After providing an overview of trends in self-employment, own-account and platform work, this chapter provides a comprehensive policy discussion of how to address the challenges of some of these “new” forms of work – covering labour market regulation, social protection, tax, social dialogue and skills. The objective of policy makers should be to balance innovation, entrepreneurship and flexibility, on the one hand, with job quality and worker rights and protections, on the other. The latter is important not only from a worker perspective, but also to ensure a level playing field between competing firms.
Good Jobs for All in a Changing World of Work
The OECD Jobs Strategy
Chapter 12. Managing self-employment, new forms of work, and the platform economy
Abstract
The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
Introduction
Recent innovations in technology and business models have led to the emergence of the “platform economy” and new ways of working more generally. From an employment perspective, these developments have been interesting because they have promoted more flexible forms of employment, which have been a boon to employers as well as many workers.
However, there are also concerns that these new forms of work offer individuals little or no employment protection, reduced social protection, poor working conditions (including pay), and put them in a weak bargaining position vis-à-vis employers and clients. This is not only a challenge for the workers themselves, but can also create an uneven playing field if firms try and get a competitive advantage simply by evading their dues and responsibilities. A key policy challenge is therefore to promote innovation, entrepreneurship and flexibility, on the one hand, while improving job quality and worker rights and protections, on the other.
The platform economy has brought renewed attention to these issues, but they are by no means new. Many workers like hairdressers, plumbers and gardeners share characteristics with platform workers and face comparable challenges. Several countries have seen increases in the number of solo self-employed (or own-account workers) as a result of tax and regulatory incentives embedded in their systems, rather than as a consequence of technological change. The general, structural rise in service-sector jobs has been a further driver behind these trends.
This chapter focuses on these non-standard forms of work and, in particular, on the grey area between self- and dependent employment. After providing an overview of trends in self-employment, own-account and platform work (section 12.1), the chapter provides a comprehensive policy discussion – covering employment regulation, social protection, tax, social dialogue and skills (section 12.2). The final section concludes.
12.1. Stylised facts
Trends in self-employment, own-account and platform work
The emergence of new forms of work is closely tied to the advent of the platform economy. Capturing the extent of platform work through existing household and labour force surveys has, until recently, been impossible. Various ad hoc attempts exist, though differences in terms of platform definition, time period covered, and survey methodology have made it difficult to compare estimates. For example, some surveys cover only income from labour platforms (i.e. technologies that allow users to sell their labour, such as chauffeuring others or doing remote data entry), while others also include income from capital platforms (i.e. technologies that allow users to sell or rent property, such as apartments or used goods). Data sources include face-to-face surveys, phone surveys, online surveys, administrative data such as tax records or bank data, and, more recently, new questions added to labour force and household surveys. Overall, the best evidence indicates that platform work still only represents a small share of overall employment (less than 1%) (Katz and Krueger, 2016[1]; Farrell and Greig, 2016[2]; Jackson, Looney and Ramnath, 2017[3]; Statistics Canada, 2017[4]; Statistics Finland, 2018[5]). There is some indication that it has grown fast, but there are also signs that this growth may have levelled off in recent times (Farrell and Greig, 2016[6]).
It is important to stress that platform work is not in and of itself a form of employment, but rather refers to the means through which the work is obtained and (sometimes) carried out. In theory, platform workers could be engaged in any kind of employment relationship. In practice, many are (rightly or wrongly) classified as self-employed and, in particular, as independent contractors (or own-account workers/solo self-employed). Many of these workers will face similar challenges to platform workers and it is, therefore, of interest to look at this group of workers more broadly – also because the rise in solo self-employment in some countries has been driven by policy decisions (tax and regulatory incentives) rather than by technology. While there has been no clear trend across the OECD on average in the share of own-account workers in total employment between 1995 and 2016 (Figure 12.1), there have been substantial increases in some countries like the Netherlands, the Slovak Republic and the United Kingdom.
Figure 12.1. Share of own-account workers in total employment
Note: Data are for 1996 (instead of 1995) for Hungary and Switzerland; 1997 (instead of 1995) for Estonia, Czech Republic and Poland; 1998 (instead of 1995) for Latvia, Lithuania and the Slovak Republic; 2006 (instead of 2005) for Turkey; and 2015 (instead of 2016) for New Zealand.
Source: OECD Gender - Entrepreneurship database.
Own-account work is a particular challenge in cases where individuals are financially dependent on a single employer. These are the so-called economically “dependent” self‑employed who earn most of their income from just one client. The reason these are a group of interest to policy makers is that they tend to be in a vulnerable position vis‑à‑vis their client and may need special protections put in place (especially since they will not have access to the usual benefits and protections that employees do). Only a few countries have official (legal) definitions of dependent self-employment and, where these exist, they tend to differ. For example, in Spain, the trabajador autónomo económicamente dependiente (economically dependent self-employed, or “TRADE”) covers own-account workers who depend on a single client for at least 75% of their income. In Portugal, an individual is considered dependent self-employed when at least 80% of their yearly income comes from one single client (regime dos trabalhadores independentes e que prestam serviços maioritariamente a uma entidade contratante). Estimating the extent of dependent self-employment is further complicated by the fact that standard labour force and household surveys do not permit the identification of such workers. Based on the European Working Conditions Survey, Figure 12.2 looks at changes between 2010 and 2015 in dependent self-employment, defined as those own-account workers who generally do not have more than one client. It shows that in around two thirds of countries, dependent self-employment has risen over this time period.
Figure 12.2. Share of own-account workers who generally do not have more than one client
Note: The OECD average refers to 25 EU countries plus Turkey.
Source: OECD calculations based on Eurofound (2010), “5th European Working Conditions Survey (EWCS)” and Eurofound (2015), “6th European Working Conditions Survey (EWCS)”.
