Melina Cruz Villafaña
CEO
Homely
/
Expert Contributor

The Future of the Gig Economy

By Melina Cruz | Fri, 05/06/2022 - 09:00

The gig economy has increased in popularity in recent years, representing a free market system in which companies and independent workers engage in short-term work arrangements.

A 2019 study by Mastercard estimated that the global gig economy generated US$204 billion in gross volume. That is expected to grow by 17 percent by 2023.

The term was born in the US after the financial crisis of 2008 that followed the collapse of the real estate bubble. The shrinking of the economy resulted in many people searching for alternative sources of income. In the gig economy, people perform temporary jobs or specific tasks for which they are paid independently, without having to work for an employer under any type of contract. In the US, it’s the main source of income for over 10 percent of workers.

Today, the gig economy is based on flexible, temporary, or freelance jobs that usually involve connecting with clients or customers through an online platform.

In Mexico, according to Forbes, there are already 14 million people working under this modality, which represents 33 percent of the country's workforce. In Latin America, the gig economy is forecast to grow from US$14 billion in 2014 to US$335 billion in 2025.

In our region, the gig economy has played a major role in formalizing the employment of many workers who previously labored in the informal economy, or the diversified set of economic activities that fall outside of the regulated economic tax system, such as street vending. Despite the great benefits the gig economy has brought to our region, there is still massive work to do, especially after COVID-19. Informality had reached about 56 percent throughout the region before the pandemic and it is estimated to have increased to around 62 percent due to the effects that lockdowns had on formal jobs.

Yet, although gig work offers flexibility and autonomy, it lacks one of the most important values ​​of traditional work: social benefits.

A large part of the problem that workers in the gig economy face is a consequence of the non-existent employment relationship with an employer, which means these workers are not linked to social security or retirement savings, among others.

Companies developing their business model based on the gig economy have neither the legal framework nor incentives to provide benefits to these workers (apart from their willingness to have a long-lasting relationship with them). The greatest challenge is that labor laws were created to regulate a reality that is very different today.

Apart from Chile, countries in Latin America still don’t have proper regulations for companies to be able to provide social benefits without being forced to fully employ the workers, eliminating the benefits of flexibility and autonomy that is the root of the gig economy. Policymakers in many nations are trying to reform the gig economy. Yet, regulations have a long way to go to meet the needs of the growing number of platform-based workers.

Platform-based gig work (where people, such as taxi drivers, domestic workers and translators, find work through online portals) has been growing so quickly that in nearly every country where it exists, labor enforcement remains several steps behind.

Despite the lack of adequate regulations, for the vast majority of companies in the gig economy, the shared goal for their workers is to have a higher income and a better quality of life but sometimes this mission is not fully accomplished.

Many platforms don’t provide social benefits to workers, or adequate working equipment or rest facilities. Adding to that, as a result of the platforms rapidly growing and scaling through the region, workers often have no means of getting in touch with the human representative of a platform in any way. There’s also a great deal of psychological stress involved because of the possibility of being cut off from the job at any time.

So, what to do next? Where governments are slow to protect gig workers or regulate companies, pressure is growing on gig employers to take the lead. 

At Homely, we believe that platforms and consumers need to step in together for companies to be able to provide greater benefits, such as social security, to gig workers. A mindset change among consumers who hire these services through the platforms is also greatly needed. Once a company decides to provide benefits (whether through government plans or private plans), consumers may see this effort reflected as a percentage increase in the cost of contracted services. The big question here is: are they willing to pay?

At Homely, we have decided to take the lead. We have established a plan with which each cleaning service contracted by the final consumer contributes a fixed quota to the social security of the workers (who we call “keepers”).

This was possible thanks to a pilot program launched by the institute in charge of the health system in Mexico IMSS, that sought the option for domestic workers to have access to social security. Last March, the pilot was approved as a law by the Senate. The reform established that domestic workers could access all five IMSS insurance products.

In adopting the plan, we became the first company in the gig economy industry to provide this benefit to the workers registered as keepers on our platform. Customers have been open since the implementation to pay the related fee in order to guarantee extra benefits for the worker who is providing them the service.

We believe in a bright future where the importance of the gig economy and all its benefits for workers is reflected in labor regulations that recognize this business model as one of the most effective ways to formalize workers, moving toward the future of work in the digital economy.

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