Growing Gig Economy in India: Is More the Merrier?

In recent years, numerous studies have emphasised the rise of the gig economy in labour markets across the globe. The gig economy's workforce participation rate is growing in tandem with the number of companies in the space. Multiple limitations of this model have been discussed, in both academic and industry literature. However, the perspective has always been concerning businesses and their profitability. Broader sociological and macroeconomic questions are yet to be answered: Is a growing gig workforce good for society? Can the workforce engaged in the gig economy be factored into employment figures of a country? Can employment in the gig economy be seen as an alternative to traditional employment among people who are in lower socio-economic strata, and is it capable of fulfilling the aspirations of an individual and family? This article provides a viewpoint and further directions for research on these questions based on fundamental observations. However, it does not intend to provide a comprehensive empirical answer to these questions.

 

Introduction

 

The gig economy, in terms of the labour market, can be defined as a temporary arrangement between two parties - a service seeker, who is a person/enterprise with a demand for a specific task which will be carried out by the service provider, and a worker who can perform the desired task (Monga 2020). The arrangement is temporary, with the scope limited only to the specified services. The highly skilled white-collar workforce, who did not want to be traditionally employed, embraced this model first. Some employees who wanted the freedom to choose the type of work, time of work, and place of work preferred freelancing over traditional employment. Companies embraced and continue to carry out this strategy due to the growing tech-talent shortage and the rising costs of developing technology. In a survey, it was found that 90% of the C-level executives from around 700 businesses indicated that the gig workforce would be core to their “ability to compete in the future” (Fuller, et al 2020). While this is on the demand side, the tech talent shortage is real on the supply end - according to a report published by management consulting firm Korn Ferry, there will be a global shortage of more than 85 million tech workers by 2030 (Nicolai Da Costa 2019). We are already seeing an exponential rise in the real wage rate for tech workers, which in turn is increasing the cost of developing technology. With high costs on one end due to an increased wage rate and a workforce willing to trade wages with time on another end (basically, a lower wage for higher flexibility) - the gig economy is bound to rise. 

 

However, along with the white-collared gig workforce, another model that rose to prominence with time is the gig workforce in platform businesses.

 

Platform Business Models

 

Platform businesses are business models that facilitate interaction between several participants, in a marketplace where such interactions were challenging and scattered previously. This can be short term or it can be forming a long-term collaboration to achieve a shared objective optimally. 

 

While traditional businesses raise revenue by producing goods or services as output by taking raw materials as an input, platform businesses do not own any means of production, but just facilitate the connection between the producer/service provider and a consumer. Platform businesses create value by aggregating the parties in a marketplace, by providing a platform for such interactions and a set of standard protocols for the same, so that the interactions are seamless between two parties. For all such transactions happening in their ecosystem, platform businesses take a share.

 

The emergence of platform businesses like Uber and Amazon revolutionised the buyer-seller matching concept. Service seekers in the market could now leverage technology to quickly broadcast their requirements which are matched with the most suited service provider. The whole process was made quick and convenient for both parties. This business model manifests in several ways, including transactions between buyers and sellers on platforms like Amazon, and platforms like Airbnb, where hospitality is provided as a service (no transfer of ownership). There are also platforms like Uber and Practo, where specific service seekers and providers are paired (Kapoor 2021). 

 

Fundamentally, in service platform businesses like Uber, Airbnb, Zomato, etc, there is no ownership of any capital assets that are used to provide services. However, there is a promise to provide service to the service seeker. Since it is not feasible to own and operate the assets by these businesses due to high capital requirements, these companies have largely relied on the gig economy. The gig workforce who participate in this business usually own the asset and operate the same under the aegis of a platform company like Uber. The convenience this model offers to the service seekers leashes the network effect which platform businesses are popularly known for - more service seekers means more demand and more demand directly translates into more business for service providers, which is an incentive for more service providers to onboard into the platform. The popularity of these business models have risen in many industry verticals like local transportation (Uber, Ola), hospitality (Airbnb, Oyo, etc), quick-service restaurants for food deliveries (Zomato, Swiggyetc, and has become more or less a need than a luxury in the mainstream economy.

