin. https://www.dnb.nl/en/news/news-and-archive/DNBulletin2018/dnb372062.jsp

De Nederlandsche Bank (11 May 2017) “Focus on the flexibilization of the labor market”. DNBulletin, https://www.dnb.nl/en/news/news-and-archive/dnbulletin-2017/dnb358969.jsp

Dwyer Gunn (2 May 2018) “A California court just ruled that gig workers are bona fide employees. Will courts in other states follow suit?” Pacific Standard Magazine. https://psmag.com/economics/the-battle-over-gig-workers-moves-to-the-states

Guy Standing (2011) The Precariat: The New Dangerous Class. Bloomsbury Academic. https://www.hse.ru/data/2013/01/28/1304836059/Standing.%20The_Precariat__The_New_Dangerous_Class__-Bloomsbury_USA(2011).pdf

International Labour Organisation (2017) “The future of work we want: A global dialogue.” http://www.ilo.org/wcmsp5/groups/public/—dgreports/—cabinet/documents/publication/wcms_570282.pdf

International Labour Organisation (2017) “A challenging future for the employment relationship: Time for affirmation or alternatives?” The Future of Work Centenary Initiative. Issue note series 3. http://www.ilo.org/wcmsp5/groups/public/—dgreports/—dcomm/documents/publication/wcms_534115.pdf

International Labour Organisation (21 September 2017) “Future of work. Inception report for the Global Commission on the future of work.” http://www.ilo.org/wcmsp5/groups/public/—dgreports/—cabinet/documents/publication/wcms_591502.pdf

Janine Berg, Valerio De Stefano (18 April 2017) “It’s time to regulate the gig economy.” Originally published at Open Democracy. http://www.nakedcapitalism.com/2017/04/time-regulate-gig-economy.html

Jay Shambaugh, Ryan Nunn (February 2018) “Revitalizing wage growth policies to get American workers a raise”. The Hamilton Project. Brookings. http://www.hamiltonproject.org/assets/files/revitalizing_wage_growth_full_book.pdf

Marshall Steinbaum (20 September 2017) “Antitrust in the labor market: Protectionist, or pro-competitive?” Promarket Blog. https://promarket.org/antitrust-labor-market-protectionist-pro-competitive/

Monique Kremer, Robert Went, André Knottnerus (May 2017) “For the sake of security, the future of flexible workers and the modern organisation of labour”. The Netherlands Scientific Council for Government Policy (WRR). WRR Investigation No. 36. file:///C:/Users/user/Downloads/V036-For-the-sake-of-security%20(1).pdf

Phuah Eng Chye (20 January 2018) “The sharing economy: A futuristic taxi landscape (Part 2 – Modular regulation)”. http://economicsofinformationsociety.com/the-sharing-economy-a-futuristic-taxi-landscape-part-2-modular-regulation/

Richard Heeks (2017) “Decent work and the digital gig economy: A developing country perspective on employment impacts and standards in online outsourcing, crowdwork, etc.” Manchester Centre for Development Informatics Working Paper Series Paper No. 71. http://hummedia.manchester.ac.uk/institutes/gdi/publications/workingpapers/di/di_wp71.pdf

Servaas Storm (26 Feb 2018) “With official unemployment this low, why are wages rising so slowly?” Institute for New Economic Thinking. https://www.ineteconomics.org/perspectives/blog/with-official-unemployment-this-low-why-are-wages-rising-so-slowly

Steve Viscelli (10 May 2016) “Truck stop: How one of America’s steadiest jobs turned into one of its most gruelling.” The Atlantic. https://www.theatlantic.com/business/archive/2016/05/truck-stop/481926/

Zachary Kilhoffer, Karolien Lenaerts, Miroslav Beblavý (August 2017) “The platform economy and industrial relations: Applying the old framework to the new reality”. CEPS Research Report. https://www.ceps.eu/system/files/RR2017-12_PlatformEconomyAndIR.pdf

[1] The ILO portal is at http://www.ilo.org/global/topics/future-of-work/lang–en/index.htm.

[2] International Labour Organisation (2017) “The future of work we want: A global dialogue.”

[3] International Labour Organisation (2017) “A challenging future for the employment relationship: Time for affirmation or alternatives?”

[4] Based on Richard Heeks.

[5] Microwork refers to tiny units of a piecemeal task such as data entry, tagging, interpretation of content, completion of surveys and finding of information. In contest-based work, the best submissions for picked e.g. designing a new logo. Online freelancing refers to more substantial tasks such as software and web development, translation, transcription, data analytics, design, administrative support, and sales and marketing.

[6] Examples of physical gig platforms are Uber, Airbnb and TaskRabbit.

[7] https://en.wikipedia.org/wiki/Precariat.

[8] https://en.wikipedia.org/wiki/Freeter.

[9] Jay Shambaugh and Ryan Nunn.

[10] Dwyer Gunn.

[11] Jay Shambaugh and Ryan Nunn.

[12] Cristiano Codagnone, Fabienne Abadie and Federico Biagi.

[13] Zachary Kilhoffer, Karolien Lenaerts and Miroslav Beblavý.

[14] Marshall Steinbaum.

[15] Phuah Eng Chye “The sharing economy: A futuristic taxi landscape (Part 2 – Modular regulation)”.

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