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Tomorrow's Economy

The politics of social risks and social protection in digitalised economies

17 May 2018
Authors
Bruno Palier
Author
Pres Panayotov / Shutterstock.com

When looking at the economic changes and technological revolution under way throughout much of Europe, many debates focus on the fragmentation of the labour force and the ‘Uberisation’ of employment: traditional forms of employment giving way to forms of working where there are armies of independent workers who are detached from any work contract and often paid on the basis of tasks performed. For many, this has marked the demise of traditional labour relations and stable work contracts. Our economies and societies are confronted with a long-term dualisation trajectory, which is being exacerbated by the processes of digitalisation. Not all forms of employment will be subject to ‘Uberisation’, but this process is part of the movement towards dualisation, which is forcing apart labour market insiders and outsiders in an ongoing process that amplifies trends that have been detectable since the 1980s.

To address the challenges posed by increased dualisation and a more fragmented labour market, policymakers and researchers need to identify the nature of these trends, and consider whether they create new social needs and at-risk groups. One can identify new economic cleavages between the winners in the knowledge economy (the productive and ‘creative’ types) and the losers, whose purpose is increasingly to provide low-paid services to the winners.

These challenges emphasise the need to build a new social contract between these two groups. Winners need to understand the need to protect losers by sharing the profits that are generated by both groups. Such a social contract requires renewed forms of social protection that must be embedded in the different types of welfare state regimes that prevail in Europe.

New risks?

Social insurance systems in the 20th century were designed to address the needs of people working, for the most part, in a mass industrialised economy that was responsible for generating millions of permanent jobs in Europe after the second world war, until the mid-1970s. In the 21st century, employment is becoming less routine, less stable and for many less well paid, in part because of the process of digitalisation that is under way.

On the employers’ side, digital platforms do not act like traditional employers, and do not bear any collective responsibility for the protection of employees, as they had done in the 20st century. However, the erosion of this erstwhile responsibility of employers towards their employees is not due to, nor specific to, ‘platform capitalism’. Employers are increasingly relying on atypical jobs, and governments tend to favour the development of atypical jobs in order to fight unemployment (Palier and Thelen 2010), for example by promoting zero-hour contracts.

In most Organisation for Economic Co-operation and Development (OECD) countries since the early 1970s average unemployment levels have increased by 5–10 percentage points, stabilising at 5–15% since the 1980s. The share of atypical employment (part-time and fixed-term combined) in the overall OECD workforce has grown to around 10%, and in some countries to as high as 25–35%, of all employment today (Emmenegger et al. 2012).

Contemporary labour markets are characterised by an increase in precarious employment; this is particularly evident in what has happened to the youth labour market in the decade following the economic crisis of 2008. This increase in precariousness is particularly important in the platform economy. Stable long-term employment with a single employer is no longer the norm for many workers, and unemployment or underemployment is far from being a rare or exceptional situation for workers. The ‘norm’ on these platforms is a form of ‘pseudo-independence’ (‘dependent self-employed’), where freelancers and ‘auto-entrepreneurs’ are paid by performing a series of fragmented tasks at different stages of their working life.

These labour market trends are not specific to the platform economy, nor anything new. There have always been independent workers and self-employed people. Specific social protection schemes have been developed over centuries for such social groups, for example in the agricultural sector, and among shopkeepers, architects and notaries. In labour markets, outsiders such as low-paid workers, part-timers, temporary workers or the unemployed are traditionally badly covered by existing social protection schemes even if they are not based in the platform economy. However, since the 1990s, in some countries (eg the Nordic countries and the Netherlands) a number of measures have given women and part-time workers basic social-security coverage, rather than excluding them as was often the case in the past. However, young workers, especially in southern Europe, have often been excluded from social protection and entitlements, or – especially in recent years – the age thresholds for qualifying for such protection have increased.

Workers in four types of atypical employment situations are poorly covered by traditional social insurance systems:

  • women, who in general are likely to be in part-time employment, have staggered hours and earn lower wages than men
  • ‘precarious’, often unskilled, workers who move between very short-term contracts
  • independent workers, sometimes with erratic incomes, often considered micro-entrepreneurs
  • those living partly on ‘supplementary’ income by performing micro-tasks, on-demand services or offering services through Airbnb or other platforms.

Many of these workers are far more insecure than people with open-ended contracts and access to full social insurance. There is an increasing dualism between individuals who have comprehensive social protection coverage, and those who rely on modest (largely means-tested) public provision, merely designed to tackle poverty, if any.