 

As mentioned earlier, in the gig economy workforce, there are two subgroups: blue-collar workers seeking temporary employment through companies like Amazon, Uber, Zomato, etc, and highly skilled white-collar workers looking for seekers for their skills in an open market. Aspirations, ambitions, and motivations drastically differ among these two subgroups. In this article, we will focus on the former. 

 

Gig Workforce in Developing Economies: Motivations and Aspirations
 

Currently, participation in such a gig economy is more in developing countries like India (between 5% to 12%) than in developed countries (between 1% to 4%) (Boston Consulting Group 2021). A 2021 report by Boston Consulting Group (BCG) and Michael and Susan Dell Foundation forecasted that India’s gig economy could triple over the next three to four years to 24 million jobs in the non-farm sector—from the current 8 million jobs. The report also highlighted that gig jobs could increase to 90 million in 8-10 years. Most of these jobs are blue collared like deliveries, ride-sharing, etc. 

 

The main reason for the rise of the gig workforce in developed nations was the independence it provided to workers in the labour force, as well as the unlimited earning potential based on the number of hours spent performing the assigned tasks. However, in a developing country like India, where the informal workforce is substantial, we need to examine this further.

 

In a research, gig economy workers were surveyed (delivery riders, to be specific) to identify their motivation to undertake gig jobs instead of looking for formal employment. 50% of the responders indicated that they left their previous job (or are not seeking formal employment) due to low pay. Independence in work was mentioned only by 11% of the delivery executives (Tata Institute of Social Sciences 2019). Though the scope of the survey is limited to delivery executives, common intuition suggests that the results apply to a majority of the workers in the Indian gig workforce right now.

 

When reasoned further, this can have two fundamental reasons - the workforce in India is underpaid, and absence of low-skill organised opportunities for the workforce, in the formal sector. A fact that follows from this reasoning is that the workers see open gigs as a more attractive way to earn money when compared to the informal employment opportunities in the economy. If workers are in the gig economy due to a lack of decent earning opportunities elsewhere, it has long-term implications. Gig workers might find the jobs attractive in the current economy due to comparatively high-earning opportunities, but companies employing gig workforce do not have any obligations towards the income of the workers engaged with them. 

 

Platform companies frequently use additional incentives to attract more service providers when demand is high (in cases of supply shortages). While this is beneficial for all the stakeholders, ultimately, the objective of any company is to maximise its profits. In theory, if incentives attract more workers, resulting in a larger supply than demand for a service in a given geographic area, companies are more likely to stop the incentives or reduce the remuneration. Since many of these businesses do not have a fixed pricing model (price varies based on demand-supply dynamics), most of the workers engaged can never be sure of their income. This effect has been illustrated in multiple studies. A report by Peoples Union of Democratic Rights (PUDR 2021) states a case,

 

At present in Delhi-NCR, the Swiggy/Zomato workers informed us that they can only get full incentive of Rs. 850 a day from the company if they get 15 orders in a day and even if they manage to complete 14 orders they would get about half the amount or less. In contrast, a few years earlier they used to get Rs. 1100 as incentive after 10 deliveries.

 

Compensation for gig workers in platform business models include two major aspects - remuneration for the services provided and incentives designed to ensure that workers are available for a longer part of the day. Along with these, something that goes unnoticed is the commission that companies deduct from worker compensation. This commission is usually not fixed and varies on multiple factors - details of which (factors of variability) are opaque and not publicly available for many companies. The report by PUDR (2021) states a case,

 

“Naresh who started driving for Uber in 2020 after losing his job in the first lockdown, informed us that in 2020 Uber was charging 22% commission while at present, in late 2021 the company is charging an additional 18% as tax – the total commission amounts to almost 40%.”

 

Macro Implications on the Labour Force

 

More supply of service providers would essentially mean reduced bargaining power for the workers engaged with the platform businesses. Thus, more service providers entering into a gig economy need not be beneficial for the economy. This conclusion has an assumption that demand for these services will grow steadily over time rather than experiencing hyper-growth. Another thing to keep in mind is that most of these services have cyclical or seasonal demand. For example, transportation service providers would need more drivers on the road only when there is enough demand. During the recent pandemic, when work from home became a norm across many industries, multiple transportation service platform businesses reduced incentives for their partner drivers because they didn’t need them - there was more supply on the roads than the demand. Consequently, drivers who are dependent on these companies will see a sharp decline in their income. Being optimistic about their future, many drivers had bought their vehicles on loans. Loans with EMIs when there is no steady cash flow can be a disaster for any individual. Multiple gig workers were in this state during the pandemic. A report by Flourish Ventures (2020) highlights this - during the pandemic many workers were pushed towards the brink, around 44% borrowed, 45% reduced their essential expenditures and 83% used their savings (Flourish Ventures, 2020).

