Sandra Polaski was Deputy Director General for Policy at the International Labour Organization (ILO) from 2012-2016
Over the last decade the economic prospects facing European workers have changed. For most, it’s been a change for the worse: less job security, less wage growth, more low-paid work, erosion of pensions and healthcare, and increased fears about future employment prospects, particularly for young people.
The ‘gig economy’ – in which people hold several temporary, part-time or on-demand jobs rather than working for a single employer – is a new element with an uncertain future impact on the labour market. But it must be seen in the context of the longer-term trend of rising labour market insecurity and inequality that has plagued Europe for more than a decade.
The gig economy – also known as the online platform / on-demand / collaborative / sharing economy – involves only a very small portion of the total European workforce, according to the best available data. While claims abound that large numbers engage in such work, evidence shows those assertions typically refer to a wide range of ‘independent work’, of which only a small portion is arranged through online platforms.
It is nonetheless part of a continuum of erosion of long-standing employment relationships that are based on open-ended contracts between workers and employers that provide important rights and social benefits. The rise of involuntary part-time and involuntary temporary work, and increasing use of subcontracting, undeclared work and disguised employment relationships, means that gig work is part of larger challenge facing Europe. Policy responses should address the need for an overall rebalancing of rights and social protection for working people and tackle the widespread erosion of quality employment.
Forces contributing to this erosion include the huge expansion of the global labour force after China joined the global economy and the Soviet-led communist bloc collapsed, and technological change that reduced demand for certain types of labour while increasing the types of work that could be shifted across borders. These changes shifted bargaining power away from workers and towards employers.
This supply and demand change is global, but the impact on working and living standards has varied widely between countries. That is because outcomes in labour markets depend on the rules set by national governments and the steps they take to define rights, support incomes and steer their economies in ways that take account of the needs of working households. Some governments have failed to address these needs and instead adopted policies that favour owners of capital, already beneficiaries of the structural shift in labour supply and demand. The European Commission has the power to set minimum standards or guide states’ actions, but in general its reaction has been fragmented at best, and at worst indifferent to the increasing difficulties facing working households.
Policies should address the need for an overall rebalancing of rights and social protection for working people
Policy solutions include labour laws, social protection systems and macroeconomic measures. Labour laws and regulations must enshrine clear and broad definitions of employment that cover full- and part-time work, temporary and open-ended contracts, and non-standard forms of work. They must make it difficult for employers to evade labour laws or avoid the payment of social insurance contributions – a practice facilitated by engaging workers on short-term contracts or short hours, or misclassifying employees as independent contractors. It is important that labour laws avoid introducing ‘cliff edges’ whereby workers can be denied rights and benefits if they work less than a certain number of hours or have a limited-term contract.
With respect to labour engaged by online platform firms for their own profit, that too is employment and it must be defined and treated as such. Clarifying and closing loopholes in the definition of employment would guarantee the ability of all workers to organise and bargain on their own behalf and benefit from social insurance, including those in the gig economy.
The proposed European Pillar of Social Rights – a European Commission plan to ensure fair employment opportunities, working conditions and social protection – should provide a strong and unambiguous guarantee that the status of employee will be accorded to all who labour for remuneration under the control or direction of others.
Social protection measures have also been weakened by the fragmentation or denial of such employment relationships. Pensions, unemployment insurance and (in some countries) health insurance systems that depend on contributions by employers and employees have been cornerstones of the economic security of European working households for half a century or more. They have underpinned economic stability and prosperity.
But these automatic ‘stabilisers’ have been undermined by employers who no longer contribute because they use temporary contracts, reduce hours below qualifying minimums, misclassify employees as independent contractors or simply do not declare work performed for them. Many firms that profit from gig work have avoided making social contributions altogether, robbing people of the security to which they are entitled.
Insurance schemes are now underfunded at a time when ageing populations and persistent high unemployment have made them more essential than ever. Clarifying the breadth of the employment relationship is a necessary step towards restoring the financial integrity of these important social benefits and ensuring that they provide coverage for current and future generations.
The political shocks of 2016 should not have been a surprise, given what has been happening in European labour markets
The fact that some workers may have multiple employers or work intermittently can be easily addressed through the electronic software that currently tracks their work, authorises payments and takes profits. It is simply a matter of using laws and regulations to require companies to do this and updating national social insurance systems to receive such data and contributions. Such updates could also be linked to reporting and collection of other taxes, which would help to level the playing field between responsible employers and evaders.
It is also important to reform the non-contributory social benefit schemes that are funded from general revenue. These safety nets will always be needed for those people who cannot participate in social insurance or whose low income histories make the benefits from those schemes inadequate. Built-in thresholds that cut off social benefits when recipients start to work should be replaced by graduated eligibility, providing both adequate income security and positive incentives for participating in the labour market.
A supplementary EU-wide unemployment insurance scheme should be created to support countries or regions during periods of high unemployment. This would be analogous to the United States’ federal unemployment scheme, which has been credited with boosting economic recovery.
On a macroeconomic level European austerity has strongly depressed demand for labour and kept unemployment rates high in most countries. EU, national, and Eurozone austerity measures also reduced income and social safety nets for low- and middle-income households in many countries, further spreading economic hardship. This has left many people desperate for incomes and more likely to accept precarious employment, having a further negative impact on the labour market situation and household anxiety in Europe.
And this leads to a larger point: what does the European Union represent today for middle- and low-income European households? For young adults who want to work but are unable to find good jobs? For distressed regions and communities across the Union? The political shocks of 2016 should not have been a surprise, given what has been happening in European labour markets for the last decade or more. There were only two surprises: that the political protest took so long to materialise and that, so far, only right-wing demagogues have taken advantage of the widespread economic anxiety.
Meanwhile many centre-left and centre-right governments and the EU continued to give unjustified support to so-called ‘market-based responses’ – measures that increased returns to capital holders who were already gaining larger shares of national incomes based on global and technological forces. Many people predicted that this self-reinforcing vicious circle would provoke social unrest or a political backlash. And now it has. Europe is truly at a crossroads.
The European Pillar of Social Rights presents an opportunity to adjust the course in ways that would be visible and comprehensible to the European public. If we are serious about tackling the economic malaise and insecurity facing much of Europe, the steps on employment status and social protection systems proposed here should be adopted swiftly, implemented as a matter of urgency and aggressively enforced.