How do digital labour platforms differ from other companies operating transnationally?

Regulating conventional multinationals is difficult enough but taming digital labour platforms raises even more challenges.

In spite of their strong and visible transnational character, digital labour platforms are often defined simply as digital networks that co-ordinate labour-service transactions in an algorithmic way. Therefore, how they compare with other companies operating across borders, the most typical being pre-existing multinationals, is neglected. Yet their approaches to the labour market and to the local economy differentiate digital labour platforms from conventional multinational companies—and not in favourable ways.

Conditions unclear

First, they affect work and employment distinctively. Digital platforms are able to lower entry barriers to the labour market, and therefore facilitate work participation through matching labour supply and demand, while reducing transaction costs and easing the working conditions of specific social groups. These include workers with strong family commitments, the long-term unemployed, individuals with disabilities or health conditions, young people not in education, employment or training, older and retired workers, and people with a migrant background. Thus, digital labour platforms typically rely on a workforce of independent contractors whose conditions of employment, representation and social protection are at best unclear, at worst disadvantaged.

Although established multinationals may also offer poor working conditions, the impacts of digital labour platforms on employment often go further. Platforms can reorganise work and production significantly, ‘unbundling’ tasks as a radical deepening of the traditional division of labour. Such job specialisation in principle raises productivity and yields more effective control of the production process.

Hitherto, the limits of task specialisation were mostly defined by transaction costs and limited market size. But digital labour platforms expand the limits by facilitating the unbundling of tasks. Moreover, the advent of cloud computing has given access to abundant resources of storage and data collection which, together with the mediation of algorithms, allow for an efficient distribution of resources and a consistent reduction of transaction costs.

Furthermore, digital labour platforms broaden the geographical boundaries of labour markets and operate very efficiently at a global scale. The ability of digital labour platforms to pool at almost no cost millions of service providers—with increasing offshoring and outsourcing of tasks—can result in even further task specialisation which is detrimental to jobs.

Spillover doubtful

Digital labour platforms and conventional multinationals also differ with regard to the value they generate for the local economy. Despite their destructive relationship to local businesses and their ability to capitalise on cheap labour markets, multinational companies often create employment opportunities in depressed areas, and they are potentially stimulating for local economies. Therefore, subnational governments and city administrations find value in creating incentives, via tax deductions and exemptions from service fees, for multinationals to locate.

Multinationals can attract new investments to towns, create employment opportunities for the local population and pay company taxes to the local jurisdiction, albeit often reduced. Furthermore, those in the innovation and finance-based sectors attract an agglomeration of highly-skilled, wealthy, sophisticated workers to a geographical area, such as Silicon Valley or Wall Street. There they can create economic hubs.

By contrast, the spillover effect of digital labour platforms on the local economy is doubtful at best. First, their business model mostly relies on providing a central point of access for service users to various local service providers. While they do potentially reduce barriers to entry to the labour market for specific disadvantaged groups, the work does not necessarily have to take place at a local level but is spread on a national and even global scale.

Secondly, it is difficult for subnational governments to assess the value of the work generated by the digital labour platforms, on the basis of the place of business, as they often require a national or supranational regulatory framework to monetise that value. Hence, it is also difficult to talk about an own-source income advantage to the local economy.

Thirdly, digital labour platforms do not create labour agglomerations and associated economic and innovation hubs within geographically defined areas. Therefore it is difficult to argue they can have the same economic and social impact on local urban areas.

It could be argued that digital labour platforms can foster decentralised economic growth and thereby break the monopoly of protected industries. But their current business model risks simply replacing industrial monopolies with new monopolies in the digital realm.  

Regulatory policies

The question is whether national governments and the European Union should implement similar regulatory policies toward digital labour platforms—and, if not, how these companies should be regulated. The European Commission has been reluctant to regulate the digital labour platforms and multiple legal obstacles remain to be solved, such as the classification of workers, the demarcation of the relevant market and the nature of the service provided by the online intermediary.

In the digital economy, there is always a concern that premature legislation might impede growth of the business segments. Not to mention that there are profound differences among EU member states over the European Pillar of Social Rights.

Experiences with multinationals however show that, despite EU involvement, such companies can exploit freedom of movement to get the best deal from member states with the least taxation obligations (as in the Luxembourg and Irish cases). Yet when it comes to digital labour platforms, the externalities created by the single market could be still more severe, since (as with click-based systems) the work does not even need to take place where the service is provided.

In the absence of EU-level protection of rights and associated monitoring mechanisms, the future Iooks gloomy for the social rights of digital workers.