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Rentierism in the 21st Century – The Gig Economy

If the new work created put downward pressure on long-term wage trend, existing 9-to-5 jobs will also be devalued. This artificially created downward pressure on wages is in fact a form of economic rent for the employers. In recent years, the challenge is made complicated by emergence of new technologies that make it easy for businesses to repackage work meant for temporary workers jobs so as to reduce the number of full-time employees they need.

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20 June 2019

As discussed, rentierism did not recede into history with feudalism/serfdom and mercantilism. It has merely transmuted in forms with time. One manifestation of rentierism today is the emergence of the gig economy.

Disappearing Jobs and the Gig Economy 

A gig economy is a free market system in which organizations, instead of taking on full-time employees, contract with independent temporary workers for short-term engagements. The term "gig" is a slang word originally used by musicians to refer to "an engagement for a live performance at a show". Today, gig employees could include freelancers, project-based workers and temporary or part-time hires.[1] Because they are classified as independent contractors, they enjoy no protection against unfair dismissal, no right to redundancy payments, and no right to receive the national minimum wage, paid holiday or sickness pay.


The gig economy can be broadly divided into the knowledge-based segment, comprising skilled-gigs such as independent management consultants, lecturers or even machine learning data scientists doing high value-add work, and the service-based segment, with moderate or low skill gigs such as photographers cleaners, couriers, and drivers doing lower value-add work.

To be sure, gig employment is not a new concept. For example, musicians, photographers, writers, truck drivers and tradespeople have traditionally been gig workers. The term “gig economy” was popularized only recently around the height of the 2008-2009 financial crisis when a large number of those who were unemployed or underemployed picked up temporary engagements wherever they could to help pay bills. A decade later, even though the economy has recovered, the ranks of gig workers are still swelling. In the US, for example, the number of gig employees made up about 34% of the workforce in 2017 and is expected to be 43% by the year 2020. In 2018, Harvard Business Review reported that 150 million workers in North American and Western Europe are engaged as independent contractors.[2] In the UK alone, it has been estimated that five million people are employed in this type of capacity.[3]

 

More Flexibility but Higher Risk

 

Proponents of the gig economy claim that people can benefit from flexible hours, with control over how much time they can work as they juggle other priorities in their lives. Critics, on the other hand, accuse traditional businesses of using gig employment to offload risk to the individuals by cutting down on fixed labour cost and paying wages, without benefits, only when work is done. Hence, depending on the viewpoint one subscribes to, the gig economy is either a working environment that offers flexibility with regard to employment hours, or it is a form of exploitation with very little workplace protection.

 

One thing is for sure, though. With contract work continuing to grow while traditional jobs with benefits and salaries that keep pace with the cost of living fade into oblivion, workers will henceforth face increasing job insecurity and economic uncertainty.[4]

Notably, gig employers also face risk with the cost-cutting practice of switching from permanent to temporary workers. In June 2019, in the aftermath of the grounding of Boeing 737 Max after two fatal crashes, it was revealed that the planemaker and its suppliers had earlier outsourced software development and testing to temporary contractors paid as low as $9 per hour often from countries lacking a deep background in aerospace – notably India. It happened at a time Boeing was laying off experienced engineers and pressing suppliers to cut costs. As a result, regulators feared that errors in coding by inexperienced temporary workers could have contributed to the crashes of the plane.

Emergence of the Precariats as a Social Class

 

Already, the gig economy is said to have created a new social class known as the precariat, a term combining “precariousness” and “proletariat” (working class).[5] Amid the burgeoning gig economy, the classic proletariat, comprising people working in stable full-time wage positions, is fading, except in emerging economies like China and India. The shrinkage of the traditional economy in developed countries was dramatic throughout the neoliberal era. Correspondingly, inequality and economic hardship also spiked during this period.

In the US, for example, the “elites” are relying increasingly less on the production of goods and services for their wealth and income with the financialization of the economy. On the other hand, the working class are languishing in falling real wages amid rising job insecurity as a result of deindustrialization. Many have become full-time gig workers while others are taking on part-time temporary assignments in addition to their full-time work to supplement their meagre income. With stagnating wages and rising living costs, many are facing increasing financial vulnerability. CNBC reported that 57% of Americans in 2017 have less than $1,000 in savings; 39% have no savings at all. More than a third or 36% of Americans would have to go into debt to pay for a major unexpected expense like a trip to the hospital or a car repair.[6] Not surprisingly, politics in the US has gotten uglier and more divisive and will likely worsen unless the need for basic economic security for all is recognized and met.