A closely related, but distinct, concept is that of false self-employment. The exact definition of false self-employment will also vary from country to country, depending on the legal tests in place to determine employment status. In most countries, economic dependency on a single client (i.e. dependent self-employment) will not be sufficient for a person to be considered to be falsely self-employed. Indeed, one can be financially dependent on one client, while still being genuinely self-employed. In general, for an employment relationship to be labelled as false self-employment, there also needs to be an element of control by the client/employer so that the individual has little freedom to decide over working hours, the way work is carried out, the place of work, etc. In other words: the characteristics of the employment relationship must closely mirror those of an employer-employee relationship. Estimates of false self-employment are also difficult to obtain, and international comparisons are even more tricky because definitions of what it means to be an employee will vary significantly. Figure 12.3 nonetheless makes an attempt at estimating the extent to which own account workers who generally only have one client also cannot change at least two of the following: i) the order of their tasks; ii) their method of work; and iii) the speed or rate of work. The graph suggests that this share has increased in the majority of EU countries.
Figure 12.3. Share of own-account workers who generally do not have more than one client and have little control over how their work is carried out
Note: The OECD average refers to 25 EU countries plus Turkey.
Source: OECD calculations based on Eurofound (2010), “5th European Working Conditions Survey (EWCS)” and Eurofound (2015), “6th European Working Conditions Survey (EWCS)”.
What has driven these trends?
Firms are constantly trying to find new business models and ways of producing goods and services more cheaply. In some cases, this has resulted in an increased use of non‑standard employment arrangements, outsourcing, and a shift of the costs, risks and responsibilities from employers onto workers. Technology has further promoted this trend by facilitating the outsourcing not only of jobs, but also of individual tasks, as it has significantly lowered the transaction costs involved in doing so and made it possible even for small and medium enterprises to outsource. Technology has also enabled individuals to have greater choice about where and when they work, and part of the increase in non‑standard forms of work may reflect a desire for more flexible ways of fitting work around other responsibilities. For example, there is some evidence that ride-hailing apps reduce barriers to entry in the labour market for women and that women drivers particularly value the flexibility that such apps offer (IFC, 2018[7]). Structural change more generally, and the shift to service-sector jobs in particular, have further contributed to this trend (OECD, 2015[8]).
However, significant differences across countries in the prevalence of, and trends in, self‑employment and own-account work suggest that policy decisions, whether intentional or not, can amplify or dampen the emergence and/or rise of such forms of work. As one example, growth in self-employment has been facilitated by reforms on the regulatory or fiscal side which have generated very strong incentives for employers and workers to prefer self-employment over dependent employment. For example, forthcoming OECD research (Milanez and Bratta, forthcoming[9]) shows that, both in the Netherlands and the United Kingdom, differences in total employment costs between the self‑employed and employees are large enough to shift employer-employee preferences towards self‑employment.
Advantages and disadvantages
For firms, business models based on outsourcing work to self-employed workers generally means more flexibility to adjust the workforce in light of changing and sometimes unpredictable economic conditions, as well as significant cost savings. For workers, self-employment can provide an opportunity to improve work-life balance and there is some evidence that the self-employed and platform workers have high levels of job satisfaction (OECD, 2000[10]; Forde et al., 2017[11]). The benefits may be felt more generally by society as well (and by consumers in particular) as goods and services are produced more cheaply. In this sense, the emergence of the platform economy is to be welcomed. By lowering entry barriers, improving labour matching, and bringing transaction costs down, the platform economy has resulted in lower prices and greater choice for consumers, frequently meeting unmet demand or even stimulating new demand. In the United States, (Cohen et al., 2016[12]) find that Uber creates a considerable amount of consumer surplus, and (Hathaway and Muro, 2016[13]) find that, despite the increase in own-account workers, payroll employment (i.e. the number of dependent employees) in the “rides and rooms” industries has also increased.
However, excessive use of such business models may have adverse effects as well – on employers, workers and society as a whole. From the firm side, over-reliance on outsourced workers can gradually erode firm-specific skills, and it has been shown that non-standard employment results in lower investments in training (OECD, 2014[14]) which, in the long-run, results in lower productivity growth. Firms should also be concerned about having a level playing field on which to compete, and avoiding situations where less responsible firms are gaining a competitive edge simply because their business model is based on evading regulation and/or reducing their tax bill. In addition, such tax avoidance behaviour is likely to result in a larger tax bill for all other firms if unprotected workers end up having to rely on social assistance programmes which are financed through general taxation rather than social security contributions. The deliberate misclassification of workers as independent contractors is of particular concern and presents a significant challenge for government revenues. For example, in the United States, the Department of Labor has estimated that between 10‑30% of self‑employed workers are misclassified and that this could have a significant impact on tax revenue (Brumm, 2016[15]).
While self-employment may mean increased flexibility for workers as well, they are unlikely to reap the benefits if they have little bargaining power vis-à-vis their clients and/or intermediaries. The self-employed, particularly those without employees, earn, on average, much less than employees (OECD/EU, 2017[16]). Self-employment is also less secure than employment and considerable numbers of the self-employed exit before five years (OECD/EU, 2017[16]). Self-employment brings with it the opportunity for flexibility and autonomy, leading to greater levels of job and life satisfaction. The trade-off, however, is that their working conditions are characterised by long working hours and the potential for stress and health-related issues (OECD/EU, 2017[16]).
Emerging evidence for the platform economy suggests that, while pay varies enormously reflecting the heterogeneity of platform work, many platform workers earn very low wages, frequently well below national minimum wages (CIPD, 2017[17]; Lepanjuuri, Wishart and Cornick, 2018[18]; Forde et al., 2017[11]).
There are also concerns around health and safety and working hours (Quinlan, 2015[19]; Ticona and Mateescu, 2018[20]) – often reflecting the lack of regulation of platform work (Garben, 2017[21]). It has sometimes been argued that the increased flexibility offered by jobs in the platform economy could remove certain barriers to labour market participation and make it easier for traditionally underrepresented groups to find work (see evidence above about women and Uber). While there is as much heterogeneity in the types of workers as there is in the nature of platforms and platform work, on average, platform workers tend to be younger, male, more highly educated and more likely to be based in urban areas (Balaram, Warden and Wallace-Stephens, 2017[22]; Berg, 2016[23]; Farrell and Greig, 2016[2]; Bonin, 2017[24]; Huws, Spencer and Joyce, 2016[25]; Pesole et al., 2018[26]). With the exception of youth, therefore, it is not clear that the platform economy has yet delivered on the promise of helping to reduce gaps in employment rates for disadvantaged groups.