Some societal groups are overrepresented as outsiders in all countries studied, including Belgium, France and Germany: women, young people, the low-skilled, immigrants and second generation migrant workers, in particular if they are employed in the services sector. These groups have higher unemployment rates than average, are more likely to be in atypical employment, and more likely to be poor and to suffer from the insufficient social rights outlined above (Emmenegger et al. 2012).

Automation and digitalisation are expected to disrupt the organisation of employment. This is likely to aggravate some problems and inequalities that already exist, which leaves many workers worse off than before. Some traditional social policy challenges will persist, such as healthcare, pension provision and care for the elderly, but at a new level. Other challenges will also emerge. For example, housing in many big cities is becoming increasingly unaffordable for large proportions of the population. Paradoxically, digitalisation is also associated with some large platform companies such as Airbnb putting major pressure on the limited housing stock in some major cities.1 Such platforms can also increase pressure on the availability of long-term affordable housing, as landlords prefer to rent property as short-term lets. The extent of this trend has resulted in attempts to regulate and ban some of these developments (Oltermann 2016). The greatest challenge, however, will be to deal with the consequences of increasing intermittent forms of employment.2

New political conflicts and cleavages

Structurally, the transformation of the labour market is creating new social and economic divides that may in turn give rise to new political cleavages. It is well established by many labour market economists that during the 1990s and 2000s there was a polarisation of employment in western labour markets (Autor and Dorn 2013; Goos and Manning 2007). Goos and Manning (2007), among others, argue that this has been due to technological changes rather than to globalisation. Job polarisation correlates with technological progress.

What is striking about these changes is the number of middle-class, especially lower-middle-class, jobs that have been disappearing. This is because routinised tasks can be replaced by machines. Those most targeted by this transformation are therefore not merely those in the least qualified jobs (already having low pay, and weak levels of social protection), but those having mid-skilled, middle-class jobs as well.

This trend is likely to have profound social and political consequences, as our democracies and welfare states are made for and rely on the middle class. First, these trends undermine the fiscal basis of the traditional welfare state (since most of its contributors and beneficiaries belong to the middle class). Second, this polarisation of jobs is constructing a new form of class divide, and the emergence of a widening gap between winners and losers in the knowledge-based economy.

The widening gap in incomes and job quality is evident with knowledge-based jobs, and interpersonal services that are on the rise in the digitalised, knowledge-based economy.

Literature on labour market polarisation identifies an increase of badly paid, so-called ‘unskilled’ or ‘non-productive’ jobs. These are interpersonal, face-to-face jobs whose development is partly linked to intermediation platforms, in fields such as logistics (eg Amazon, Deliveroo), transportation (eg Uber), restaurant, hotels (eg Booking.com, TripAdvisor), home helpers and personal services (eg Yoopala, TaskRabbit). These jobs are associated with low pay, bogus self-employment, short-term contracts, part-time work and low levels of social protection (Peugny 2016).

The economic literature on the polarisation of the labour market does not question the fact that they are bad jobs because they are regarded as low-productivity jobs occupied by low-skilled people. The only indicator of the low productivity of jobs is the fact that they are low paid, which – according to orthodox neoclassical economic theory – reflects the fact that the productivity is low. However, it might be that more and more people have to compete for these low-paid interpersonal services jobs as a consequence of the displacement of mid-skilled employment.

Against the backdrop of a polarised labour market a new form of social polarisation is forming, with the emergence on the one hand of an internationalised ‘creative class’, with global connections, living in the heart of global urban centres (Andreotti, le Galès and Fuentes 2015), and on the hand a class of people at their service (Morel 2015) – to take care of their children, to care for them, to serve them in restaurants, to transport them (by taxi or Uber), to build or renovate their homes, to educate their children, and to provide healthcare to them and elderly relatives.

This becomes clear by taking into account professions where employees are paid less than 1.5 times the French minimum wage that developed over the 1990s and 2000s in France, according to Catherine, Landier and Thesmar (2015, Table 8). Many of these jobs are in the services sector. They are more frequently held by women, and include maternal assistants, family workers, nurses, self-service workers, nursing aides, restaurant staff and domestic workers.

Along with the polarisation of the labour market another new social cleavage is taking shape between so-called ‘productive’ people with very high wages and ‘non-productive’ people whose jobs are concentrated in the services sector. This brings with it new forms of social domination in the knowledge economy. This relationship of domination depends not so much on owning the means of production but rather on possessing human capital, knowledge and creativity.

