Europe, like the United States, has seen dramatic changes in how people work. Compared to 15 years ago, many more people have part-time, temp or mini-jobs, or are self-employed. While the number of full-time jobs has increased recently as the unemployment rate has slowly declined, far more of Europe‘s employment growth has come from part-time and temp jobs. Even Germany, whose economy has fared better than most in recent years, has seen employment growth driven by part-time jobs, which have doubled since 2000 and now comprise about 27% of all jobs.
These shifts provide a hint about the ‘future of work’, and have enormous consequences for people’s well-being, as well as for the survival of the social welfare system.
In the latest phase of this trend, more people are finding work in the ‘digital economy’, via online Web- and app-based platforms. As self-employed freelancers, some work from home, others out of the dozens of co-working spaces that populate London, Berlin, Paris, Amsterdam, Copenhagen, Hamburg, Munich and Stockholm. They don’t report to a regular workplace or employer, and have flexible work schedules, which is an attractive feature for many.
An acquaintance, Lutz, gave me a tour of his co-working space in his Neukölln neighborhood in Berlin, where he and a dozen other digital entrepreneurs rent out little cubicles, share office expenses and network. Lutz and his colleagues are called ‚clickworkers’ because they work over the internet for anybody who hires them for their particular specialty– software development, computer programming, data management, web and graphic design, translation, copy editing and more. Many work for several different businesses at a time, constantly juggling their various ‘gigs’. Some do it full-time, others part-time, and a gig can last hours, days or weeks.
Other occupations are being ‘disrupted’ too, including food delivery, house cleaning, apartment rentals and more. These industries use ‘platform workers’, who receive customers’ orders via their smart phones or over the Web. One day as I was hurrying toward the U-Bahn station in Berlin, I was nearly run over by a Foodora deliverer on her bicycle. This ‘startup platform’ offers bicycle delivery of food from restaurants, with the deliverers arranging their working lives around the ‘ping’ of their smart phones when a job arrives. These jobs are not a bike tour in the park, but physically demanding and even dangerous. If the deliverer gets knocked off their bike and injured they are not entitled to any paid sick leave or lost wage compensation. Many deliverers complain about low pay, particularly since these self-employed workers are not covered by Germany’s minimum wage law.
Silicon Valley likes to call these workers the ‘CEOs of their own freelancing business’, but that’s just techno happy talk. In reality, many of them spend more time (unpaid) constantly looking for work than actually finding it. They also don’t have any job security or much coverage from the social welfare system. Wages for these freelancers vary a lot by occupation – those in the tech industry are high, but other occupations barely earn minimum wage.
Mobile jobs: good, bad, ugly
A closer look at Germany, one of the strongest economies in Europe, is revealing. Overall, the work force has become increasingly complex and fissured, with many workers moving between different types of work — from self-employed to temp, from full-time to part-time, to mini-job to werkvertrag subcontractor, and back again. More workers now supplement their income with second, third and fourth jobs. Indeed, Eurostat says the number of Germans holding two jobs at once has nearly doubled in ten years from 1.2 million to 2.2m.
Businesses especially like hiring self-employed workers because they save 25-30% on their labor costs. Employers don’t have to pay for these workers‘ health care, retirement pension, sick leave, vacations or injured worker and unemployment compensation. Self-employed women are not entitled to maternity leave. The self-employed in Germany, like in most European member states, are legally required to pay both the employers‘ half and their own half of the health care contribution. In Germany, that amounts to a minimum of 14.6% out of their wages. And the self-employed are responsible for saving for their own retirement as well, with no contributions from employers as regularly-employed workers receive.
Nevertheless, many self-employed workers are attracted to the flexible scheduling, at least at first. But after a while many grow weary of this new kind of grind. A European Commission report found that the self-employed in Germany are 2.5 times more at-risk of poverty than salaried workers. A study by the Wissenschaftliches Institut der AOK found that among low income workers, solo self-employed Germans spend an astounding 46.5 percent of their income for health insurance. Not surprisingly, one study found that about half of self-employed workers would accept regular employment if decent jobs were available.
Roman, a digital media whiz and videographer, eked out a living as a self-employed freelancer for nearly ten years.
“It was really hard to do,” he says. “It’s OK to try when you are in your 20s. But then you hit your 30s and you want more security, more income.” Now Roman is 35 and thankful that he was able to find a stable job at an engineering university near Dortmund. He says the virtues of ‘flexibility’ are way overrated. He has many friends who are still struggling freelancers, making €100 here, €100 there, and getting older and worn out.