12.2. Policy response
While self-employment and entrepreneurship should be encouraged, policy makers need to ensure that job quality amongst those workers is maximised. They should also avoid situations in which own-account work is chosen purely on the basis of tax and/or regulatory incentives, as well as situations in which firms choose such forms of work in order to shift risks and responsibilities onto the shoulders of workers. In doing so, policy makers face some delicate trade-offs: how to tackle false self-employment without harming genuine entrepreneurship (Kautonen et al., 2010[27]); how to regulate without stifling innovation; how to promote job quality without affecting job quantity?
Policy makers can act on several fronts, including: employment regulation, skills, social dialogue, tax and social protection. The exact combination of reforms and interventions will depend on each country’s specific challenges, their starting point, as well as national specificities. In addition, policy makers should be careful not to over-simplify the existing landscape. For example, platforms operate and treat their workers in diverse ways; taking a binary approach to regulation could create more problems than it solves.
Balancing incentives
Many individuals will prefer self-employment over dependent employment because it gives them more freedom, allows them to be their own boss, enables them to achieve a better work-life balance, or even allows them to earn more money. Similarly, many companies will choose to outsource some of their functions and activities because it makes business sense for them to do so. In most countries, the self-employed will pay fewer taxes and social security contributions than employees, which will reflect a number of factors, including that they receive less social protection in return, or that the government wishes to encourage entrepreneurship. On average, companies and individuals will balance these benefits against the cost of being self-employed and/or of outsourcing jobs.
However, a problem arises where incentives are so strong as to lead to an “inefficiently high” level of self-employment. This could lead to a misallocation of labour resources as well as to an undermining of social protection systems (particularly where lower‑risk individuals choose to become self-employed and are allowed to opt out of parts of the social protection system, leaving only the “bad risks” behind and resulting in an increased reliance on social assistance). In addition, to the extent that the self-employed participate less in training, very high levels of self-employment could act as a drag on productivity. Moreover, where such incentives lead to false self-employment, this could have important consequences not only for individuals (in terms of employment protection, social protection, worker’s voice, etc.) but also for firms who may face unfair competition from those who are trying to evade their dues and responsibilities.
Where strong fiscal and regulatory imbalances between employment forms exist, governments should aim to reduce them. Some countries have already done so. For example, a tax reform was introduced in the Czech Republic in 2004 to halt the spread of “false” self-employment. While it remains difficult to isolate the effect of policy reforms from other factors, the incidence of own-account work increased less in the Czech Republic than in the Slovak Republic during this period (OECD, 2008[28]). In Austria, concerns that independent contractors (freie Dienstnehmer) would be used by employers to evade taxes and regulations led the government to gradually integrate them into the social protection system and, since 2008, they pay the same social security contributions as standard employees.
A related measure which countries could take is to encourage hiring on standard contracts by making them more attractive relative to non-standard employment arrangements. This could be achieved by easing the obligations or enhancing the flexibility associated with standard contracts for employers. For example, as part of its 2015 labour market reform, Italy provided a temporary amnesty from fines to employers who would convert existing self-employed contracts into standard, open-ended employment ones (Williams and Lapeyre, 2017[29]).
Addressing worker classification
It is difficult, and perhaps not even desirable, to completely eliminate differences in tax and regulatory treatment between different employment forms, and so incentives for misclassification will always exist to some extent or other. Because of this, it is important that labour market regulation is clear about what constitutes various forms of employment; that employers and workers are aware of the legislation; and that the existing legislation is properly enforced.
In some cases, existing legislation might be adequate, but firms and workers might not be familiar with it. Government action should then focus on helping firms and workers identify employment relationships, for example by providing better guidance and information on contractual status. In the United States, the Department of Labor had published guidance in 2015 to help with the classification of employees and independent contractors. While this “Administrator’s Interpretation” arguably took an expansive view of the employment relationship, it was consistent with court rulings on the matter. In June 2017, the guidance was withdrawn by the new administration.
Employment relationships are usually established by courts on the basis of the principle of “primacy of facts”: regardless of how employers and workers describe the relationship between them in the contract, the determination of the existence of an employment relationship will be guided by the actual facts – i.e. it will be based on certain objective conditions being met. In particular, the extent of subordination and dependence of the worker on the employer will be assessed, based on a range of indicators which can vary from country to country but typically include: the worker’s integration in the organisation; the extent to which the worker controls his/her conditions of work (including the place and time of work); who provides the tools, materials or machines; the regularity of payments; and the extent of financial dependence of the worker on the employer. In common law countries, judges base their rulings on certain tests developed by case law. In civil-law countries, these criteria will be enshrined in law and there will often be a presumption of an employment relationship if these criteria are met, with the burden of proof put on the employer to show that this is not the case.
In some cases, there may be a need to clarify, revise or update regulations, including definitions of employment relationships – e.g. what it means to be an employee, self‑employed, or even an employer (e.g. in tripartite employment relationships and cases involving an intermediary, like a platform). For example, some countries have a very expansive definition of employee which covers independent contractors for certain purposes (e.g. Sweden, Canada). Other countries have several employment tests and/or definitions which vary across legal/policy areas (labour, tax, social protection), and this could contribute to possible confusion. In such cases, there may be a case for harmonising them. For example, in the United States, the tests for defining employee status range from the broadest “suffer or permit” test1, passing through the hybrid2 and the “ABC” tests3, to the narrowest common law test4 (Waas et al., 2017[30]).
An intermediate worker category may offer a solution to the classification issue, but it also has its problems. Some countries have a “third worker category” to capture all those workers who can be considered to fall somewhere in between an independent contractor and an employee, and to give this group access to a basic set of rights, benefits and protections. In most cases, the extension of rights to workers in this intermediate category relates to social protection while the termination of contracts remains strictly regulated by commercial law. Some examples include: the worker category in the United Kingdom; the “semi‑subordinate” worker (lavoro parasubordinato) in Italy; and the “employee‑like” persons (arbeitnehmerähnliche Person) in Germany. While France does not have a third worker category as such, the government has proposed to allow platforms to sign a charter which sets out their responsibilities towards workers, and the rights of the latter. In return, platforms would not risk having their workers be re-classified as employees. In effect, therefore, this solution would create a separate category of workers.