 

The pandemic is estimated to take around 135 million jobs away from Indians (Hiranandani 2020). India’s workforce is also adding almost four million people every year (Dewan 2018). Naturally, a large chunk of this population looks into gig jobs as an alternative since they do not have the opportunities they are looking for. The economy should be worried about this group of youth who see gig economy jobs like delivering food, driving cabs, etc, as a way to make some quick money. As concluded earlier, the more the merrier is not valid in the gig economy. Workers should not take up these jobs because they do not have enough employment opportunities in the organised sector. The fundamental tenet of the gig economy is choice and independence - if these are not fulfilled either for companies or workers - the gig economy model is not sustainable at a macro level. Also, financial security is a concern. Gig jobs cannot guarantee a steady cash flow. The economy is at risk if there is a major chunk of the population dependent on gig jobs for their livelihood.

 

Earning is one aspect. There are multiple other limitations in the sector that research has been highlighting time and again. One major issue has been limited employment rights like minimum wages, benefits, etc ( Economic Times 2021).  According to the  Flourish Ventures (2020) survey, nearly 90% of Indian gig workers have lost income during the COVID-19 pandemic and are concerned about their financial future . Can gig jobs lift a family from their current socio-economic strata to a higher one?

 

Availability is what gets paid in the gig economy with no consideration for hours of work, holidays, sickness or any other basic human necessities. The incentive is either based on the number of tasks completed or the number of hours logged in. The model is designed to encourage workers to spend long working hours, however, it is an established fact that such models are not healthy for any labour force. The exploitation of the labour force need not be monetary alone, any employment model that does not consider humanness in its labour force is exploitative in nature. Blue-collared gigs provide subsistence income to the poor when they have no other opportunities available - they do not bridge the income inequality in the economy, but in fact widens it (Nanisetti 2021).

 

Any worker in the modern economy would not have an objective of working for their whole life. People would want to retire, and the only way to do that is to save some money while in the workforce. In a country like India with a capitalist economy and a traditionalist society, there is usually a sole breadwinner in a family. A wage based on work performed in the day will rarely help lift a family from their current socio-economic status to the next level. With no employment benefits, the worker is always at risk, and a minor tragedy in life can push a whole family into extreme poverty. 

 

5. Conclusion

 

The Code on Social Security, 2020, which also includes gig workers, was passed by parliament. Along with multiple other propositions on employment benefits and social security for gig/platform workers, the code talks about creating a social security fund for them (Hiranandani, 2020; Government of India 2020). The code recognises gig workers as eligible beneficiaries for certain social security benefits, but it does not provide any concrete mandate to ensure this. Similarly, it does not describe any policy measures for platform companies to contribute to such funds (Nanisetti, 2021). While this is a positive step in the right direction, it does not address the issue for now. We must consider ways to protect the gig workforce and help them achieve their employment goals without compromising the benefits that a gig model provides to a company. Establishing a balance between flexibility and security in the gig economy model is a challenge in front of the industry, government, and society alike (Sharma, 2021). On one hand, platform businesses are growing at an unprecedented phase in India and on another hand, there is a rising voice of discontent among the labour force engaged in this sector. In this context, it is urgent that all stakeholders come together and draft measures/policies that are in line with principles of social justice. 

Many in the Indian labour market are already either unemployed or underpaid without any benefits that formal employment will offer. The gig economy can be a better alternative, but the economic implication of gig jobs on society must be pondered upon. Economists agree that the lack of opportunities in the organised sector is one of the major reasons for India’s economic disparity and widening income inequality. Are we solving this by migrating the workforce to the gig economy? Or are we just running away from the current problem and heading towards a bigger one is the question researchers and policymakers must determine. 

 

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