In the News

Gig economy - low paid, but employed or self-employed?

Penny Brooks

5th July 2017

If you are working as a bicycle courier with Deliveroo, or a driver with Uber, are you employed or self-employed?

The Resolution Foundation says that the minimum wage should be extended to gig economy workers. It reckons that these jobs do not represent genuine self employment, but that they are being used to get around the regulations and legislation that applies to employees, such as the minimum wage. 

Lord Adair Turner, who was chairman of the Low Pay Commission between 2002 and 2006, says that it is now necessary to "essentially enforce" the minimum wage "on those categories of the self-employed who, when you really look at them, are essentially employed in the fundamental sense of how their work is organised".

From the BBC's report

"I think there are some bits of the gig economy which probably are only able to survive at the price they are provided to customers because they have essentially managed to find a way of turning what might have been an employee into self-employed," Lord Turner said.

This matters not only to those working in the gig economy, often at very low wages, but also to the businesses operating on very low margins, in order to compete and win market share. The first question is whether jobs in the gig economy do really represent self-employment - do delivery drivers take the same risks and gain the same potential rewards as a self-employed entrepreneur, or do they rely upon the success of an employing business for their income? 

Secondly, who benefits, if their wages are raised to at least match the minimum wage requirements? If all businesses competing in the market for, say, take-away food deliveries, have to pay their delivery drivers the same wage, then there is a level playing field which would result in all costs rising by a similar amount - so the consumer may have to pay a little more. Would that reduce the total number of orders being placed? 

This would depend on price elasticity of demand for the service. If it did reduce the size of the market, who would suffer the greatest impact - the consumer, the entrepreneur and investors, or the employee who loses his or her job?

But if all employees earn a little more, surely this results in a better standard of living for everyone, which means that everyone can afford to buy more goods and services in the economy, creating more demand for all businesses. 

Although the UK economy has been successful at creating jobs since the end of the recession, real wages are below what they were in 2007, so an increase in the average wage would surely be a good thing?

The government's investigation into 'the new world of work' is due to report this autumn and will start the process of regulation around jobs like these - and will have a wide impact on a number of stakeholders. 

Penny Brooks

Formerly Head of Business and Economics and now Economics teacher, Business and Economics blogger and presenter for Tutor2u, and private tutor

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