This reality raises a fundamental question that has long plagued Germany, going back to the Hartz reforms of the Schröder years. Those reforms, enacted when Germany was suffering from unemployment rates as high as 11 percent — the highest since the Nazis were in power – greatly expanded the number of “Ich-AG” solo self-employed mini-businesses. But that just delayed the hard task of figuring out how to create not only an adequate number of jobs but also good quality jobs. Germany has been kicking that can down the road ever since. Many of these solo self-employed workers are the ‘Hartz refugees’ that now no one knows what to do with.
With so much blurring between different job types and categories, enforcement of labor laws has become more difficult. Various investigations have found widespread abuse, with businesses treating many types of workers as self-employed in order to avoid paying social security contributions. This loophole is called ‘bogus self-employment’, and it allows these employers to wiggle out of legal obligations and robs many workers of their rights.
So while about 10% of German workers are classified as ‘self-employed’, the impact on the economy extends well beyond that. Further complicating matters, the digital economy makes it much easier to locate and temporarily hire self-employed freelancers instead of permanent workers. That further reduces economic stability, yet many German leaders I have spoken to downplay this threat. They say that click- and platform workers do not make up enough of the overall German labor force to worry about it.
How many digital platform workers are there?
Complicating the numbers game, these digital freelancers are difficult to track. The ‘nano-ization’ of their work, with short daily and weekly working hours, much of it part-time, is hard to capture statistically. So official numbers may be undercounting. A study by McKinsey Global Institute found that the percentage of Germans working ‘independent’ of the traditional employer-employee relationship is nearly twice that of the government estimate. For example, the number of German clickworkers seeking gigs on the US-based platform Upwork grew by over 300% to over 59,000 in only the nine months before July 2017. Over 22,400 of those had earned income during July.
That’s just one online labor platform – there are dozens of them. Various studies have found that anywhere from 1-2m Germans (2.3-4.6% of all workers) are earning income on them. Preliminary results from a recent survey commissioned by the Federal Ministry of Labour found 3.1% of workers earned income on these platforms over the previous year. Still another survey found that 22% of German respondents tried to find work via online platforms during the past year, with 4% managing to find work at least once a week. Other studies have come up with different estimates, unleashing a confusing numbers game that makes policy design a challenge.
Tax evasion of digital platforms – undermining the welfare state?
Even more alarming, when these workers are hired by companies or individual clients located in other parts of the world, those clients often do not report to the German authorities how much income was paid to each worker. And the individual worker also most probably is not reporting a lot of this ‘under the radar’ income. In a report written for the European Commission, Professor Gerhard Bäcker from the Universität Duisburg-Essen asked: How can the incomes of clickworkers be recorded?
That’s a tough question to answer. One German company, called Clickworker, claims to have 900,000 digital workers all over the world. How many of them are Germans, and how many of those pay taxes on their income? How many of the non-Germans pay taxes to their own governments? Nobody really knows.
By my calculation, approximately €4 billion in annual income from these workers is conceivably going untaxed in Germany alone, and €600m is not being paid into the German health care fund. As more digital freelancers find work through these online platforms, that will further erode public funding for education, transportation, healthcare, the environment and more.
This is serious money. I have used Germany as an example, but the same challenges apply across Europe and in the United States. A lot is at stake. If the drift toward a more ‘part-time, freelance economy’ is not managed carefully, it will undermine the future of the western economies. It will not only drain taxes from the welfare state, it also will unravel the employer-employee relationship, and the delicate balance of solidarity and co-determination between the different economic sectors. And as more of the global economy moves into the online world, where Internet-based corporations can hide their transactions and control the massive amounts of big data that increasingly is becoming the ‘new currency’ of the digital age, governments will be hard-pressed to enforce their laws regarding privacy, commerce, labor, taxes and worker surveillance against these global players.
[clickToTweet tweet=”If drift toward part-time, freelance economy is not managed, it will undermine Wests’ econ future” quote=”If the drift toward a more ‘part-time, freelance economy’ is not managed carefully, it will undermine the future of the western economies.”]
A portable safety net for all workers
Germany, Europe, the US and other developed economies must become better at collecting the data needed to track the activities of the companies, as well as the many different ways people are working today. In addition, I have proposed creating a portable welfare net for all excluded freelancers. This could be enacted by expanding Germany’s Hausgewerbetreibende and Künstlersozialkasse programs. These were created to provide healthcare and social security for self-employed workers who perform certain types of jobs from home, or who are artists, musicians and journalists.
As with regular workers, each business would pay its pro-rata share of social security costs, as would the worker. That money would be used to purchase the worker‘s safety net. A number of European member states have a version of these programs that could be expanded to make sure no types of workers fall through the cracks. By doing this, the developed economies would eliminate the ‘bogus self-employment’ loophole, because if a business hires a freelancer it will no longer be able to evade paying its social security contribution.
And people who like flexible work wouldn’t have to sacrifice their social security to have it, and vice versa. That would greatly help prepare the labor force and the developed economies for the Digital Age.