Can the Nordic model survive the sharing economy?

A century after the Nordic region’s first labour courts were established, labour law is being challenged again. The courts were set up because ordinary courts of law could not deal with labour conflicts. Common law regulated the relationship between two persons. When collective agreements emerged, a new type of court was needed. 

Now labour courts could be facing a similar challenge. The Internet, smartphones and apps have made it possible to develop new kinds of businesses where companies which do not consider themselves as employers facilitate the selling of services to customers.

The best known example is Uber, the taxi company. According to the company it only facilitates contact between the customer and a driver, who is self employed. While Uber’s lawyers claim the company cannot be considered to be an employer, the marketing department brags about how many new jobs are being created.

But these are so-called precarious jobs – the definition of which is ”dependent on circumstances beyond one’s control”. There are also precarious jobs in more traditional companies, so the line between the sharing economy and the traditional economy is blurred. 

Some hairdressing salons are made up of only self employed people, or they lack proper wage agreements. Handels, Sweden’s Commercial Employee’s Union, has tried to fight non-agreement conditions through its own app, Schyssta listan (the Nice List), where you can see which shops and hairdressers have collective agreements, right there on your mobile.

Precarious working conditions can also mean that working tasks are organised in such a way that people end up with long breaks in their working day, during which they are not paid. People can be banned from working for competing companies during periods when there is no work to be had from the original employer. The job offers no protection against economic swings or illness, and it does not contribute towards workers’ pensions.

Is new legislation needed?

Companies in the sharing economy often try to paint a picture of them creating “new” jobs. But the services which are being offered – renting a private flat like with Airbnb, or having a job performed in your home by Taskrunner – are some of the oldest occupations there are. Transport, accommodation and domestic work are hardly among the most innovative sectors.

But in order for completely new groups of people to perform a service, you often need new technology. Without Google Maps, which will tell you how to drive from A to B, Uber’s drivers would struggle to compete with trained taxi drivers.

This is also called crowdworking; the outsourcing of jobs through the use of IT platforms. This could be transcribing interviews or talks, writing texts for catalogues or just tasks which are difficult for a computer to do. Amazon’s Mechanical Turk is one of the major players. Pay is often very low, a couple of Eurocents per task. 

In order to outbid existing companies, the new businesses must be able to provide services at a lower cost or at a faster pace. The new business concepts are dependent on having a large pool of people who will agree to take on work and be paid separately for each individual task, so that the competition for these tasks becomes big enough. If not, the business risks that those who carry out the service will not take on the tasks, an that the service cannot be delivered fast enough. Nobody wants to wait for hours for an Uber taxi.

In order to keep the contractors in place, a digital payment system is being used. Customers can grade the person providing the service, and algorithms make sure the IT platform rewards those with the highest score, giving them the first stab at new jobs. This means the employer’s role of leading and controlling the work is being outsourced to the customers. 

Labour law experts Jeremias Prassl and Martin Risak write in their report ‘Uber, Taskrabbit, & Co: Platform as employers?’:

”Through the use of platforms, businesses ranging from restaurants to IT service providers can draw on a large crowd of flexible workers to reduce or even eliminate the cost of unproductive time at work, and rely on reputation mechanisms to maintain full control over the production process or service delivery.”

And, writing about the very core of the business concept:

”The resulting competition between crowdworkers will ensure that quality remains high whilst wages are low.”

The two labour law researchers quote Thomas Biewald, the former CEO of the platform Crowdflower, a company specialising in a certain type of IT services:

“Before the Internet, it would be really difficult to find someone, sit them down for ten minutes and get them to work for you, and then fire them after those ten minutes. But with technology, you can actually find them, pay them the tiny amount of money, and then get rid of them when you don’t need them anymore.”

Crowdworking does, of course, bring some benefits for those taking on the tasks too. Sometimes it can be the only way to make any money at all. Other times it could be that the contractors need the flexibility to accept commissions when they have time, and to combine it with other things, like looking after children.

The new business models are often disruptive. They could be described as revolutionary innovations shaking up the existing market. Well-known examples include when digital photography replaced film, or when books started being distributed digitally or through the post, and not in book stores.

New and more efficient ways of distributing goods and services are part of economic development. But labour market researchers and trade unions warn that they could undermine existing welfare systems. That could happen if the income from the business is being taxed in a different country from where the services are being carried out, or if the new businesses do not pay employer’s tax or fail to contribute to job security, sick leave or pension savings.

See all articles in theme