Rise of Digital Economy
In 2019, the global gig economy was estimated to generate $204 billion in sales, 58 percent of which was attributed to transportation-based services (Mastercard and Kaiser Associates, 2019). Workers who support this industry segment typically offer their labour to customers on digital platforms. These platforms are often collectively described as the ‘gig economy’, or ‘digital economy’ – in other words, the virtual marketplace where labour or goods are exchanged for money (BEIS, 2018). Digital labour intermediation platforms usually offer short-term and task-based employment that can be location specific (e.g., ride hailing, delivery, domestic care, cleaning, hairdressing, etc.) or fully remote (e.g., cloudwork, web design, data entry, research etc.).
The number of platforms has increased five-fold in the decade since 2010 (ILO, 2021), facilitated by continuous development of new software and use of smartphones (WEF, 2020), and further catalysed by the coronavirus pandemic (Sneader and Singhal, 2020). Currently, there are estimated to be up to 40 million platform workers in the global South alone (Graham et. al., 2020).
Social risks and opportunities in technological solutions
Platform work comes with both merits, in terms of economic and social development, and inherent labour risks.
Platform work can bring development benefits as it transforms the economy by raising productivity and creating better jobs, gradually formalising the labour market in the process, particularly in emerging economies (Ng’weno and Porteous, 2019). Platforms have the potential to connect those whose labour was irregular with more regular productive activity, allowing greater security in work and income flows. Research on the inherent labour risks associated with platform work, however, warns us against limiting our focus to the benefits of this model and suggests that the realization of developmental gains is conditional upon respecting decent work principles (ILO 2021, WEF 2020). Potential risks include, for example, long working hours to achieve minimum wage and poor health & safety practices (ILO, 2021).
Platforms in Emerging Markets
While platform work in well-developed labour markets is often criticised for eroding employment standards and weakening worker bargaining power by disrupting largely formalized economies, the picture looks different in emerging markets starting from a position of high informality and underemployment (Cieslik et. al, 2021).
Low entry barriers and flexibility can boost inclusivity, expand income through reliable payment and facilitate access to finance and upskilling opportunities for groups that are under-represented in traditional markets, and who may be otherwise dependent on the informal economy (WEF 2020, BII and SIFEM 2022). These characteristics of digital labour platforms create compelling investment opportunities, particularly for impact investors and DFIs whose mandate is focussed on boosting productivity and inclusive growth, especially for the most vulnerable people.
Realizing these developmental gains, however, cannot be taken for granted. Scalability and access for vulnerable groups can equally result in exploitative work, a risk that is heightened by a lack of visibility over the workforce by platforms. National laws on labour and social protection rarely extend to independent contractors, which is how platform workers are usually classified, and the application of international labour standards, typically required by DFIs, can be equally challenging where they refer to national legislation.
Understanding the risks
The evidence shows that labour risks under this model can be broadly covered by four areas:
Health and safety: Unregulated workspaces such as homes or private vehicles, are prone to increased risks due to lack of supervision, training and access to PPE, exacerbated by long hours. Limited or no access to health insurance further aggravates the OHS risks in case of illnesses or accidents, particularly in high-risk sectors such as transport and logistics which make up a significant portion of platform work. Studies also emphasis the risk of gender-based violence and harassment particularly for women drivers and home beauty or care workers, exacerbated by the customer rating systems (Dowie and Athreya, 2021).
Working Conditions and Terms of Employment: Often employed as independent contractors, platform workers rarely have access to a defined minimum wage, unemployment insurance, overtime pay and other financial benefits. Contracts, where existing, tend to be unclear on wage structure and performance standards, and workers are often under pressure to work long hours or not to take sick leave.
Representation: Due to individualisation and high turnover in platform work, as well as national laws having strict rules for recognising labour unions, the opportunities for workers to organise are limited or non-existent. This limits workers’ power to advocate for better working conditions or raise grievances.
Data protection and management: While tech-enabled data collection increases platforms’ capacity to gather information, it is not always clear how data is collected. Workers may not have access their data, including performance ratings and have limited control over how it is used and whether they face risks such as job security as a consequence.
An understanding of the risks inherent to this relatively new business model is essential for impact investors seeking to harness its potential while avoiding exploitative labour practices, and there are specific things that investors can do to increase the likelihood of a positive outcome.
