February 16, 2020 ☼ The Intersection ☼ economics ☼ technology ☼ Information Age
You can’t govern a 21st century economy with 18th century regulatory technology.
This is from The Intersection column that appears every other Monday in Mint.
Over the last two months, two new co-working spaces have opened in my neighbourhood, one replacing a garment factory that existed there for over a decade. A logistics warehouse nearby is being renovated, and I suspect it too will be turned into a co-working space. Bengaluru, in general, and my neighbourhood, in particular, have an abundance of co-working spaces—both at the top end, with branded multi-location chains, and at the humble end, where local building owners have jumped onto the latest game in commercial real-estate. We might well be in a new little bubble, and Bengaluru is not representative of the country as a whole, but underlying trends suggest that the demand is only likely to grow.
The gig economy is a big contributor to this. As is usual, there is some breathlessness in estimating how big it is going to be—with figures suggesting Indians constitute a quarter of the world’s gig workers, earning $1 billion last year and registering double-digit growth. What we do know, however, is that the gig economy plays to employment patterns in India, where most of the workforce is engaged in “informal” jobs in the “unorganized” sector.
A recent study of employment patterns over a 13-year period ended 2017 for the Prime Minister’s Economic Advisory Council by Laveesh Bhandari and Amaresh Dubey finds that non-contractual employment grew by 68 million over the period, and “has been a hero of employment generation growing by about 5% annually”.
There were 145 million people in non-contractual employment in 2017-18. Professionals constituted the most rapidly growing occupations, with older, better educated and skilled witnessing higher growth. Bhandari and Dubey also found that unorganized sector employment grew by 65 million between 2004 and 2017, compared to only 27 million new jobs in the organized sector, suggesting that businesses are finding it more convenient to sustain themselves when they are below the radar of the government. As technology and business models take the gig economy across the country and implant it more deeply into the Indian economy, we can expect to see a lot more people find employment through online marketplaces and technology platforms.
The government’s radar is getting sharper. In December, the government introduced legislation in Parliament that seeks to consolidate a number of labour laws into a Social Security Code. The new statute encompasses self-employed professionals, freelancers and platform workers, such as those employed by taxi aggregators and food delivery companies. The tax person is not far behind. Recent reports suggest that revenue officials are leaning on platforms and aggregators to get gig workers registered with the goods and services tax (GST) network. While it is just as well that the government is attempting to rationalize labour regulations and expand the country’s tax base, it is important to step back and reflect on how the gig workforce ought to be governed.
If we discard the mental model that has long classified jobs as formal and informal, and look at work afresh, we observe that jobs vary along two fundamental characteristics: the level of income they generate and the volatility of this income. For instance, a graphic designer could earn tens of lakhs of rupees a year, but go without income for several months at a stretch. A security guard at a company might earn a few thousand rupees a month, but with the assurance of a regular monthly pay cheque. Instead of the old binary formulation of informal versus formal jobs, it is more informative to see jobs being distributed on a spectrum depending on how much they pay and how volatile the income flows they provide are.
Wherever a job lies in this spectrum, the objective of public policy ought to be to ensure a “trimurti”: dignified working conditions, growing wage levels, and minimal income fluctuations.
First, promoting dignified working conditions includes ensuring fairness, respect, safety, protection against exploitation and arrangements for retirement. This means that even as labour laws are rationalized to eliminate outdated and hard-coded regulations, it is necessary to ensure that all employers retain an obligation to promote the dignity of all their employees.
Second, real wages grow not because the government imposes minimum wages, but when productivity rises. While government-financed skills development has a role in the less sophisticated end of the gig economy, productivity growth occurs when barriers to trade, investment and travel are lowered. A closed economy cannot be a successful gig economy.
Finally, a re-imagined social security system for the 21st century must tap government, corporate and social contributions for insurance and retirement accounts. Imagine a social security account where state governments can top up the Centre’s contribution, where corporate social responsibility (CSR) funds can be applied in addition to employers’, and where charitable foundations supplement an individual’s contributions. Such a multi-contribution system is possible today and the proposed Social Security Code is an opportunity to put in place such a future-proof framework.
There are many more The Intersection columns here
How will India’s overburdened judicial system handle the potentially large number of disputes that may arise with the growth of the gig economy? In 2016, Ebay’s online dispute resolution system resolved over 60 million cases on its platform, more than thrice the total number in the US justice system. The gig economy is perhaps the best place for India to start its first online automated dispute resolution system. You can’t govern a 21st century economy with 18th century technology.
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