This cleavage partly overlaps with a gender divide, insofar as many low-paid services jobs are mainly occupied by women. Feminist studies have shown that the specific competences associated with these jobs were traditionally regarded as ‘inferior’ or ‘feminine’ skills (Howcroft and Rubery this volume). This phenomenon of social polarisation stemming from these changes in the labour market and in gender relations is further reinforced by the increasing phenomenon of homogamy, where people from the same educational and social milieu are increasingly likely to be in contact to work together and to marry each other. As a result there has been a concomitant polarisation of household types between the work-poor, where no member of the household works, and the work-rich, where at least two members are employed, alongside a decline in the traditional breadwinner model (Esping-Andersen 2009).

Conclusion: a new class alliance for renewed social protection?

If one wants to renew social protection for the fourth industrial revolution one needs first to overcome the new cleavage that has emerged between those working in highly paid sectors, and those working in low-paid services. This cleavage is growing with a disproportionate increase in resources and security concentrated on one side of modern society, and a growth of low-paid, precariousness and new social risks concentrated on the other.

Instead of trying to take advantage of the increasing gaps, the winners could perhaps realise that there is a need to share out the benefits of the knowledge-based economy better, and to expand social protection to precarious workers. Improving social conditions today is not necessarily about increasing the level of existing protection for typical jobs (and thus reversing the trend towards retrenchment), but about including and protecting better those people working in so-called ‘atypical’ employment, as this form of employment has become more and more common in the lower-paid sectors. For instance, one should provide improved social protection for part-time and temporary workers, and promote equal pay (as women are more frequently in low-paid, part-time and short-term employment than men). Imposing equal pay rules would improve the fate of these outsiders (Rubery and Grimshaw 2014).

These new social situations might be covered by existing and adjusted codes, statuses, reformed assistance benefits and existing and improved social protection schemes. Three main families of solutions are currently contemplated to face these challenges, which may correspond to the three types of welfare regimes:

  • implement a universal unconditional basic income
  • improve existing social protection schemes for independent workers
  • introduce the flexicurity model, which guarantees high levels of minimum income and universal rights to social services and publicly financed training to all.

A universal basic income: a genuinely liberal solution

In the US and Europe there is a renewed debate on the development of a universal basic income. From Milton Friedman to Philip Van Parijs, there has long been a great variety of reasons put forward to justify introducing an unconditional basic income: to fight poverty, to simplify social protection systems by providing a single benefit for all, to increase access to social benefits, to remove unnecessary bureaucratic elements of the welfare state, to fight non take-up of benefits due to complex procedure and stigmatisation, and to guarantee freedom to choose to work or not.

The rise of the platform economy and the ensuing precariousness of work with intermittent income provides another source of argument. More and more luminaries from the digital economy (such as Elon Musk) argue in favour of implementing a universal basic income. As yet there has been no systematic enquiry into how the promotion of a basic income scheme can be linked with the emergence and development of the platform economy, but one source of development of this debate is the ‘digital’ community. See for instance My Basic Income (www.mybasicincome.org).

Recently, there have been various experiments in introducing a basic income (in Finland and the Netherlands, for instance). When hearing the arguments put forward in favour of these experiments one is struck by the fact that ‘liberal’ arguments (in the European sense – those of Milton Friedman) largely predominate. Financial constraints, and the desire to replace existing social benefits (and their associated bureaucracies), have led to the proposal that a relatively low basic income should be handed out to everyone, financed mostly through income tax. Hence, an expansion of a simple negative income tax credit is the most widely discussed proposal. Since this has already been developed in many countries, especially the US and the UK, one does not see how it could change the current problems of poverty and precariousness that are developing in these countries.

Improving the situation of independent workers: a Bismarckian solution

The growth of independent work with new forms of self-employment and dependent contractor status presents a challenge in many jurisdictions with regard to how this employment relationship is governed and what forms of social protection accrue to this status.3 The main concern is to improve the access and level of social protection for these ‘independent’ workers. Countries usually base independent workers’ social protection on a mix of universal rights (such as access to basic healthcare or a minimum income) and professional protection to be associated with specific schemes and social contributions. The challenge for governments and policymakers is to provide a specific scheme with relatively low protection (proportional to the contribution capacity of the new independent workers, which is usually relatively low). Notably, this new scheme would not protect against the risks associated with intermittence – successive periods of activity and inactivity.

