Is the Gig Economy in Emerging Markets Sustainable?

Regulators and platforms may benefit from adapting to worker concerns.

Key Points

• While they benefit from flexible schedules, gig workers in emerging markets are facing subpar labor standards, along with job insecurity and poor pay.
• In our view, companies that find middle ground between offering workers flexibility along with safe and secure working conditions should receive social benefits and produce more sustainable business models. 
• Addressing gig worker concerns is not only a moral imperative but also important for the long-term success and sustainability of digital platforms.

Human capital management, beyond optimizing employees to increase their value to the company, is intricately linked to our responsible investment philosophy. We believe that effective human capital management—including commitment to employee training, development and social security—pays dividends, not only in productivity but also to help companies innovate and remain competitive. With the digital boom, platform economies are driving enormous growth. Along with assessing risk and opportunities, we believe adopting forward-looking human capital management practices is crucial.    

Due to limited employment options during the Covid-19 pandemic, a growing number of employees in emerging-market countries turned to workers on digital platforms, commonly known as gig workers. In almost all countries, employees who work for digital platforms are formally classified as either independent contractors or self-employed. However, their work frequently mimics that of company employees, particularly when platforms manage task allocation and provide individuals few options to decline a given task. Since gig workers are contractors or freelancers, they frequently do not have access to fundamental employment rights such as the minimum wage, social security and health coverage. We have observed that countries across the world have begun closing these gaps.

Why are Gig-Worker Labor Practices a Big Concern?

Despite the opportunities being created by digital platforms, there are concerns about worker experience related to poor pay, job insecurity, and health and safety concerns. According to an International Labour Organization (ILO) report, delivery-based gig workers and taxi drivers work an average of 59 and 65 hours per week, respectively, much higher than the recommended number of working hours. In emerging markets, most digital-platform employers keep track of employees’ working hours, ask for screenshots of their work or request that employees be accessible at a certain time. Platform workers have participated in various forms of contestation, including strikes, logoffs and protests, in addition to legal challenges. Though there are numerous reasons for this, complaints about wages accounted for 63.8% of protests, making it by far the most common issue. 

Issues Motivating Protests

Important Parameters When Assessing Emerging-Market Digital Platforms

1. The local minimum wage, after expenses: Platform workers can face significant expenses such as fuel, insurance and maintenance of the vehicle. In some cases, these costs drive workers’ take-home pay below the local minimum wage. We therefore believe digital platforms should offer wages higher than local minimum wages to gig workers.
2. Fair working conditions to mitigate task-specific risks: Platform workers may encounter risks in the course of their work, including accidents and injuries, harmful materials, and crime and violence. In our view, companies should offer policies that safeguard employees’ health and safety from task-specific risks. To prevent unexpected poverty brought by events beyond their control, workers would also benefit from a social-security system.
3. Clear and transparent terms and conditions: Each platform should ensure that workers understand and agree to their working terms, which should articulate legal options available to workers if the platform violates the requirements.
4. Provisions to have fair decision making: Sometimes platform employees get arbitrarily deactivated—denied access to the platform without justification—and are therefore at risk for losing their jobs. Without access to the service or the platform, employees may be liable to further fines or disciplinary actions. Platforms should be transparent and communicate that there is recourse for employees to challenge disciplinary measures.
5. Internal parity at the workplace: We believe that platforms should have anti-discrimination policies in place. If algorithms are used to decide whether a worker has access to employment, compensation or certain job types, those algorithms should be transparent and not discriminate against workers from historically or currently underrepresented groups.
6. Promote freedom of association and expression: To promote the expression of the collective worker voice, platforms should make sure that the appropriate conditions are in place. A written policy of willingness to recognize or bargain with a collective body of employees or a trade union should exist and be made known to all employees.

Regulatory Environment

We believe that regulators need to draft legislation and/or revise existing legislation to precisely address the situations and difficulties faced by gig workers. In developed countries, workers frequently take on gig work to augment their income; in emerging economies, gig labor is the typically the primary source of income. As a result, regulators from developed markets are looking to offer employment status to gig workers while regulators from emerging markets are still struggling as they focus on minimum wages as their mandatory criteria for digital platforms.

Conclusion

The gig economy has the potential to meaningfully increase employment, particularly for low-skilled workers in emerging markets, but we believe governments and digital platforms must offer the proper support. In our view, addressing gig workers’ concern is not only a moral imperative but also important for the long-term success and sustainability of digital platforms. By prioritizing the wellbeing and rights of workers, platforms can not only foster trust but also attract and retain talent while mitigating the risks associated with labor disputes and regulatory challenges. Gig workers have a right to fair pay, social-welfare benefits, decent working conditions and equal rights to voice their concerns within organizations. We consider these policies and practices as a part of our investment decisions.

Authors

Onkar Jagtap

Responsible investment analyst*