How might the sharing economy affect the world of work?

Europe Economics Blog
Sep 27, 2016

What is the Sharing Economy?

New technologies and innovations have encouraged the rise of novel business models, collectively known as the sharing economy. Although definitions of the sharing economy may differ, the term is predominantly used to describe technology driven market places (platforms) enabling a wide variety of exchanges.[1]

The appearance of such platforms has created a new world of business that capitalises on the influence of social environments and where technology breakthroughs are the norm. It is natural to wonder how the sharing economy might affect the world of work in the future.

The key features of the Sharing Economy

Overall, there are several unconventional features[2] of the sharing economy that firms will need to adapt to:

  • The redefinition of social capital — business relationships and their potential success/failure are determined by personal brands (as opposed to corporate ones).
  • Redistribution markets — the assets being exchanged are mainly under-utilised (i.e. an owned car).[3]
  • Collaborative lifestyles — non-product assets (e.g. space and skills) may also be exchanged.
  • Product service systems — users pay to access a product or service that they do not own.

The main value added by sharing economy platforms relates to the reduction in transaction costs for buyers and sellers, thus enabling the completion of transactions that would previously seem infeasible. From the buyers’ perspective, the move towards collaborative consumption has placed in the spotlight the value of trust, reputation and the benefits of “access” as opposed to “ownership”.[4] In turn, providers benefit from flexible working arrangements and new ways to supplement their incomes. From a labour market perspective, the sharing economy has also allowed groups previously excluded from formal employment (e.g. single parents, seniors, long-term unemployed) to reap the benefits of participating in such platforms.[5]

The challenges imposed on the world of work by Sharing Economy platforms

Nevertheless, despite the inherent benefits, the emergence of sharing economy platforms has posed several challenges in the world of work and, mainly, on established views regarding employment status. In the UK, where this issue has frequently been placed in the epicentre of public attention,[6] employment law dictates three main statuses:

  • employee;
  • worker; and
  • contractor (i.e. self-employed).

Each of the above categories is characterised by different definitions and associated levels of statutory protection, whereas multiple factors are incorporated in determining which category a person adheres to.[7]

In contrast, an observable trend in the sharing economy relates to several digital applications offering heightened work flexibility (i.e. in terms of workhours or workload) but limited employment protection, while maintaining an increasingly loose relationship with their end-users.

Regulatory reactions and the evolution of the world of work

As these dynamics appear to defy existing categorisations of employment status, the response of many affected stakeholders in markets entered by sharing economy providers has been to call for increased regulation of the new entrants.[8] Similarly, the European Commission devoted a section in its recent consultation on the regulatory environment for online platforms to the sharing economy.[9]

A number of reform options have been proposed. One such proposal relates to the creation of a new employment status for sharing economy providers. This new status may include several layers in order to differentiate based on the amount of weekly workhours devoted.[10] Along these lines, it is likely that providers and platforms will agree over time on several work benefits (e.g. pension plans, health insurance). Similarly, sector-specific rules (e.g. taxi licensing procedures) may have to change in order to adapt to the new landscape, as do tax systems so as to offer effective tax collection solutions from platforms.

One proposal that has been subject to controversy relates to the introduction of a universal basic income (UBI) as a social program aiming at subsidising those affected by disruptive technologies. In this respect, sharing economy proponents point to this tool as a solution to the collateral damage created by disruptive innovations, while maintaining the profit-oriented motives that allow projects that contribute to public benefit to materialise.[11]

Conclusion

Overall, the emergence of the sharing economy raises important public policy questions in relation to its effects on the world of work. At the very least, addressing these issues is likely to require a nuanced view of traditional policy tools around employment rights, income and pensions. It needs to be mentioned however that, as with other new and innovative industries, regulators face the risk that their actions might do more harm than good.[12]

Premature intervention in pursuit of a “level playing field” could well result in reduced competition, barriers to entry by new providers and a negative overall impact on consumer welfare.[13] Nevertheless, as employment opportunities evolve away from traditional corporate models and regulatory challenges are addressed, the sharing economy has the potential to generate considerable financial and social returns over the next decade and beyond.

[1] Over the recent years, an increasing number of industries has been involved in the sharing economy with accommodation (e.g. Airbnb) and transportation (e.g. Uber) being the most prominent examples.

[2] See e.g. http://www.cio.com/article/3088713/internet-of-things/future-of-work-for-healthcare.html.

[3] Europe Economics (2016) has estimated the potential welfare gain from reductions in the under-utilisation of assets and labour across the EU at €572bn, which translates to over €1,000 per EU citizen.

[4] Munger (2015) suggests that the observed trends in the sharing economy are likely to move economies away from ownership and towards subscription and rental models which allow on-demand use of goods and services.

[5] Evidence points towards the potential for the sharing economy to bring marginalised groups into the labour force. See Chassany, A. (2016) “Uber: a route out of the French banlieues.” Financial Times.

[6] In the UK, Uber is facing a legal challenge from drivers who say that they should be recognised officially as workers at the company. See https://www.theguardian.com/technology/2016/jul/19/uber-drivers-court-tribunal-self-employed-uk-employment-law.

[7] These factors include whether the person is required to provide personal service, whether the employer is obliged to provide the person with work and, in turn, the person is obliged to undertake this work (i.e. mutuality) and whether the employer has the power to indicate how work is to be conducted (i.e. control). Employment categorisation under EU employment law is based on the same principles.

[8] For instance, Transport for London has initiated a public consultation in 2015 on sharing economy platforms.

[9] See e.g. https://ec.europa.eu/digital-single-market/en/news/public-consultation-regulatory-environment-platforms-online-intermediaries-data-and-cloud.

[10] Debbie Woskow, chair of Sharing Economy UK, the UK's own sharing economy trade body has pointed to such reform proposals being under consideration by EU policymakers. See e.g. http://www.telegraph.co.uk/business/2016/05/31/make-or-break-time-for-sharing-economy-as-european-commission-pr/

[11] See https://www.theguardian.com/technology/2016/jun/22/silicon-valley-universal-basic-income-y-combinator.

[12] See e.g. Manne, G. and Wright. J. “Google and the limits of antitrust: the case against the case against Google.” Harvard Journal of Law and Public Policy, No34, Vol 1.

[13] This point was recently brought home by the UK Competition and Markets Authority in its response to Transport for London’s consultation on new regulations for private hire vehicles (CMA, 2015; TfL, 2015).



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