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How Uber challenges social protection systems


Uber has, in a very short time, grown to be immensely popular in many countries, including the UK. And, from the individual consumer’s perspective it’s not hard to see why: the company provides the same service as traditional taxis, only much cheaper and easier. No need to wait on the phone or in the rain for a taxi: you simply order and pay on your phone.

In the short-run, Uber also provides an easily accessible and flexible way for the drivers to earn an extra income. However, in the longer run, Uber is part of a worrying trend towards a less secure labour market. In many ways, the rise of companies such as Uber can be seen as a movement towards a more informal labour market akin to labour markets in developing countries.

Uber drivers are basically day labourers, with no job security and low wages. Uber also presents a challenge for unions and collective bargaining, which have been essential for developing a labour market with reasonable working hours, wages and social security benefits.

Uber drivers have, in reality, zero rights as workers. They only earn an income on the days when they are able to drive a car, which they also have to supply themselves. There is no job security, no paid vacations, no maternity leave and no sick leave.

Image: Al Jazeera / Susie Cagle
Image: Al Jazeera America / Susie Cagle

This so-called ‘gig-economy’ provides an attractive working life for freelancers with valuable skills to sell. These people can participate in the labour market on their own terms, instead of having to spend a fixed amount of hours in an office, working for just one employer. Instead they can pick and choose the most interesting assignments and have greater flexibility to take time off. People with sought after skills will also be able to charge a high enough fee to be able to save up money to offset their losses in terms of the pensions and social security benefits that they would have gained from more traditional full time employment.

The gig economy is much less attractive to people who don’t have such valuable skills to sell in a competitive labour market. They end up on ‘zero-hour’ contracts, in what professor Guy Standing has called the ‘precariat’.

As one Uber driver recently said in an interview published in the Guardian: “I’m an Uber driver, but I think it is a socially dangerous business model…in London in 2016, without a word of exaggeration, [we are witnessing with companies such as Uber] mobile sweatshops. Consumers must educate themselves about what is happening. These low fares have to be paid by somebody. If consumers don’t recognise it, and we accept this type of business model in our economy – well, guess what, one day your job is going to go the same way.”

Taxation is another issue. Using the same tricks as many of the multinational companies that avoid tax, Uber doesn’t pay any tax, and no doubt many of the drivers don’t either. And voilà, we have added a big chunk of the economy to the informal sector, where there is no taxation and there are no worker’s rights.

moneyIf this development towards a more informal labour market and more precarious employment continues, it will require radical reforms to the current social protection systems in developed countries. Just as in developing countries today, contributory social security systems, which are designed for a labour market where most are either in full time employment or unemployed, are not well suited to the emerging labour market. What is needed, instead, is an expansion of tax-financed social security programmes, where entitlements do not depend on being in full-time employment.

One reform that would achieve this is a universal basic income, which would provide everybody with a limited monthly cash transfer, independent of their labour market participation.

There are good reasons that this idea is rapidly gaining ground across Europe these days. A universal basic income would provide people in precarious jobs, such as Uber drivers, with income security regardless of the hours worked or income earned. It would provide basic income security that, in a context of declining union memberships, could increase the bargaining power of workers to demand decent working conditions and reasonable rates of pay.

It would also remove the stigmatisation associated with being on benefits and render the debate about whether people have an incentive to work irrelevant. With a universal basic income there will always be an incentive to work, as you won’t lose any entitlements if you take a job.

In many ways this is the famous Danish ‘flexicurity’ model taken to its logical conclusion: maximum flexibility in the labour market combined with universal social security.

However, if technological innovation is not followed by social innovation, your cheap Uber ride could end up being very expensive indeed.

RSRasmus is a Social Protection Specialist at Development Pathways. His background is in political science and he has worked for more than seven years in international development in Asia and Africa. Rasmus’ research interests include: social protection, governance, social accountability, Limited Access Orders and institutionalist approaches to development.