The sharing economy's social security challenge
Gulnaza Janibekova and Ihssane Otmani / May 2018
One-third of Europe’s GDP goes to social protection. However, employees in the sharing economy have limited access to social security.
Many Europeans are participating in the sharing economy. In 2016, around two out of ten Europeans had already consumed the services provided by collaborative platforms. Therefore, the sharing economy comes with great economic opportunities. According to a study conducted by the European Parliament, it is estimated that the potential economic gain of the sharing economy amounts to up to €572 billion in annual consumption across the EU if it operates under full capacity. A 2016 Eurobarometer survey on service providers in the platform economy shows that around 5% of the EU respondents had offered services on a platform (see Figure 1), a figure that is expected to rise in the next years. Some countries show an even higher share, as is the case in France (16%), while others like Estonia and Greece show a lower participation rate (2%).
Figure 1. The participation rate in the platform economy as service providers (2016)
Source: own elaboration based on Eurobarometer (2016)
Attracted by the flexibility the technological advances allow, many workers have opted for new forms of work. In fact, the emergence of the sharing economy has offered more flexibility to workers and helped those who were excluded from the job market to find a place for themselves. According to the European Commission, there is a myriad of employment opportunities within the sharing economy, and many of the jobs offered are temporary, short-term and task-based.
Nevertheless, platform jobs often come with uncertainties as social protection is often externalised to workers. At the same time, it is important to note that in addition to technological advancements, the sharing economy has emerged in the context of high unemployment. Technology has made it easier to match those looking for job opportunities with those wanting cheaper services. However, most workers face social insecurity as they lack necessary skills to find or maintain their jobs in the platform economy. Such insecurity can be overcome by implementing Active Labor Market Policies (ALMPs) that focus on helping workers enhance their skills through job counselling, training and job-matching in the job market.
Furthermore, regulatory frameworks are lagging far behind the rhythm of change in the labour market. This leaves platform workers in an uncertain or disadvantaged situation, who despite being prone to the same risks as traditional workers, are not entitled to the same social benefits. The main issue is the classification of employees and identifying the employer. Platform workers are not classified as regular employees due to the nature of their work and working contract that is not specified in regulatory frameworks. If they are classified as self-employed or contract workers, then they have to bear higher social security contribution costs than traditional workers.
In 2015, social protection expenditure in the EU was 29% of GDP which represents one-third of Europe’s GDP. This expenditure is financed mainly by social contributions (54%) and general government contributions from taxes (43%). In fact, the social security system in Europe is largely based on the Bismarckian model. This implies that entitlement is related to employment status and conditional upon the contribution record from both employers and employees. Such a system was adapted to the post-industrial revolution society; nevertheless, the technological progress and the emergence of the new forms of work calls for its reform.
There is no doubt that the legal frameworks across the EU need reform. First, it is important to create categories for platform workers and base their social protection on contributions levied on income thresholds. Exchange of information between governments and platform administrators can allow governments to identify how much a certain worker earns through a given platform. Creating income thresholds would help identify workers for whom platform work is the main source of income, for whom it constitutes a moderate income or whether it is a source of earning profit. Those whose income passes a certain income threshold would be liable to pay social insurance contributions. Governments should accordingly create a universal registry of workers instead of a platform-based one. This would help coordinate approaches and cover workers on different platforms.
Second, and aside from reforming the legal frameworks, EU countries should implement Active Labour Market Policies (ALMPs) to help workers develop skills necessary for the changing labour market. As job insecurity is of the biggest challenges of platform work, another way of providing such social protection to platform workers is through ALMPs, focusing on equipping workers with necessary skills to find jobs in platform economy. Platform workers are prone to unemployment and underemployment. Implementing training programs through ALMPs would help increase workers’ abilities to find jobs and perform jobs well in the platform economy.
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The views expressed in this article are those of the authors and do not necessarily represent the views of the Willy Brandt School of Public Policy or ECIPE.