Features
Neil Johnson 2 Jun 2017 10:00am

The rise of the precariat

The growing gig economy, composed of self-employed, flexible and entrepreneurial workers, is presenting world governments with a slew of issues. Neil Johnson investigates the ramifications of this new way of working

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Caption: Neil Johnson investigates the ramifications of this new way of working.

The abrupt volte-face by the chancellor, Philip Hammond, over his proposal to increase National Insurance contributions (NIC), a week after announcing it as a cornerstone of his 2017 Budget, would have been keenly watched (and a sense of anguish perhaps shared) by tax policy makers around the world.

With Hammond trying to align NIC for the UK’s self-employed closer to that of the country’s employed, he was attempting to tackle a growing concern facing governments globally: just what do you do, from fiscal and labour policy perspectives, about the growing number of self-employed, entrepreneurs and “gig” workers?

“Philip Hammond climbing down on NI created huge waves in the political pond, but what he threw in was really a very small pebble,” says John Boulton, manager of technical strategy in ICAEW’s Technical Strategy Department. “There is a huge potential landslide of rocks hanging precariously that is about to hit the pond, and government needs to give itself the flexibility to address the problems in the NI system.”

Key for the UK government, and likewise governments internationally, is addressing issues arising around tax. The tax base is set up around the notion that people are full-time employees paying a higher level of tax than self-employed people alongside employer contributions.

Yet people’s desire for self-employment, linked to flexible working and lifestyle choices at more senior professional levels, and necessity due to fewer permanent roles or needing supplemental income at lower levels, means there is pressure on the tax base, with the self-employed Class 4 NIC contribution (9%) lower than that for people who are employed (12%).

“There is a desire for people to take advantage of the lower rates of tax,” says Boulton. “We have said that tax motivates behaviour and there have been plenty of people who have chosen to become self-employed for the tax benefits.”

And while Boulton considers it inevitable that the UK government will move to protect the tax base, it is faced with a balancing act: how do you increase taxes without discouraging or penalising entrepreneurial activity, which is good for the economy?

Furthermore, lower tax is an incentive for entrepreneurialism and self-employment, particularly given the instability: work and income may be irregular and unpredictable; you’re foregoing some social rights, such as contribution related pension entitlement, statutory sick pay and contribution to jobseekers allowance.

The value of the benefits of self-employment and entrepreneurialism to individuals and the countries in which they reside need to be weighed against the risks to them. For example, in the UK, the Office of National Statistics regards growing self-employment as a “defining characteristic” of the post-global financial crisis economic recovery.

“But right now,” says Ravin Jesuthasan, managing director and global practice leader at business advisory Willis Towers Watson, “I don’t think any government has figured out how to deal with the shrinking tax base as work leaves. And arguably it’s an extension of the problems we had with outsourcing, because work left the UK and the US, moved over to India or China and that further shrank the tax base, which makes it harder for governments to keep reskilling people in order to be relevant.”

This is surely concerning news for all involved. While it may seem that global self-employment is currently like the Wild West, a free-for-all where opportunity appears limitless and yet the landscape unpoliceable, it’s not just governments facing a “precarious landslide of issues”.

Precariousness

SOAS professor Guy Standing describes a fragmented yet connected network of “the precariat”: a fast-growing global socio-political group that share an increasingly precarious lack of job security, with a fragmentation along class lines being drawn up within professions themselves, as opposed to certain professions belonging to classes.

“You now have elites within all the professions, the salariat and a growing precariat beneath,” said Standing. “The division of labour has changed. For example, the legal profession has silks at the top, then salariat lawyers and a huge growth of paralegals with basic training, but without a career path through the profession, because there are ceilings. It’s the same in the medical and teaching professions. The precariat is not just a reality, it’s grown extremely fast in recent years. Unless something is done to improve security and redress the class-based inequalities arising, you’re going to get a political monster.”

And if little progress is made by governments to address the security and protection of workforces, such a “political monster” stands a better chance of becoming a reality.

Yet, emphasising the multifarious nature of a gigging, entrepreneurial and self-employed workforce, many accounting and finance professionals wouldn’t necessarily recognise themselves along these lines, or associate with a wider insecure group, even though theirs is a profession under intense change due to technological innovation.

Luke Streeter left his job as a senior partner at PwC’s small business service My Financepartner in January 2017 to set up the “technology enabled” accounting practice flinder, which aims to work with SMEs and entrepreneurs and provide rich insight into all their business data. For Streeter, the security worries that may come with such a bold move aren’t something that play on his mind.

“I approached the decision as my next career choice rather than my last,” he says. “While I hope (and think) flinder will be a big success, allowing it to be my last move, it isn’t something that particularly phases me. Also, I know that experienced accountants who do what we do are in high demand.”

But while such demand for experienced professionals is driving people to seek greater work flexibility and personal satisfaction through entrepreneurial projects or as self-employed service providers, the other end of the spectrum is more precarious. People doing lower level tasks and those seeking to gain an initial foothold on the career ladder are losing the security of full-time, traditional work opportunities and turning to the “gig economy”.

