Why gig work matters
Business Standard, 7 August 2023
by Maitreesh Ghatak and Ajay Shah.
Gig work is seen as new, but it is merely computer-intermediated informal sector labour supply. It is much like the bulk of the Indian labour market, which engages in informal labour arrangements. Relatively little is available by way of estimates of number of workers, hours supplied, monthly income etc. A survey conducted by Centre for Internet and Society suggests that in one kind of gig work (deliveries) net of all expenses, the income is Rs.15,200 per month. According to a recent Niti Aayog policy brief, there are about 7.7 million workers, which is a drop in the bucket given the 440 million strong Indian labour force. However, it is expected to grow as it is largely an urban phenomenon, concentrated in the service sector, both being expanding domains. We believe it is an interesting and important development which can reshape the urban labour market in valuable ways.
Some observers argue that gig work is a less appealing arrangement for a worker when compared with being a salaried employee. This is true for many, but not all, given the attractions of a salaried job. But out of the urban workforce of 131 million, only 52 million are salaried employees and therefore such jobs are not easy to secure. The bulk of urban work consists of informal arrangements which include self-employment, engagement for a short time period, and piece rates. Gig work, enabled by mobile phones, fits nicely into that main fabric of the Indian urban labour market: all that has changed is that the mobile phone enables engagement with the plumber in an easier way.
The really important problem in the Indian labour market is not that few people have salaried jobs: it is that most people above age 15 are not working. At the level of the economy, 1.12 billion people are above age 15, and only 440 million are working. Or similarly, in urban India, there are 380 million people above age 15, and 131 million are working. While many of them engage in some self-employment, clearly the experience of other countries suggest that such a low labour force participation (LFP) rate is not consistent with a sustained long-term development path.
The challenge therefore lies in getting to higher values for LFP. This is a particularly important problem in certain parts of the population. The urban women's LFP is only 8%. While the overall LFP is 37.5%, there are important pockets of non-work with the young and the old, with an LFP of 30% at age 20-25 and 15% at age 60-64.
It is important to diagnose the decision making of individuals which is leading to these low LFP values. Salaried work might be unappetising for some. As an example, women's labour supply in India will surely be aided by flexible arrangements, where the woman gains control of when and how much labour to supply. Gig work fits this objective well. Similarly, disadvantaged groups like the elderly or persons-with-disabilities are likely to prefer the flexibility of the gig economy over the rigidity of salaried jobs. Once gig work is reliably available in the big cities, this can spur rural-to-urban migration. These are all important gains.
Economists in India have long been excited about the NREGS. The big insight there was to create a mechanism through which the individual always has an option of doing some labour supply and earning the minimum wage. The gig economy is functionally the same as an urban employment guarantee scheme. For any adult armed with a mobile phone, it is now easy to step forward and do labour supply. The onboarding process takes about one to seven days depending on the platform. We saw this vividly during the Covid lockdowns, where many individuals took to gig work in response to the economic crisis, and we saw many in the middle class doing deliveries.
The rise of gig work thus improves the safety net in urban India. There is an alternative perspective here: if one had aspired for establishing an EGS in urban India through the government, analogous to the NREGS, this would have been quite a challenge given the limitations of state capacity. That objective has now been at least partly filled through the gig economy.
The gig economy is thus an important improvement for the urban labour market. By reducing the complexity of obtaining income in a new place, it facilitates migration to big cities.
If gig work is an urban employment guarantee scheme, why does it not get a massive uptake and drive urban non-employment to low levels? Many factors are at work. Traditional social norms hold women at home. Intra-family resource allocation hinders the extent to which women get access to mobile phones or scooters. Non-pecuniary costs may interfere with the transition into gig work, including social status, where individuals crave salaried office jobs and spurn all other choices. Also, rural to urban migration is constrained by social factors and various monetary and non-monetary costs. These constraints lurk in the background and circumscribe the extent to which the gig economy can exert a transformative impact on the urban labour market.
Criticizing gig work using the benchmark of salaried jobs is misguided as most work in India (whether well-paying or not) does not have these perks and security. No country has been able to offer their whole workforce well paid salaried jobs. In a dynamic economy, businesses rise and fall, and job creation and destruction happen. In fact, we think that by focusing on the criticism in this direction, it takes our attention away from more legitimate and relevant dimensions in which work conditions and financial mechanisms to cope with income uncertainty could be improved for gig workers.
The Indian state faces the choice between treating gig work on par with the Indian informal labour market, or of bringing the burdens of the formal labour market upon it. Interventions should be considered carefully to balance the legitimate need for better work conditions but also, to not kill the golden goose.
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