Develop and finance social rights and social services for all: the flexicurity model

Flexicurity is a popular model for social policy in the Nordic countries (particularly in Denmark) and the Netherlands. Flexicurity is the separation of the provision of benefits from work. If the government can guarantee citizens’ access to healthcare, housing, education and training, and a universal basic income without regard to employment status, those citizens will be protected, even though they are not necessarily typically salaried workers. This should allow the government to deregulate labour markets, leaving decisions about hiring and firing employees to firms and employers in accordance with economic logic. In this way, government social policy does not just compensate for occasional market failures, but works alongside markets to help sustain a flexible, well-trained, highly productive workforce. Such a framework provides good protection for working people whatever their status.4 The challenge is to guarantee there are sufficient resources to finance these policies, to ensure that new independent workers and platforms pay their taxes.

Further research is needed to understand the content and politics of such diverse proposals, and their differing capacity to address the main challenges that have been created by the digital revolution in the realm of work. One can however already observe that amid the various proposals encountered in all countries, these three types of solutions to the challenges created by the digital revolution echo the existing three types of welfare regimes – the liberal, conservative and social democratic variants (Esping-Andersen 1990). The provision of a (low) universal basic income could be the 21st century form of a liberal welfare regime. The improved social insurance for independent workers aimed at including the workers of the platform economy is closely connected to the conservative corporatist type of welfare regime. Guaranteeing universal access to childcare, education, training and social services to all, including atypical workers, is typical of the social democratic way of providing welfare.

Endnotes

1 There is a paradox that although the digital economy should enable people to work from anywhere, there is ever more aggregation of resources and people in ‘global cities’ (see Moretti 2013).

2 For a detailed analyses of these trends see OECD Employment Outlook and yearly European Commission: Employment, Social Affairs and Inclusion review (especially 2016 and 2017).

3 For France see a very detailed report on these issues by Haut Conseil du financement de la protection sociale (2016).

4 Analyses of quality of jobs or income inequalities continue to place the Nordic countries in the group of best performing countries, even in the category of ‘polarisation’ of work (Peugny 2016).

References

Andreotti, A., P. le Galès and J. F. M. Fuentes (2015), Globalised Minds, Roots in the City: Urban Upper-middle Classes in Europe, Chichester: Wiley Blackwell.

Autor, D. and D. Dorn (2013), ‘The Growth of Low-skill Service Jobs and the Polarization of the US Labour Market’, American Economic Review, 103(5): 1553–97.

Catherine, S., A. Landier and D. Thesmar (2015), Marché du travail : la grande fracture, Paris: L’Institut Montaigne, http://www.institutmontaigne.org/res/files/publications/Etude%20M.he%CC%81%20du%20travail_f%C3%A9vrier2015.pdf.

Emmenegger, P., S. Hausermann, B. Palier and M. Seeleib-Kaiser (eds) (2012), The Age of Dualization: the Changing Face of Inequality in Deindustrializing Societies, New York: Oxford University Press.

Esping-Andersen, G. (1990), The Three Worlds of Welfare Capitalism, Cambridge: Polity Press.

Esping-Andersen, G. (2009), The Incomplete Revolution, Cambridge: Polity Press.

Goos, M. and A. Manning (2007), ‘Lousy and Lovely Jobs: the Rising Polarization of Work in Britain’, The Review of Economics and Statistics, 89(1): 118–33.

Haut Conseil du financement de la protection sociale (2016), Rapport: la protection sociale des non salariés et son financement, Paris: Haut Conseil du financement de la protection sociale, http://www.securite-sociale.fr/IMG/pdf/hcfips_rapport_sur_la_protection_sociale_des_non_salaries_et_son_financement_tome_1.pdf.

Morel, N. (2015), ‘Servants for the Knowledge-based Economy? The Political Economy of Domestic Services in Europe’, Social Politics, 22(2): 170–92.

Moretti, E. (2013), The New Geography of Jobs, New York: Mariner Books.

Oltermann, P. (2016), ‘Berlin Ban on Airbnb Short-Term Rentals Upheld by City Court’, The Guardian, 8 June, https://www.theguardian.com/technology/2016/jun/08/berlin-ban-airbnb-short-term-rentals-upheld-city-court.

Palier, B and K Thelen (2010), ‘Institutionalizing Dualism: Complementarities and Change in France and Germany’, Politics & Society, 38(1): 119–48.

Peugny, C. (2016), ‘L’évolution de la structure sociale dans quinze pays européens (1993–2003): quelques éléments sur la polarisation de l’emploi’, Notes et Documents de l’Observatoire Sociologique du Changement, 2016(1), http://www.sciencespo.fr/osc/sites/sciencespo.fr.osc/files/nd_2016_01.pdf.

Rubery, J. and D. Grimshaw (2014), ‘The 40-year Pursuit of Equal Pay: a Case of Constantly Moving Goalposts’, Cambridge Journal of Economics, 39(2): 319–43.

Authors

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