The gig economy need a new social-insurance system that works for non-traditional workers, writes Linda Nazareth. But an overhaul should only happen after careful analysis.
By Linda Nazareth, Oct . 24, 2017
The labour market is complicated but our social-insurance systems are simple. Think about it: if you are employed full-time, you get paid regularly, and if you are unemployed, you are eligible for employment insurance (EI).
What happens, though, if you work two part-time jobs or a short-term contract or are self-employed? The need to think beyond “binary” employment status was highlighted last week by the International Monetary Fund (IMF) in their World Economic Outlook. In their words, “the rise of part-time employment and temporary contracts challenges the current structure of social-insurance systems.” Translation: the gig economy is happening, so the policies that made sense during the Great Depression may not be a fit for the realities of the 21st century.
The transformation to a gig economy is happening at an astonishing speed in Canada. According to staffing company Randstad Canada, if you add up all the contingent workers, freelancers, independent contractors and consultants, you are talking about 20 to 30 per cent of the Canadian workforce being “non-traditional workers” already. That percentage is only going higher. Eighty-five per cent of the companies surveyed by Randstad figure that they will increasingly move to an “agile workforce” over the next few years.
The switch to gig work is first and foremost about employers moving to what is efficient for them.
The switch to gig work is first and foremost about employers moving to what is efficient for them. For about a hundred years (from the Industrial Revolution through to the latter part of the 20th century) that meant forming large companies, hiring a bunch of people, giving them wages and benefits and having them in-house to do what needed to be done. It made economic sense: in his work on why firms exist, Nobel Prize-winning economist Ronald Coase concluded that firms exist because the transaction costs of bringing resources together as needed were just too high.
Now, technology has changed the game. You can bring in who you need for as many hours as you need and call it a day, and if you do want full-time workers, they can be contractors rather than employees. Some call it the “Hollywood Model,” whereby you assemble talent to make a movie, employing them just for the project rather than permanently.
In a way, the choice facing employers is now between gig workers and robots, or at least technology. Nearly a decade after the global economic crisis, it is still a tough economy and everyone is looking for efficiencies. Robots are an attractive way to get the work done, given that they work cheap, do not demand benefits, never whine about needing a work-life balance and are not going to get drunk at the holiday party.
In the same way, a gig worker (who you do not provide with benefits or invite to the party) may be competition for the robots. Employees are still necessary on occasion, but hardly the only way to go. The restructuring to include more gig workers may be one reason why, in countries such as the United States and Canada, unemployment rates keep falling but wage growth is stubbornly slow.
In a way, the choice facing employers is now between gig workers and robots, or at least technology.
To be fair, gig work may very well be the preferred choice for many workers. Baby boomers who want to ease their way out of the workforce, or who want to keep working as they age, are a prime example. In a 2016 survey by PricewaterhouseCoopers, 65 per cent of U.S. workers aged over 50 said they had a strong desire to work as independent contractors rather than employees. Millennials, however, are surprisingly conservative in their views of the gig economy. In the PwC survey, only 33 per cent of those under 34 said that they had a strong desire to go that route. Still, workers of all ages accept that independent work could be their future, with 53 per cent of those surveyed expected to be self-employed over the coming five years.
In Canada, that overhaul of the social-insurance system will be a herculean task and not one that should happen without some careful analysis. The first step in the process is realizing that the old model of work has already been shelved for many and that the new gig workers need a system that works for them. The IMF has started the conversation, and the discussions need to continue.
Linda Nazareth is MLI’s Senior Fellow for Economics and Population Change. She is an economist, author, blogger, broadcaster and speaker.