While such an intermediate category may help some own-account workers, it is not clear that a third category necessarily makes the classification issue any easier (De Stefano, 2016[31]). There is also a risk that some employees may lose their rights and protections by having their status downgraded into the third category. This happened to some employees in Italy who were shifted into the intermediate “semi-subordinate” category (Liebman, 2006[32]; Muehlberger, 2007[33]). To some extent, such downgrading could be prevented by tightening the criteria to be classified as an intermediate worker, but then there is a risk that these become too burdensome and time-consuming so that few workers end up being classified as such. This is the problem in Spain, where strict requirements to be classified as TRADE have resulted in few workers being classified as such. Finally, in the case of platform workers, the issue is complicated by the tripartite nature of the employment relationship which makes it unclear who the employer would be (if, indeed, there is an employer at all).
Even where existing legislation is adequate and workers/firms are well-informed, it might be difficult and costly for workers to challenge their employment status. Governments may then wish to make it easier/less costly for employment status to be challenged, for example by placing the burden of proof on the employer (rather than the employee), reducing court fees, reducing the risks to workers, and/or protecting workers against potential retaliation. While in most countries, it is up to the worker to challenge their employment status, in some countries the labour authority has some power to enforce compliance with labour laws – although this is usually limited and does not include the possibility of ordering a civil remedy or taking a claim to court without the consent of the aggrieved worker(s). In Australia, Chile, Poland, Spain and the United States, however, the labour authority can seek for a civil remedy on behalf of the aggrieved workers even in the absence of consent, particularly in cases where an important public interest is concerned. In Sweden, trade unions can take employers to court on behalf of the worker (Williams and Lapeyre, 2017[29]). Some platforms have tried to get workers to sign arbitration agreements under which they waive away the right to sue in court. In the United States, the National Labor Relations Board has ruled that such waivers violate labour law (Waas et al., 2017[30]).
In addition, governments may wish to strengthen the penalties for firms not complying with legislation. Indeed, where consequences of abuse are minimal, firms may have little incentive to correctly classify workers. Policy options include: requalification of the employment relationship; imposing retroactive payment of taxes and social security contributions; imposing greater penalties if firms continue to breach the law in repeated comparable cases; and extending the application of tribunal judgments beyond the plaintiffs and to the entire workforce in a similar situation. Such actions might be combined with efforts to strengthen the labour inspectorate’s capacity to monitor and detect breaches, e.g. increased responsibilities and resources, innovative methods to inspect those working from home/on platforms, etc.
Regulating platform work
Another policy response is to attempt to regulate the use of new forms of work (in the same way as temporary work agency work and temporary contracts have been regulated in the past), which could restrict or even prohibit their use. Regulating platform work from a labour perspective is tricky since many workers may be genuinely self-employed and therefore do not have an employment contract. Most platform workers nonetheless sign terms of use with the platform and those could be the subject of regulatory intervention. For example, countries may want to ban arbitration agreements under which workers waive rights to litigation, or non-compete clauses which prohibit the individual from working for other platforms. But regulatory interventions are likely to have to come primarily from outside the labour domain, including in the fields of commercial, competition and tax policy, or even specific sectoral regulation (e.g. transport or accommodation). In some countries, decisions have been taken to ban certain platforms outright – often based on arguments of unfair competition. For example, the transportation network company Uber has been banned from (or has voluntary pulled out of due to legal restrictions) the following jurisdictions: Alaska, Oregon (except Portland) in the United States, Vancouver in Canada, Bulgaria, Denmark, Greece, Hungary, Italy, Germany, the Northern Territory in Australia, Japan, and Taiwan.5 But such decisions should not be taken lightly, and the various trade-offs should be carefully considered. The example of temporary work agency (TWA) work in the past can be helpful, which was initially banned in many countries but which, with the development of appropriate regulation, provided numerous good job opportunities for individuals.
Improving working conditions
In order to improve working conditions among those in new forms of work, governments should first of all ensure that workers and employers are aware of their respective rights and responsibilities. For example, in Austria, many workers for the courier firm Foodora were unclear about the terms and conditions of their contracts (Johnston and Land-Kazlauskas, 2018[34]). Governments can run public information campaigns and/or require firms to provide workers with written statements on their employment status and the associated rights and protections. For example, in the United Kingdom, the government’s response to the Taylor Review (“Good Work”) (HM Government, 2018[35]) includes plans to ensure that all workers receive information from day one on their working relationship, and what rights they are entitled to.
Governments might also consider how various rights, benefits and protections could be extended to those in new forms of work. In many cases, labour laws, policies and institutions have been designed with the standard, open-ended full-time employee in mind. Extending these to, say, the self-employed is not always straightforward, and so one solution proposed has been to introduce an intermediate or third worker category which would provide access to some of these rights and protections (generally those that can easily be extended), but not others (those that are more difficult to extend). However, a better alternative might be to revisit each major labour law and policy individually (even those which, at first, seem more difficult to extend to non-standard workers) and carefully assess how it might be tailored to broaden coverage, where appropriate (Kennedy, 2016[36]). For example:
Pay. For employees in standard employment arrangements, a legally-binding minimum wage can help to prevent exploitation and address in-work poverty. However, minimum wages typically do not cover independent workers, who are considered “businesses” and are often paid per task that they complete rather than remunerated by the hour. Yet many of these workers are price takers (i.e. are in a poor bargaining position) and earn very low wages. One possible option for addressing low pay among such workers would be to extend minimum wage legislation by requiring employers or clients to pay the equivalent of the minimum wage to individuals working on a piece rate basis. Other options include exemptions from competition law6 to give independent workers collective bargaining rights (see below) or the extension/adaptation of homework legislation (which, in many countries, regulates pay) to the gig economy. In the Netherlands, the government announced that all self-employed with hourly earnings under a certain threshold (most likely around EUR 15‑18) would automatically be re‑classified as employees (unless they work for an employer for a short time and do not perform the employer/firm’s core activities).