 

For the policymakers, the issue is not just job creations but the nature and quality of the jobs created. If the new work created put downward pressure on long-term wage trend, existing 9-to-5 jobs will also be devalued. This artificially created downward pressure on wages is in fact a form of economic rent for the employers. Hence, even though unemployment figures have gone down, wages have so far not returned to the pre-crisis levels.

 

In recent years, the challenge for policymakers to create more meaningful full-time jobs is made complicated by emergence of new technologies that make it easy for traditional businesses to repackage work and flood the job market with cheap temp jobs while reducing the number of full-time employees they need.

One phenomenon that has contributed to the rapid growth of the gig economy, for example, is the emergence of a new breed of high tech companies creating highly popular software platforms. Examples of such platform companies include Uber, Facebook, Alibaba, and Airbnb. Instead of creating and providing physical goods and services, they provide a virtual platform linking traditional businesses with consumersUber, the world’s largest taxi company, thus owns no vehicles; Facebook, the world’s most popular media owner, creates no content; Alibaba, the most valuable retailer, has no inventory; and Airbnb, the world’s largest accommodation provider, owns no real estate. By being able to attract a huge number of users to scour online platforms to seek out goods and services within the real economy, these companies are able to collect a huge amount of advertising revenue and/or charge a 'commission' from the users and traditional businesses using the virtual platforms.  In 2015, for example, Google and Facebook pocketed an astounding 64% of all online ad revenue in the US. Because these platform companies do not actually create the consumed goods and services, critics labelled them as rentiers living off traditional businesses and the consumers.

Notably, these rent-seeking platforms create many temporary work opportunities for gig workers who, as independent contractors, are now not employed by specific employers but are allocated jobs by the platforms to perform the services or to deliver the goods ordered. Gig workers in these sectors therefore do not have human bosses. They work for the apps created for the platforms.[7] This reduced need for full-time employees is true not only of the platform companies but generally of the new economy within which IT-based firms have much lower headcount than traditional manufacturing firms. In 1990 GM, Ford, and Chrysler chalked up revenue of $36 billion and hired over a million workers. Today, the big three — Apple, Facebook, and Google — bring in over a trillion dollars in revenue and only have about 137,000 workers.[8] Facebook has a market value of $60 billion but it employs fewer than 5,000 people.[10] In short, in the new economy, there is very little trickle down. 

Need for More Regulatory Oversight to Protect the Gig Employees

Looking ahead, with the onset of the 4th industrial revolution, even more traditional jobs will be ‘destroyed’ by technological disruptions. The “gig economy” may even mature to become just “the economy”.[11] Gig economy is therefore not just a transitionary phase. The rise of the gig economy points to the unsavoury reality that the twentieth-century income distribution system has broken down.

 

Gig employees are pushing back. In 2016, for example, Uber drivers in the UK won the right to be classified as workers rather than independent contractors. The ruling by a London employment tribunal meant drivers for the ride-hailing app would be entitled to holiday pay, paid rest breaks and the national minimum wage.[12]

Going forward, there is therefore an urgent need for regulatory oversight to stay abreast to protect gig employees and to keep rent-seeking within the gig economy in check. 

 

As Joseph Stiglitz put it in his book, The Price of Inequality, the problem indicates a market failure due to misalignment between rentiers’ incentives and social returns. There is enormous room for government to intervene and correct these market failures by designing policies (taxes and regulations) that bring private incentives and social returns into alignment.



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REFERENCES

[1] See Ivy Wigmore. (2019). “Gig Economy”. Whatis.com. March 2019.

[7] https://hbr.org/2018/03/thriving-in-the-gig-economy

[2] https://hbr.org/2018/03/thriving-in-the-gig-economy

[3] See Bill Wilson. (2017). “What is the 'gig' economy?” BBC News, 10 February, 2017.

[4] See John Frazer. (2019). “How The Gig Economy Is Reshaping Careers For The Next Generation.” Forbes. 15 February, 2019.[5] See Guy Standing. (2016). “The Five Lies Of Rentier Capitalism.” Social Europe. 27 October, 2016.

[6] See Paul Street. (2018). “Our 'Rentier Capitalism' Is One More Nail in Earth's Coffin.” Truthdig. 29 July, 2018.

[8] See Cadie Thompson. (2015). “We've reached a tipping point where technology is now destroying more jobs than it creates, researcher warns.” Business Insider. 3 June, 2015.

[10] https://democracyjournal.org/magazine/29/a-truer-form-of-capitalism/

[11] See John Frazer. (2019). “How The Gig Economy Is Reshaping Careers For The Next Generation.” Forbes. 15 February, 2019.

[12] See Bill Wilson. (2017). “What is the 'gig' economy?” BBC News, 10 February, 2017; http://www.bbc.co.uk/news/business-37802386