It's not just Uber

Growing self-employment is a tangible phenomenon. According to a McKinsey Global Institute (MGI) survey entitled Independent work: Choice, necessity and the gig economy from October 2016, 20-30% of the working age populations in the US and EU-15 are engaged in independent work; while 42% of executives surveyed in Deloitte’s Global Human Capital Trends 2016 report expect to increase or significantly increase the use of contingent workers in the next three to five years.

MGI defines three key features of its independent worker model: 1) a high degree of autonomy, flexibility and control; 2) payment by task, assignment or sales; and 3) short-term relationships between the worker and the customer. In the gig economy you can negotiate prices and timeframes, decline and accept work as you like, perform one off tasks for multiple clients or regular jobs for a few.

And while often associated with Uber, Deliveroo, or more menial back-office tasks, gigging encompasses a far broader spread of business demands – if you need something, you’ll probably find someone with the right skills and level of expertise to do it, anywhere in the world, and it won’t necessarily be cheap because it’s a “gig”.

“What we’re finding around the world is that it’s very easy for companies to take a piece of work, deconstruct it and distribute parts of it anywhere in the world,” says Jesuthasan.

Global freelancing platforms such as Upwork, which has around 13 million registered users worldwide, with the US the largest base, also has huge user bases in India, China and Malaysia. It allows companies anywhere in the world to take a task and essentially shift it to those individuals.

And “task”, as opposed to “job”, is the crucial term here, says Jesuthasan. “AI doesn’t affect jobs, it affects tasks. AI can take all the routine tasks that form a job, and unfortunately for accounting and legal, there is a significant amount of work being done at the lowest levels that are highly routine, which is where we first saw these talent platforms really taking off, because you could find freelance accountants and attorneys, and they would do the work in a fraction of the cost.”

But it’s worth noting the positive flipside for human capital, particularly in the services sectors. In PwC’s UK Economic Outlook in March, it posed the question “Will robots steal our jobs?” While its analysis suggests up to 30% of UK jobs are at risk of being automated, automation in AI and robotics “will both create some totally new jobs in the digital technology area and, through productivity gains, generate additional wealth and spending that will support additional jobs of existing kinds, primarily in services sectors that are less easy to automate”.

Combine this with Deloitte’s Global Human Capital 2016 report finding that 76% of executives expect automation to create a need for new skills in the workplace in the next one to three years, and there are significant opportunities for people to upskill and offer their expertise ad hoc to a transitioning global business landscape.

While some countries, through fiscal and labour policy, and pro-entrepreneurial culture, appear to be encouraging self-employment, the real enabler is technology: digital job marketplaces, which connect workers and clients across borders, and the ability for people to find and service clients over the internet and using the cloud. The digital space in which these networks are being built presents many challenges for any singular government to regulate or bring it under its own umbrella of laws and protections.

A report by the University of Oxford entitled The Risks and Rewards of Online Gig Work at the Global Margins highlights the risks versus rewards for people using digital platforms. The report surveyed a platform’s user base in sub-Saharan Africa and south-east Asia, and while the value of the rewards is significant, the list of risks they noted is far longer. The rewards include higher income, and autonomy and task diversity.

The risks related to workforce oversupply, employment insecurity, opacity and taxation, discrimination based on country of residence, social isolation and overwork.

One of the report’s authors, Professor Mark Graham, has suggested creating an international framework to protect actors in the new global gig economy, including creating a Fair Work foundation (as opposed to Fairtrade) and a transnational digital workers’ union.

Ultimately, the world’s countries and regions are all experiencing a transition in their workforces and they’re all at different stages of this transition. And while transnational cooperation to protect the self-employed and secure tax bases may appear a step too far in the light of Trump’s protectionism, Brexit’s confusion and Hammond’s inability to enact a tax bump, it’s likely that self-employment growth will continue unabated and precariously in the digital playground.

Encouraging entrepreneurialism: which countries are making it easier to be self-employed, and which ones are restricting it?

While its government did attempt to implement a tax hike that would have left self-employed people worse off, the UK remains fertile ground for entrepreneurial activity, with a 31% increase over 2007-2016, thanks to strong infrastructure, connectivity and legal framework.

Similarly, the US is highly amenable, with innovation in Silicon Valley an outlier for entrepreneurial activity and the country’s ease of access to capital.

The Economist called Singapore “the world’s most tightly dubbed entrepreneurial ecosystem” with a start-up environment supported by good infrastructure, connectivity and access to capital. 

Australia has an emerging start-up scene, which is hindered slightly by high initial costs and high wages, but makes up for it with good connectivity, infrastructure and transparent business practices.

The countries in which entrepreneurial activity is harder to conduct are where high levels of corruption are present and where the ease of doing business score is low, which unfortunately is many countries in Africa. Also, prohibitive levels of red tape are off-putting in a number of countries, including Brazil.

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