Working time. Traditional concerns around working time have centered around the issue of excessive working hours. This is why labour legislation usually contains rules limiting working hours and requiring periods for rest and recuperation, including weekly rest and paid annual leave. Such legislation will not apply to the self-employed, who are their own boss. But, in cases, of dependent self-employment, there may be a need for governments to intervene. For instance, many own-account workers in the platform economy have limited ability to choose their hours of work (Lehdonvirta, 2018[37]). Fierce competition between workers on certain platforms means that they often need to remain on‑call if they do not want to lose out when new gigs are advertised. While some platforms have introduced their own limits (e.g. CloudFactory sets upper and lower limits on the amount of work each worker can complete in a week) and workers have adopted their own, informal practices (Lehdonvirta, 2018[37]), governments may wish to consider how working time legislation (including rights to annual leave) could be extended to such workers (see Box 12.1 for a related discussion on variable‑hours and on‑call contracts).
Box 12.1. Variable-hours and on-call contracts
While the focus of this chapter is on self-employed workers, several countries have faced challenges with so-called “variable-hours” or “on-call” contracts. These can be either permanent or fixed-term employment arrangements, but are characterised by the fact that working hours are neither predictable nor guaranteed. The employer and employee may agree a minimum number of guaranteed hours, and in some countries, there may be no guaranteed hours at all (so-called “zero-hour” contracts).
In recent years, there have been a number of reforms aimed at tempering the consequences of unpredictability in working hours on workers’ overall earnings, earnings volatility, and their ability to plan ahead. This has particularly been the case for so-called “zero-hour” contracts. Reforms undertaken include: restricting the use of such contracts to situations where employers truly have a variable need for labour (Finland); requiring employers to provide information (such as the minimum number of hours) upfront or in the employment contract (Finland, Ireland and Norway); requiring advance notice of work schedules (Finland, Ireland, Netherlands, Norway and Oregon in the United States) or adjusting the contracted hours to reflect hours actually worked (Ireland); giving employees the right to request a more predictable contract after a certain period of time (UK, Australia); compensation in case workers are called in but sent home again without work (Ireland) or in case they are expected to remain available outside guaranteed hours (New Zealand); and introducing provisions for sick pay and for compensation in cases of termination of employment (Finland). In addition, in the United Kingdom, there was a recent public consultation on introducing a higher minimum wage for such types of contracts to discourage their (over-)use.
To a large extent, the concerns around variable-hours/on-call contracts derive from asymmetries in bargaining power between workers and employers. That is why some measures aim to strengthen the bargaining power of workers like, for example, the banning of exclusivity clauses (i.e. contract clauses which forbid workers from working for other employers – the United Kingdom and the Netherlands) or removal of obligations on the employee to accept work where the employer does not offer guaranteed hours (e.g. in New Zealand where firms must offer compensation for such availability). However, in some cases, countries have undermined the bargaining position of workers – for example, by expecting the unemployed to take up variable- (or zero-) hour contacts through activation measures.
Occupational Safety and Health. Many new forms of work transfer responsibilities for occupational health and safety from the employer to individual workers, who often lack the training or resources to take appropriate measures to ensure that working conditions and the working environment are safe. Sometimes, strong competition between workers may result in corners being cut and unnecessary risks being taken while, at the same time, labour inspectorates are often not adequately prepared to deal with these new forms of employment (or may not even be able to intervene, since independent work is outside their remit). Regulations may therefore need to be adapted/clarified, and monitoring and control mechanisms strengthened and improved.
Anti-discrimination. Because of its potential negative impact on inclusiveness, but also on productivity, countries have put in place measures to tackle discrimination on the basis of race, gender, religion, political opinion, socio-economic background, etc. The emergence of the platform economy has an ambiguous effect on the ability to protect workers from discrimination. To the extent that platforms promote anonymity they might help address discrimination. However, where such anonymity is not guaranteed, discrimination may be worse because of the lack of regulation and enforcement (see Edelman, Luca and Svirsky (2017[38]) for evidence of racial discrimination; Ajunma (2018) for age discrimination; Galperin and Greppi (2017[39]) for geographical discrimination; and Galperin, Cruces and Greppi (2017[40]) for evidence of gender discrimination). Moreover, while algorithms may offer the promise of removing human judgment from decisions, there is some evidence that, in fact, they may reinforce human prejudice and embed biases of their own Sweeney (2013[41]). This emerging evidence suggests that governments should think carefully about how non‑discrimination laws might be extended to online platforms. At the very least, increased transparency on the part of labour platforms in terms of publishing data on outcomes for various groups would shed light on the extent of any problems.
Improving working conditions in new forms of work will also require proper enforcement, which will oftentimes mean strengthening the labour inspectorate’s capacity to monitor working conditions and ensure compliance in new forms of work (e.g. increased responsibilities and resources, innovative methods to inspect those working from home/on platforms) as well as making it easier for workers to take legal action over working conditions (e.g. reducing court costs, protecting workers against retaliation; greater penalties if firms continue to breach the law in repeated, comparable cases; permitting class-action lawsuits).
Strengthening social protection
Self-employed workers frequently have reduced access to social protection. There are two aspects to this. First, there is an issue of statutory access – i.e. they are formally excluded from certain aspects of social protection. However, even where the self-employed have statutory access, their effective protection may be reduced because they have difficulty in meeting eligibility criteria or contribution thresholds (effective access).
The challenges
In most countries, a sizeable part of the social protection system was designed with full‑time, permanent, dependent employees in mind. While in some countries this may partly reflect a time when there was less diversity in employment arrangements, a key reason for a lack of coverage is that there are significant difficulties in covering certain types of non-standard workers. In particular, there are significant gaps when it comes to the self-employed (Spasova et al., 2017[42]). The gaps are particularly acute when it comes to unemployment benefits and protection against accidents at work and occupational injuries. A key reason for this is that there are significant moral hazard problems in providing social protection (and unemployment benefits in particular) to the self‑employed. The self-employed do not meet several conditions that typically limit moral hazard in relation to unemployment benefits: fluctuations in demand for their services are hard to distinguish from voluntary idleness, as there is no employer to confirm a layoff; and job search efforts are even more difficult to monitor than for dependent employees. As a result, where they are covered by unemployment insurance, they often face more stringent conditions. In Sweden, self-employed workers have to close down their business before claiming benefits. In Austria, self-employed workers have six months to decide whether to opt into voluntary unemployment insurance upon starting their business – this decision is binding for eight years. In Belgium, only self‑employed workers whose company went bankrupt, or who had such a low income from self-employment that either their social security contributions were waived or they did not reach a minimum earnings threshold (around EUR 13 000) for two years are entitled to benefits.
