Regulating the sharing economy will kill the jobs it brings

Whatever good intentions ACTU secretary Sally McManus may have, her call for the federal government to meddle in the contractual arrangements of workers in the sharing economy is more likely to harm worker interests than help them.

It is destined to cause more problems than it solves.

Increased regulation of sharing economy workers will simply accelerate the adoption of labour-saving devices by those businesses, such as like Uber and Deliveroo, and surely this isn’t what nanny staters really intend.

Regulation of sharing economy workers is clearly a solution in search of a problem.

The stratospheric rise of these new platforms in Australia is an overwhelmingly positive story, with the main winners being Australian consumers and workers. A 2017 survey estimated 22 per cent of Australian adults earn extra money from offering sharing economy services. Another survey found that up to 68 per cent of Australians use sharing economy platforms, so there is no doubt consumers are in favour of the new services offered.

Workers have enthusiastically entered the sharing economy in their thousands. For example, it is remarkable that Uber has only offered ride-sharing services in Australia since 2014 but now has more than 80,000 drivers using its platform.

Flexibility and freedom

And there is little evidence that most of these workers have entered these new types of contractual arrangements because they lacked other employment options.

Growth in full-time and part-time employment in Australia has been healthy in recent years; the number of people employed in full-time work increased by more than 290,000 over the past year. It is well documented that most workers appreciate the flexibility and freedom offered by sharing economy platforms.

Unfortunately, these companies are living under the ever-present threat of government regulation, as vested interests dream up a cornucopia of concerns aimed at handicapping their new competitors.

The latest battleground is the fate of the worker, with mounting pressure on governments to “protect” workers from themselves by classifying them as employees, rather than independent contractors.

The ACTU secretary has stated that “Classing workers as individual contractors has seen people paid below minimum wage, denied access to workers’ compensation, denied sick leave, superannuation, access to unfair dismissal, and denied the benefits of collective bargaining.”

Despite Ms McManus’ protests, people are choosing jobs as individual contractors for a very good reason: it suits their circumstances.

Workers classified as employees have more proscribed, guaranteed entitlements – like minimum hours, holidays and sick leave – but lose the ability to negotiate with the employer about when, how and for how much they work.

In essence, employee rights trade off the benefits of contractor flexibility for supposed “certainty”.

Restricting the flexibility of workers in the sharing economy will reduce their value to businesses and consumers; ultimately reducing the number of jobs in the sector and possibly the income flowing from those jobs.

Most importantly, driving down the main value proposition created by the sharing economy – that is, the flexible use of labour and capital – you threaten the very existence of companies like Uber, Airtasker and Deliveroo.

Government-induced costs

When businesses are threatened with extinction, they will adapt.

History shows us that ill-considered government regulation encourages the adoption of new technology. The very existence of ride-sharing platforms like Uber is due to years of restrictive government regulation of the taxi industry. And where regulation reduces the value of labour to employers, businesses will look to adopt business practices and technology that replace workers.

Australia’s economy is brimming with examples of our high-cost regulations hurting workers.

For example, because we have higher minimum wages, Australian supermarkets have adopted self-service checkouts at a much faster rate than in the United States.

Our higher costs make replacing workers quickly more attractive than in the US, where the cost difference between humans and machines is not yet that great.

So with the threat of rising government-induced costs on the horizon, it’s no wonder that Uber has decided to ramp up its investment in developing driverless technology.

It recently contracted with Volvo to supply 24,000 autonomous cars – although the technology could feel a sharp blow from this week’s first fatal accident involving a self-driving vehicle.

And then there is the prospect of drones replacing the delivery driver for platforms like Deliveroo and UberEats.

Even a “traditional” business, Domino’s Pizza, trialled this technology in 2016.

So share economy platforms’ only rational response to the union movement and governments driving up their costs will be to circumvent new regulations by substituting technology for workers – and much sooner than previously predicted.

What will be the ACTU response when their actions lead to workers losing their jobs and the flexible working conditions they desire?

Matthew O’Donnell is a Senior Research Fellow and Eugenie Joseph is a Policy Analyst in the economics program at The Centre for Independent Studies.