Economic downturn and partial regulatory response (Platform work scenario)

20 Meán Fómhair 2020

The research project ‘Future scenarios of platform work’ explores the economic, labour market and societal impacts of two types of platform work – platform-determined routine work and worker-initiated moderately skilled platform work – by 2030. As part of this project, 10 potential platform work scenarios were derived, and, from these, pointers were developed on what policy could do to make a desirable future happen and to avoid an undesirable one. Below is a description of 1 of the 10 platform work scenarios.

This scenario assumes an unfavourable labour market situation, which, in combination with a moderate level of technological progress, drives the development of platform work. Governments feel inclined to establish regulations to limit the attractiveness of the platform economy, to avoid the crowding out of the traditional economy and deterioration of employment and working conditions.

However, not all relevant policy fields are regulated, so the opaque situation persists. Nevertheless, measures are sufficient to allow new platform governance models to become competitive.

Scenario ID-card

Driver

Hypothesis

Technology

Moderate adoption

Labour market

Labour supply exceeds demand

Consumer protection

No common approach, with divergent approaches across Member States as to the applicability of the EU consumer acquis and data protection regulation

Labour regulation

Common approach for platform employment status according to platform work type

Sector regulation

Unclear which sector regulation applies

Information obligations regarding tax and social insurance

Platform guidance provided by EU, high level of national discretion for implementation and enforcement

Platform ownership and governance

Market maturity of new platform-ownership models (stakeholder-value models)

Platform business model

Market diversification and expansion

Identified opportunities and risks

Opportunities

Risks

  • Concentration of platform work in urban areas facilitates regulation and enforcement.
  • Increasing task diversity within platform work qualifies platforms to be classified as information society actors, facilitating their regulation at EU level in certain domains (such as single market or data issues).
  • More widespread use and task diversity within platform work provides better access to services to the dominant client group – private individuals and households. This includes services where demand is likely to increase, such as care and personal services, but which are increasingly difficult to access due to lack of provision or high costs.
  • Increasing demand for services mediated through platform work and advancements in enabling technologies (such as electric bikes and virtual reality) enhances labour market access for a larger group of the population (such as physically less fit or less-skilled individuals).
  • Clarification of employment status of platform workers guarantees minimum labour standards (PD).
  • Increasing importance of ratings and automated task assignment based on transparent and objective criteria or algorithms enhances labour market access for some groups typically subject to discrimination (PD).
  • Increasing demand for services mediated through platform work, particularly when consumer protection also covers peer-to-peer services, facilitates earning opportunities for those strategically using platform work (WI).
  • New platform business models oriented on stakeholder value rather than shareholder value contribute to better job quality and overall entrepreneurial activity. In the longer run, they can raise clients’ expectations regarding the responsible behaviour of all platforms (WI).
  • Reduced evasion of tax and social insurance contributions due to clarification of information-reporting obligations of platforms results in better state income and fewer challenges for the welfare system (PD).
  • Increasing task diversity within platform work qualifies platforms to be classified as information society actors, challenging their regulation at sector level in Member States in certain domains (such as labour or social policy issues).
  • Lack of clarity regarding sector classification of platform work results in unfair competition between the platform and the traditional economy, with the latter crowded out, and deteriorating service quality and consumer protection.
  • Concentration of platform work in urban areas hampers economic convergence of rural and urban areas due to diverging developments (platform work crowding out certain sectors of the traditional economy in urban areas).
  • Concentration of platform work in urban areas accentuates the labour market polarisation that is already more severe in urban areas than in rural areas.
  • Unregulated consumer protection for platform-mediated peer-to-peer services leaves consumers in a high state of insecurity.
  • As demand for platform work exceeds supply, the power of platforms (and clients) in relation to workers increases, and earning opportunities and working conditions will further deteriorate (PD).
  • The increased importance of ratings based on opaque criteria or underdeveloped algorithms unduly hampers workers’ access to work, particularly if portability of ratings across platforms is limited and redress options are few (PD).
  • Because the regulatory approach is not harmonised across Member States, there is a ‘race to the bottom’ in various protective areas that negatively impacts society and the state budget.
  • New platform business models oriented on stakeholder-value burdens public budgets and risks fomenting societal discontent and the achievement of social cohesion.