Even when the self-employed have statutory access to social protection, they may not in practice meet relevant eligibility requirements. While it is difficult to estimate with precision the number of individuals who do not meet these requirements, it is possible to identify those at risk of not qualifying because of their job or employment type. Such analysis indicates that, across the EU on average, 54.5%, 37.8% and 46.1% of the self‑employed risk not being eligible for unemployment, sickness and maternity benefits, respectively (Matsaganis et al., 2016[43]). Even these figures appear relatively low, however. Indeed, recent OECD evidence suggests that fewer than one-in-three jobseekers receive unemployment benefits, on average across countries (OECD, 2018[44]). While relatively little is known about the extent to which platform workers are covered by social protection, the indications from the emerging research is that there are significant protection gaps in this sector (Forde et al., 2017[11]). The lack of social protection for non-standard workers is not just a concern for the workers themselves: a move towards more non-standard employment also risks eroding the contribution base of social protection systems and may have a negative impact on the government budget.
Improving social protection for the self-employed
The specific course of action to improve social protection for all workers, including the self-employed, will vary from country to country, depending on national specificities (including societal preferences), cost/benefit calculations, and options for financing. For instance, coverage gaps are not new and providing the exact same degree of social protection to everybody, independently of work status, may not be possible or even desirable.
In some cases, countries may be able to extend statutory access to existing social protection schemes to the self-employed. For example, in Norway, benefits for carers of dependent persons were extended in 2015 to also cover self-employed individuals. In Austria, the “new” self-employed (e.g. lecturers, artists, scientists, journalists, writers, etc. who perform work on the basis of a contract for services) have been covered by social protection (health, pensions and accidents) since the 1990s. Indeed, Austria is one of the countries with the most complete social protection coverage for self-employed workers. In France, platforms have been expected to cover workplace accident contributions since the start of 2018.
In cases where self-employed workers already have statutory access but coverage is low, effective access could be improved through parametric changes such as, for example, adjusting rules and thresholds of existing schemes/programmes (e.g. earnings/hours/minimum contribution thresholds; allowing for interrupted contributions periods) and changing how self-employed earnings are assessed (e.g. consider annual, not monthly earnings; flat contributions; etc.)7 For example, during the recent economic and financial crisis, Portugal relaxed the contribution requirements for gaining access to regular unemployment insurance. More specifically, the necessary contributory history was lowered from 450 to 360 days over the past 24 months. The evidence suggests that, despite a significant increase in unemployment between 2011 and 2013, the coverage rate of unemployment benefits held up well (OECD, 2017[45]).
Where the challenges specific to self-employment are too great to extend existing social protection schemes, countries may wish to introduce specially designed schemes. For example, the German artists’ insurance is a special scheme that offers artists and writers health, pensions and long-term care insurance (but not for unemployment). Membership is mandatory (although low-earning artists and those with high incomes or private insurance can be exempt). Qualifying writers and artists only pay employee social security contributions that make up half of the scheme’s total budget; institutions that rely on the services of artists and writers (e.g. publishers, theatres, libraries or private companies), contribute proportionally to their use of artists’ and writers’ services, covering 30% of the overall cost. The remaining 20% is covered by a public subsidy, justified by private households’ consumption of art and writing.8 Such special schemes frequently target artists, but also farmers – e.g. the Farmers’ Pension Insurance in Finland (also available to artists); the farmers’ pension fund in Germany; and similar schemes exist in Greece and Poland.9
A closely related policy response (already discussed in one of the previous sections) is the creation of a third/intermediate worker category. Often, these categories are created to improve access to social protection – either to existing schemes (e.g. the extension of unemployment benefits to the self-employed in Portugal in 2012 – albeit with a different financing set-up) or to entirely new schemes (e.g. in Italy, a specific new scheme was introduced in 2015 (Bill no. 22) for ‘dependent self-employed’ persons working on co.co.pro. contracts, called DIS-COLL).
Given that some of the key challenges in covering self-employed workers relate to the payment of social security contributions, one option open to countries would be to increase reliance on universal benefits financed through general taxation (see also Chapter 8. This would extend coverage to all non-standard workers and dispose of the necessity to track entitlements across jobs and over the lifecycle. Some benefits – such as health insurance and maternity or parental leave – are already universal in a number of OECD countries. In some countries, like Australia and New Zealand, income replacement benefits are tax-financed (and means-tested) – although payments in such systems tend to be lower than in insurance-based ones.
Financing social protection through general taxation may weaken the link between what is paid and expected benefits (which could, in turn, encourage more tax evasion and/or reduce public support, making it more difficult to raise benefit levels). Therefore, moving away from social security contributions might be easiest in cases where the link between contributions and benefits is already weak. In France, for example, social charges are levied on personal capital income and there has been talk of introducing a “social” value‑added tax (VAT) – (i.e. a VAT rate increase to finance the social security system). Moving to a social protection system financed more through general taxation would also have some other benefits (see Chapter 8 for a fuller discussion).
At the extreme, existing social protection could be replaced with a universal, unconditional public transfer (i.e. basic income). This would have the advantages of being simple and of leaving no one behind. But, as OECD work has demonstrated, an unconditional payment to everyone at meaningful but fiscally realistic levels would require tax rises as well as reductions in existing benefits, and would often not be an effective tool for reducing income poverty (OECD, 2017[46]). In addition, some disadvantaged groups would lose out when existing benefits are replaced by a basic income and the impact on work incentives is ambiguous. Currently, a number of countries are piloting different forms of a basic income (e.g. Canada, Finland, the Netherlands, Italy and Scotland). None of them are entirely universal or unconditional, but these experiments should be watched closely for their evaluation results.
Another option which countries may wish to consider is to enhance the portability of benefits so that entitlements are not lost when individuals move across social security systems or change employment status. One way of operationalising this would be to tie entitlements to individuals rather than to jobs. Such rights would be recorded in an individual account which could accommodate contract work and short-time, contingent employment and collect the entitlements of multiple job holders in one place. In Latvia, the social insurance system is fully individualised, as each person’s contributions are registered on a separate account. In the United States, there are multiemployer plans in certain sectors (which tend to be the outcome of collective bargaining agreements and typically only apply if workers stay within the sector) and, for independent contractors and freelancers there are multiple employer welfare arrangements (MEWA) (Katz and Krueger, 2016[1]; Hill, 2015[47]). Such portability does not have to imply a move away from risk-sharing. Indeed, one can maintain a system which remains collective and allows for redistribution while just changing the way in which it is administered. In Belgium, self-employed workers who used to be employees keep their accumulated rights to unemployment benefits for a period of eight years.
