Gig economy companies say they excel in moving goods or people around. Critics say their core business is selling the labour of insecure workers at rock-bottom rates. Rising wage rates and falling unemployment will test the truth of both propositions if trends persist.
The UK labour market is at its tightest in more than four decades according to figures from National Statistics last week. US hourly wage rate increases beat forecasts in the US in September, though employment there is lagging expectations.
US ride-hailing app Lyft had to nearly double driver incentives in the second quarter, and expects to go on paying high sign-on bonuses. UK-based food delivery platform Deliveroo reports no problem recruiting riders, despite rising vacancies elsewhere. It claims to already pay well, with average rates above the minimum wage for the time between accepting and completing an order. On a broader definition of a shift, though, riders can reportedly earn as little as £2 an hour.
If companies do have to pay workers more, they will struggle — without efficiency gains — to absorb the extra costs. Platforms make an average contribution margin of just 3 per cent, or roughly $1.20 on the average food delivery order, says McKinsey.
They will not easily pass the costs on to customers either. Resistance will vary by market. Continental Europeans tend to be more cost conscious than Londoners, says JET boss Jitse Groen. Push up charges too much and customers will delete the app.
Rising labour costs were never part of the plan. Platforms have willingly subsidised workers to win a leading market position. The hope was those could then be phased out, as a platform’s increasing market power allowed it to “lock in” workers and prevent them moving to competing platforms.
Market pressure for higher pay will ensure labour relations remain fractious at gig economy businesses. Globally, so-called “platform workers” staged more than 10 protests a week on average in the 30 months to June 2020.
Industry consolidation is under way in Europe, with half of gig earnings stemming from the five biggest platforms, according to the Centre for European Reform. Wage inflation could accelerate the process by forcing weaker competitors out. If so, expect more protests from gig workers. The pressure for politicians to intervene will rise.
The Lex team is interested in hearing more from readers. How dependent are gig economy companies on low wage rates? Please tell us what you think in the comments section below.