 

Driving forces and their expected impact

The project identified eight key driving forces deemed to substantially influence the development of the two analysed types of platform work by 2030: technology, the labour market, consumer protection, labour regulation, sector regulation, information obligations relating to tax and social insurance authorities, platform ownership/governance, and platform business models. Based on assumed developments of these driving forces, 10 possible future scenarios were derived.

Technology

Technology develops at a moderate pace. 5G mobile technology is available only in the main cities, so that the Internet of Things (IoT) has developed only in these cities for predictive maintenance of buildings or large appliances or for tracking vehicles more systematically. Interconnectivity between technologies has improved but requires further development to arrive at a seamless connectivity and fully integrated solutions. Robotics, including artificial intelligence, develops for businesses. Households and private individuals tend to reject connected technologies to avoid companies’ intrusion into their privacy. Electric vehicles have reached a high level of market maturity, with widespread adoption of electric cars and bikes widely used. Autonomous vehicles, in contrast, are still in a trial phase, with pilot projects in some areas, but they are not widely deployed.

Competencies and capacities to develop and implement algorithms, data storage and data analytics have developed and are widespread but have not yet reached their full potential in terms of both technological development and operational deployment in the economy and labour market. 3D printing has reached a substantial level of application in some manufacturing industries and some countries, driven in part by the need to reduce transport to protect the environment. The technology is not common in individual households. Virtual reality is often used for training purposes but not much elsewhere. Augmented reality and blockchain are still being tested, without wide deployment across sectors.

For platform work, a moderate pace of development results in a further concentration of its use in urban areas, while application in more rural areas remains limited. The limitations as regards interconnectivity, algorithms and data analytics hamper the appeal of platform-determined and worker-initiated platform work for business clients; hence, private individuals and households remain the main clientele.

On the demand side, no particular changes in dynamics occur as the services provided are neither strongly fostered nor hindered by the technological developments. For example, the need for maintenance services is unchanged as replacement parts are not yet 3D printed by households themselves.

On the supply side, the advances in electric bikes and virtual reality facilitate platform work for a larger group of workers: electric bikes enable less physically fit people to engage in platform-determined work, and virtual reality enriches training in worker-initiated platform work.

Labour market

In spite of demographic trends reducing the working age population, the European economy and labour market are characterised by a surplus of labour supply, driven by economic developments – a lagging recovery from labour market shocks like the long-term effect of the COVID-19 pandemic – combined with technological developments. Basic routine tasks are widely automated and require diminishing human input, in traditional and platform economies. Technology has developed to make it affordable for companies to replace workers for some medium-skilled tasks. As a result, labour demand – except of for high-skilled profiles – is shrinking and the offer of traditional employment for low-skilled, and partly also medium-skilled workers is below demand. Accordingly, workers are increasingly looking for alternative employment and are willing (or forced) to accept it in spite of lower employment and job quality.

A downward spiral in employment and working conditions starts, with growing risk of an increase in the number of working poor and unemployed. Demand for platform work is increasing, while offers related to platform-determined and worker-initiated work are stable or decreasing. Such a development further enhances the clout of platforms (and their clients), as the supply of labour exceeds demand and workers are easily replaceable. The result is a further deterioration of the employment and working conditions of platform workers.

Consumer protection

In terms of consumer protection, there are different approaches across Member States to the application of the EU acquis and data protection. In some Member States, the competence of national consumer protection authorities expands to cover platform-mediated peer-to-peer transactions. In others, platform-mediated transactions delivered by individuals not recognised as professional providers are not covered. In the latter case, consumers sometimes file complaints to the EU Court of Justice when a problem occurs in a platform-mediated transaction (mainly for worker-initiated platform work).

The enhanced security resulting from both the default expansion of consumer protection to platform work and court rulings positively influence clients’ willingness to use platform work. Accordingly, the development of platform work, notably the worker-initiated type, diverges across Member States, with more dynamic growth in those countries where consumers are protected. Due to the higher market potential, (international) platforms are more likely to settle in those countries with stronger consumer protection. The position of workers in relation to the platforms will further improve as there are more platforms to choose from.