The emergence of new forms of work and the platform economy in particular also calls for reforms in the administration of benefits. In particular, there are new challenges in monitoring work activity with platforms making it easier for individuals to combine the receipt of benefits with informal work in the platform economy.
Seeking fair taxation of self-employed income
As discussed above, differences in tax treatment between various employment forms can introduce incentives for individuals and/or employers to prefer certain forms of employment over others. For example, some countries offer tax credits against personal income tax to unincorporated self-employed workers (which are not available to standard employees); social security contribution liabilities may vary by employment form, for both individuals and firms; and some countries offer tax credits against corporate income tax to firms who employ workers of certain types.
The concept of tax neutrality in this context posits that countries’ tax systems should not affect individuals’ or firms’ decisions with respect to employment form. However, because there are often also differences between employment forms in terms of access to social protection and employment regulation, tax neutrality may not necessarily be a desirable objective in and of itself. Instead, governments should seek to ensure that the package of benefits and protections which the self-employed are entitled to is commensurate with their tax and social security contributions so as to avoid choices of employment form purely based on differences in fiscal burdens. There are other reasons to question basic tax neutrality, such as the fact that the self-employed may take on greater entrepreneurial risk. In addition, effective tax incidence may vary by employment form.
In recent years, many countries have undertaken steps to bring platform workers into the tax system, including: simplifying procedures and automatic tax declarations; the introduction of special tax rates, cost deductions or thresholds; agreements with platforms to communicate the income of workers and/or withhold tax directly; better guidance and/or educational programmes/media campaigns to make platform workers aware of their tax obligations. For example, Uber in Estonia shares information on the financial transactions between customers and drivers so that the tax authorities can prefill drivers’ tax forms (BEIS, 2017[48]). In Belgium, the government introduced a special regime for platform workers in 2016: workers earning up to EUR 5 000 annually (indexed) through platform work could report “miscellaneous income” and pay a 10% income tax instead of 33%.
Strengthening labour relations and worker’s voice
Workers in new forms of employment may face specific barriers to collective representation. For example, competition law prohibits self-employed contractors from unionising and negotiating collectively. In the platform economy, workers on the same platform might not necessarily have any contact with one another if they are working alone and separated by different geographies, or even languages and legal contexts. In addition, given the triangular nature of work in the platform economy (employer‑client‑worker) and the fact that most workers are classified as self‑employed, makes it difficult to determine who the counterpart for social dialogue and collective bargaining would be.
Yet labour relations can play an important role in improving working conditions for workers in non-standard forms of work. For example, temporary work agencies were initially perceived as disruptive as the platforms of today and were highly contested and even banned in a number of countries. However, through social dialogue, agencies found a way to be accepted and improve labour relations, as well as to co-define the regulation of the sector. Similarly, social partners are finding innovative ways of representing workers in new forms of work and strengthening their voice (Keune, 2013[49]) – and improvements in working conditions can be made even without formal union recognition and outside collective bargaining avenues (Johnston and Land-Kazlauskas, 2018[34]). For example, some unions have pursued legal strategies – like GMB, the union for professional drivers in the United Kingdom, which has challenged the employment status of drivers for ride-sharing apps; or the International Brotherhood of Teamsters in Seattle, which has pushed for new legislation which would extend collective bargaining rights to drivers for Transportation Network Companies. There have also been attempts at setting up:
New unions (e.g. the New York Taxi Worker Alliance) and unaffiliated guilds (e.g. the Independent Drivers Guild)
Special structures within existing unions (e.g. for the parasubordinati in Italy; for own-account workers (ZZP) in the Netherlands)
Platform cooperatives (the Union Taxi Cooperative in Denver)
Works councils (in Austria, Foodora app-based delivery workers have recently joined together to form a works council with the support of Vida, the Austrian union representing workers in the transport and services sector).
New technologies can help organise workers’ voice, e.g. by enabling peer-to-peer exchange, sharing information, rating employers/clients, etc. (also sometimes referred to as “platform-based collective action”). For example, Turkopticon allows workers on Mechanical Turk to rate and review requesters; while Dynamo is a forum that helps them organise campaigns, but also to share information, collaborate and develop guidelines for academic requesters in setting wages and task design. Another website, Coworker.org, provides mechanisms for workers to communicate about their concerns and organise campaigns to change employer practices.
But there are limits to what can be achieved without union recognition and collective bargaining. This is why some governments are seeking to ensure the right to freedom of association and extend the right to collective bargaining where appropriate. In practice, this is not always straightforward because allowing the self-employed to collectively bargaining is against competition policy in most countries (Daskalova, 2017[50]). The general rationale behind such rules makes sense, as it is meant to protect consumers from price fixing and its negative consequences. However, in the case of certain categories of self-employed workers who are price takers, there may be an argument for improving their pay. There have been some interesting initiatives in this area:
Canada introduced a dependent contractor category for purposes of collective bargaining eligibility under provincial labour laws. This covers workers who are legally independent but economically dependent on a single employer.
In the United States, the Seattle City Council, following lobbying by the Teamster Union, unanimously approved an ordinance in 2015 which granted ride-hailing drivers the right to unionise and, therefore, bargain collectively.
In Ireland, in 2017, the Parliament adopted the Competition Amendment Act which introduces exemptions from competition law for certain self-employed workers – in particular freelance performers – allowing them to bargain collectively. The Act also allows for trade unions to ask for other categories of workers to be added to the exemption list, provided this would have no or minimal impact on competition in the category within which they work. It is unclear at this stage whether the Irish decision will be judged to be in breach of European Competition Law (O’Loughlin, 2017[51]).
Promoting investments in skills
Self-employment brings additional complications for skills policy since workers in such types of employment are less likely to receive training.