Role of Investors
Against the backdrop of this exponentially growing sector, impact investors are well positioned to use their funding and influence to enhance and protect development outcomes. It’s critical to consider whether a business model is compatible with principles of good governance and to ensure that labour risks specific to platform work are an integral part of ESG assessments and improvement plans.
Technology solutions and data collection, inherent to platforms, can be used for identifying risk via digitally enabled monitoring and grievance mechanisms. Communication between platforms and workers may provide an opportunity to better understand challenges and give voice to platform workers to create solutions. Going beyond risk management, using technology to identify upskilling opportunities for workers can help maximise value creation and positive impact in the labour market – in other words, an opportunity for management of digital labour platforms to stand out in a rapidly growing market. Worker engagement, enhancing business continuity and the connection to growth is illustrated in Box 1.
Box 1: Engaging with gig workers during the pandemic
Indian technology company Loadshare employs over 6,000 independent contractors and small and medium-sized enterprises in India’s logistics sector. The drivers are not salaried employees of Loadshare and so do not have the traditional ties to their employer. However, Co-founder and CEO Raghuram Talluri believes companies such as his should still be committed to understanding the motivations and needs of their workers, because the ability to attract and retain a motivated workforce is key to business success. In late 2020, Loadshare and BII decided to undertake a telephone survey with a representative sample of workers. The results were used by the company to ensure they were seen as an employer of choice for drivers and address any concerns individuals had about returning to work in a COVID-context.
The survey was also helpful to identify gaps in Loadshare’s communications with its drivers, which it is now addressing. While the company had taken out insurance for its drivers during COVID, the survey found that many were not aware of this benefit and therefore had residual concerns about working during the pandemic. In response to the survey, the company has also introduced a more accessible grievance redress system built into its existing workers’ app.
Read the full case study here
The Good Practice Note in Managing Labour Risks and Opportunities of Platform Work (BII and SIFEM, 2022), aims to unpack some of these challenges, providing practical guidance to investors in assessing labour risks, supported by examples of best practice across the world.
The rise of the platform economy is reshaping the labour market across the world, bringing a unique opportunity for transformative economic development whose consequences are still emerging. But the promise of digitally mediated work comes with dangers. To avoid these, governments are increasingly responding to the pressure to regulate platform work, tackle labour risks and ensure employment opportunities are in line with fair and decent work principles (Tay and Large, 2022). A growing number of platform companies are also making an effort to engage better with workers, improve access to social protection and equal access to opportunities, tackle job insecurity and invest in upskilling (BII and SIFEM, 2022, REF). There is no one size fits all solution to address opportunities and challenges associated with platform work – investors and organisations must learn from both positive examples and also painful experiences. Establishing the link between impact thesis and the management of specific risks is the first step in this process.
- BEIS (2018), The Characteristics of Those in the Gig Economy
- BII and SIFEM (2022), Managing labour risks and opportunities of platform work
- Cieslik et. al., “Offline contexts of online jobs: Platform drivers, decent work, and informality in Lagos, Nigeria”, 2021
- Dowie, G. and Athreya, B. (2021), Addressing Gender-Based Violence in the Gig Economy, International Development and Research Centre
- Graham et. al. (2020), ‘The Fairwork Foundation: Strategies for improving platform work in a global context’, Geoforum
- ILO (2021) World Employment and Social Outlook: The role of digital labour platforms in transforming the world of work.
- Mastercard and Kaiser Associates (2019), Gig Economy Industry Outlook and Needs Assessment,
- Sneader, K., and Shubham, S. (2020), The Future Is Not What It Used to Be: Thoughts on the Shape of the Next Normal, McKinsey & Company.
- Tay, P. and Large, O. (2022), Making it Work: Understanding the Gig Economy’s Shortcomings and Opportunities, Tony Blair Institute for Global Change
- World Economic Forum (WEF, 2020), The Promise of Platform Work: Understanding the Ecosystem
About the authors:
Ezgi Kiris is an Executive at British International Investment ESG-I team working. She specialises in ESG risk management with a particular focus on job quality and labour and working conditions with over ten years of experience.
Guy Alexander is a Director in British International Investment ESG-I team. He has on ESG’s approach to private equity funds as well as market facing capacity building work for over 13 years.
The published essay represent the views of the authors alone, and do not reflect the opinions of either the EDFI Association or its member institutions.