Furthermore, as workers in this type have the autonomy to set prices, they will charge clients higher rates to cover higher liability risks. If clients accept these rates, workers’ earnings are likely to increase. The insurance sector, in addition, will benefit from offering specific packages for platform workers (to cover their liability risks, but could also deal with social protection).

In those countries with less consumer protection, consumer awareness of the risks related to services mediated through platforms increases due to the developments in countries with more protection. Accordingly, demand for platform-mediated services decreases, to the advantage of service provision in the traditional economy, where protection is better.

Labour regulation

There is harmonisation in labour regulation across Member States as regards the employment status of platform workers by platform work type, driven by governments’ intention to better protect workers. There is the rebuttable assumption that workers in platform-determined platform work are employees of the platform, and those in worker-initiated platform work are self-employed service providers. Platforms and workers can challenge this default status by providing justification that a different status is applicable. For the majority of workers in platform-determined platform work, this improves their access to employment rights and the enforceability of those rights and is likely to improve job quality and working conditions, including social protection and representation.

However, due to the high demand for such work, platforms keep employment and working conditions at the required minimum standards. Several platforms stop mediating such tasks as it is not attractive for them anymore, limiting the offer of work even more.

Sector regulation

Due to the particular characteristics of platforms, it is unclear which sector regulation should apply. Platforms argue that they are information society companies, while business representatives in the traditional economy that offer comparable services argue that platforms should be considered to belong to that specific sector (for example, transport and construction). It is left to the Member States to decide which sector regulations apply, and court cases on this issue emerge.

Unless it is clarified that platform-mediated services are subject to a specific sector regulation, platforms and their workers are not obliged to adhere to the requirements related to market access and business conduct of the traditional economy. This results in cheaper prices in the platform economy, fostering the demand for platform-mediated services at the expense of the traditional economy. This increases clients’ insecurity regarding service quality levels and liabilities, pushing up the importance of ratings. This, in turn, increases workers’ demand for transparency and objective criteria for ratings (to ensure fairness), redress options in case of perceived unfair treatment and the portability of ratings across platforms.

Information obligations regarding tax and social insurance

The EU builds a framework to clarify platforms’ obligations to report information on workers’ earnings, for tax and social protection purposes. Implementation is left to the discretion of Member States: they decide which platforms should declare, the type of information required and the mechanisms for declaration. Most likely, this leads to a diversity of approaches across Member States.

From the perspective of platforms, this is an incentive to be active in those Member States in which requirements are less burdensome. From a state and societal perspective, stricter information obligations can contribute to reducing undeclared work and limiting state income loss due to the evasion of taxes and social insurance contributions.

Platform ownership and governance

The challenging economic situation in the economy overall and, specifically, in the platform economy, which becomes a less attractive alternative to the traditional economy, forces established platforms to rethink their business models and new platforms to find innovative ways to penetrate the market if they want to be successful. In combination with the unfavourable labour market situation requiring solutions for workers to ensure employment with decent working conditions, this fosters the growth of new platform business models that are oriented toward creating stakeholder value rather than shareholder value. This is also enhanced by EU or national support for socially oriented platform work, for example related to social work and homecare for older people or people with disabilities.

Platforms run as worker cooperatives are flourishing for worker-initiated platform work, so that workers reap the benefits rather than profit-oriented investors. As regards platform-determined work, public actors establish platforms to provide employment opportunities for disadvantaged groups. While this serves the purpose of labour market integration and income generation, it also poses the risk of being perceived as subsidised employment and an unjustified use of public budget, fomenting societal discontent and endangering social cohesion.

Platform business model

Driven by these developments, the platform economy will expand further, and online labour platforms will diversify their fields of activity further. Platform-determined tasks expand beyond food delivery to the delivery of goods, including parcel and mail delivery; worker-initiated tasks are offered for additional types of household services, including care and personal services.

Consumers get more familiar with services mediated through platforms, resulting in increased acceptance and higher competition with similar services in the traditional economy.

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