Adjustments may be needed to existing training mechanisms to make them accessible to individuals regardless of their employment status. Countries should make sure that existing training schemes cover non-standard workers as well, including the self‑employed. In France, for example, a recent decree stipulates that platforms which determine the characteristics of work and set remuneration will, under certain conditions, have to reimburse workers for fees paid to validate acquired experience (Donini et al., 2017[52]). Provision of education and training might also be made more flexible such that adults can overcome time constraints and care responsibilities which act as barriers to participation. As pointed out by the Taylor Review in the United Kingdom (BEIS, 2017[48]), work has become more flexible, but training and skills policies have struggled to keep pace with such increases in flexibility. In particular, countries may wish to facilitate shorter/different pathways to training (e.g. blended learning, distance provision, Massive Open Online Courses (MOOCs), Stackable/Modular and Micro-Credentials) – while being careful that these do not disadvantage low-skilled workers with poor digital skills (National Academies of Sciences, Engineering, 2017[53]).
But addressing the challenge posed by self-employment might also require the development of new instruments for incentivising investments in training (such as personal training accounts, or lifelong training rights) as well as mechanisms to allow the portability of training rights between employers. In France, for example, individual training accounts (Compte Personnel de Formation - CPF) cover all working age individuals, including the self-employed. Full-time workers CPFs are credited with EUR 500 per year up to a maximum of EUR 5 000 (EUR 800 and EUR 8 000, respectively, for the low‑skilled.
The platform economy offers the promise of new job opportunities – however governments should make sure that individuals have the digital skills required to find work via platforms. According to the Survey of Adult Skills, nearly half of adults in the OECD lack basic digital skills (OECD, 2013[54]). It is perhaps not surprising, therefore, that, on average platform workers are found to be higher-skilled than the average worker. Some governments are already taking steps to help individuals find work opportunities in the platform economy. The San Francisco Office of Economic and Workforce Development (OEWD) partnered with Samaschool to launch a pilot programme (Bridge to Employment) that provides support to aspiring gig economy workers. The goal is to help individuals take advantage of gig economy work opportunities to gain experience, develop skills, and earn additional income.
Improving data collection
One key challenge to developing evidence-based policy responses to the rise in non‑standard forms of employment is that robust and up-to-date data on the number of workers and their characteristics are often lacking. For example, it is still not clear how many workers are active on platforms and dependent self-employment remains very difficult to identify in most existing data sources. Governments should therefore aim to improve the data available to policy-makers, including by: clarifying definitions (e.g. what does it mean to be a platform worker?); updating existing household and labour force surveys (e.g. by adding and/or adjusting questions); using administrative data sources (like tax and social security data) and linking them to survey data where possible; partnering with the private sector to obtain and analyse platform/employer data; and developing new data collection exercises (e.g. through special surveys or data crawling).
Conclusion
While the rise in self-employment and own-account work is by no means a universal trend across OECD countries, the issue of dependent self-employment and worker misclassification, as well as the protection and job quality of self-employed workers more generally, is receiving increased policy attention in many countries – and this has been partly driven by the emergence of the platform economy. The challenge for policy makers is to put in place policies and institutions which simultaneously promote entrepreneurship and flexibility, on the hand, and job quality and worker rights and protections, on the other. This chapter has reviewed some of the policy options open to countries to achieve this. It is important to repeat that achieving this goal is likely to require action on various fronts. For example, in ensuring adequate social protection for workers in non-standard forms of work, policy makers may need to consider the issues of worker classification and taxation, in addition to reviewing social protection systems. Solutions may therefore require a whole-of-government approach if they are to be successful.
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Notes
← 1. The Fair Labor Standards Act (FLSA) defines the term “employ” to include the words “suffer or permit to work”. Suffer or permit to work means that if an employer requires or allows individuals to work the latter will be considered employees.
← 2. Courts frequently use the “economic realities test” or a hybrid of the common‑law control test (see below) and the economic realities test to determine independent contractor status. In addition to the degree of control the employer exercises, the latter takes into account the degree to which the workers are economically dependent on the business.
← 3. The ABC test is used in some states to determine whether a person is an employee or an independent contractor for the purpose of determining state unemployment tax. Some courts using this test look at whether a worker meets three separate criteria to be considered an independent contractor: i) is the worker free from the employer’s control and direction in carrying out the work?; ii) does the work take place outside the usual course of the business and off its site?; and iii) is the worker usually engaged in an independent trade, occupation, profession or business.
← 4. The common-law control test (or sometimes also called the 20-factor or right-to-control test) is used by the Inland Revenue Service to determine whether a worker is an employee for tax purposes. The test involves a great degree of subjectivity, and even with all the facts, it may still be difficult to say whether the services rendered were performed as an employee. Finding that a worker is an employee is a finding that the person was subject to control over when, where, and how (the means and methods) to perform the work. This finding does not mean the control is actually exercised—only that the employer has the right to exercise it.
← 6. Another option to explore is applying competition law to address monopsony power where this might exist. A growing body of research indicates that labour markets are frequently characterised by monopsonistic power, with potentially negative impacts on wages and employment (Azar, Marinescu and Steinbaum, 2017[59]; Marinescu and Rathelot, 2018[58]; Manning and Petrongolo, 2017[57]; Benmelech, Bergman and Kim, 2018[60]).
← 7. The self-employed have fluctuating earnings. This is because they are paid at irregular intervals, because there are time-lags between work and payment, and/or because demand for their services is erratic (ISSA, 2012[54]). Paying regular contributions on a monthly basis might therefore be difficult for them.
← 8. Indeed, one key challenge with providing social protection to the self-employed is that many have very low earnings and cannot afford to pay both employee and employer social security contributions. The government could subsidise schemes for the self-employed, but this raises concerns about equal treatment and may create adverse incentives for both employers and employees. If jobs have to be heavily subsidised, it raises the question of whether there is a social benefit which justifies such a subsidy. Where they exist, such schemes are therefore often limited to occupations that are thought to create special value for the public, such as the arts.
← 9. In some countries, the self-employed have set up their own schemes. For example, in the Netherlands, some self-employed have created a “bread fund” (broodfonds) where they agree to provide each other with an income if they are unfit for work. There are now 170 of these bread funds in the Netherlands (Kremer, Went and Knottnerus, 2017[55]).