Is the Jig Up for the Gig Economy?


How Covid-19 is exposing the gig economy’s vulnerabilities and providing ways forward

The gig economy, with its app-enabled services and glossy tech ‘Unicorns,’ had the great fortune of growing alongside the post-global financial crisis period of the 2010s. While Uber, Lyft, and Airbnb were becoming Silicon Valley’s most valuable companies, more domestic migrant workers were signing up to service jobs than factory jobs in China in 2018 (The Economist). But at the turn of the decade, cracks were beginning to show in what was dubbed as a revolutionary free-market system; strikes, new legislation, and the lack of a path toward profitability put the gig economy’s future in an uncertain light. 

Then Covid-19 hit. Originating in Wuhan, China, and sweeping the globe with zero discretion, the pandemic left despair in its path. The gig economy, built on capital abundance and regulatory arbitrage, was severely impacted. At the same time, the most popular gig economy services, such as food or grocery delivery, were deemed essential, heightening the attention paid to these platforms and their workers. Here is where the story diverges. 

The pandemic’s impact and government responses varied, affecting gig workers differently. Logistics-related services saw their demand skyrocket, with most people choosing to or being forced to stay home. In March, U.S.-based grocery delivery platform Instacart announced it would hire 300,000 workers, increasing that number to an additional 250,000 in April. Later that month, the company posted its first-ever profit (The Information). 

A similar story was unfolding in China. Food delivery drivers, an occupational group very much endeared by the Chinese public, saw their demand surge. 

Local delivery platform, Postmates, pressed pause on its referral program due to the influx of new applicants for its food delivery service. It was reported in July that Uber would acquire the public company, further consolidating the food delivery market in an effort to alleviate cash-bleed. 

On the other end of the spectrum, ride-hailing demand plummeted, and a wave of layoffs swept the back offices, with Uber and Lyft letting 14% and 17% of their staff go, respectively in early May (CNBC, CNBC). Even when willing to put themselves at risk and transport passengers, their drivers in the U.S. were struggling. 

In a survey conducted by the popular blog, The Rideshare Guy, over 80% of respondents reported a drop in demand. This decline in passengers exposes the most glaring obstacle for gig workers: no work means no pay. The most fundamental draw of the gig economy–the ‘be your own boss’ and ‘earn anytime, anywhere’ mantra–falls short when there’s no business to be had. Even well into June, Uber’s ride-hailing business was still down 70% year-over-year (NPR).

Under pressure from both the public and their workers, companies began creating benefits packages for those affected. Several leading ride-hailing platforms–including Uber, Lyft, and Didi-Chuxing–pledged to support drivers who had tested positive or were forced to self-quarantine because they had been exposed to the virus. 

On the food delivery front, India’s Siwggy and Zomato, as well as the Postmates and Doordash in the U.S., announced plans to support drivers financially. The hastily-constructed benefits programs were intended to provide sick pay for around 14 days, often depending on the workers’ previous average earnings.

Despite such efforts, workers have reported that receiving the money has been far from easy. In countries where testing and contact-tracing resources are lacking, proving exposure to the virus is anything but straightforward. At the same time, the public has been showering them and other essential workers with support and appreciation on social media, calling them ‘heroes.’ Unfortunately, being a hero in the public eye does not make one immune to the virus or pay the bills. 

Most platforms also took measures to help protect service providers who continued to work, such as providing them with masks and hand sanitizer, and pivoting to contactless fulfillment wherever possible. Uber also introduced new tools to ensure safety for drivers and passengers, requiring the former to take a selfie while wearing a mask before each ride, while the latter must sit in the backseat.

The public sector has stepped in as well; the Trump Administration signed the Coronavirus Aid, Relief, and Economic Security Act (CARES) in March to alleviate the economic fallout of Covid-19 on the country’s workforce, extending unemployment insurance benefits to gig workers and other self-employed people. 

These provisions are coming at a time when the tension over the classification of gig workers as independent contractors is at an all-time high, culminating in the passing of California’s Assembly Bill 5. The bill would force many platforms to reclassify their workers as employees. Already not profitable, Uber and the like would be facing increased costs in the form of workers’ compensation, additional taxes, and mandatory benefits, such as health insurance. 

In a joint effort, collecting over 1 million signatures, a group of platforms–including Uber, Doordash, and Lyft–forced a public vote to exclude them from the bill, which is to be held in November. Legal scholars across the spectrum are now arguing that providing relief makes platforms like Uber or Instacart employers already. As such, supporting these workers during the pandemic, who would otherwise go without any protection, could very well force the gig economy into an existential crisis it’s unlikely to ever recover from.

This change is already a reality in other parts of the globe. In France, the highest national court ruled that Uber drivers are classified as employees who are entitled to benefits, such as sick pay. The ruling came in early March, just before Europe got swept up with Covid-19, but the need for change was already well-established in the public consciousness. 

The next blow came in late July when the state of Massachusetts announced that it will be bringing a suit against Uber and Lyft over the classification of their drivers. In this case, officials directly cited the pandemic as a reason. (New York Times)

The outlook for the gig economy and the millions of workers around the world who keep it running is filled with uncertainty. On the one hand, Covid-19 highlighted real questions about its sustainability and exposed weaknesses regarding worker protection. Regulators are ready to act, and the momentum for new legislation is already underway. 

On the other hand, over 30 million people have applied for unemployment in the U.S. alone at the time of writing. These people will need jobs when the government stimulus runs out; the gig economy, with instant background checks and non-existent switching cost (the cost for customers to switch between competing services), makes it an attractive form of employment, even if temporary. 

If the gig economy is here to stay, platforms will have to show how they are going to take care of their workers, whether or not they are classified as employees. The extent to which platforms are held accountable for their well being will come down to how legislators reconcile worker protection and ensure that the economy is on the path to recovery. With many countries’ daily COVID-19 case numbers still climbing, and the U.S. heading straight into a massive second wave of cases at the time of writing, that next crisis may already be underway while government- and platform-provided relief is drying up.

What is for certain is that time is no longer on the side of these platforms, with mounting pressure for them to instill substantial change, especially before the next crisis hits. 

When even the CEO of Uber, Dara Khosrowshahi, acknowledges that drivers on his platform have “almost no safety net” and that platforms like Uber should be “required to establish benefits funds”, it’s safe to say that change is on the horizon (NY Times).

About the Author

Simon Kleffner co-founded Klick Works, a startup that matches handypeople with home service jobs in the U.S. He graduated from the University of Mannheim in Germany with a degree in Economics and Business and wrote his thesis on platform-worker relations in the gig economy. 


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