17 October 2017

Corbyn doesn’t get the gig economy

By Ryan Khurana

Jeremy Corbyn said this weekend that automation and the gig economy has released “a more rapacious and exploitative form of capitalism”. He suggests an alternative. Platform firms such as Uber, he says, should be replaced by cooperatives, where gig workers would set their own pay and conditions. Beyond the Marxist connotations of replacing private companies with cooperatives, his statements reflect his party’s continued mischaracterisation of the labour market.

Uber drivers might not be setting their own conditions, as they are paying a fee to use the firm’s matching service, but they are in control of their contract. What platform firms provide is a means to lower the transaction cost of doing business. Drivers are customers of Uber’s product, which is a search and ratings algorithm, that helps them set the prices that will optimise their revenue. By paying to use Uber’s service, drivers pick up as many riders as they want, at times that reflect their desired earnings potential.

Corbyn, however, characterises the drivers as exploited workers, and fails to support firms, such as Uber and Deliveroo, which have provided opportunities for work for new immigrants and those in low-income areas. Instead, he depicts them as exploiting the downtrodden and the weak. This view isn’t even shared by Uber drivers, who overwhelmingly regard themselves as self-employed, and are satisfied with their work.

By attacking these platforms, which have high approval ratings from their users, Corbyn presents the Labour Party as being fundamentally anti-consumer. Meanwhile, firms such as Uber, Deliveroo, and TaskRabbit are enjoying huge increases in their user bases day after day, from both sides of their market, evidently providing a valuable service.

The Labour Party’s Alternative Modes of Ownership report, launched last month, further exemplified this anti-consumer mentality. Their desire that robotics technologies should be owned not by those who developed them, but by the workers affected by them, is an assault on the right of private property that has been fundamental to the continued prosperity of free market societies.

These co-operative modes of ownership would exacerbate the very problems they seek to address. Their fear of automation, one that is mostly unwarranted, was born of the failure to understand how technology affects jobs. It is not that jobs are destroyed by automation, rather that new technologies change the skills required from employees. Bank tellers are a classic example of this, as the introduction of Automated Telling Machines changed the skills required of a cashier from quick numeracy abilities to customer service.

By instituting models of ownership similar to the guilds of the pre-industrial revolution era, employees who do not desire to retrain to improve their work ability will be able to stop the implementation of new technologies. This may make leave them free to do their work, but it would keep prices high and productivity low, harming the economy as a whole.

Mr Corbyn’s belief that automation is destroying good jobs is unsupported by any reading of the data. Since the IT boom of the 1980s, social and communication skills have become increasingly valuable across the professional spectrum. As machines increase the productivity of almost every other task, this importance will only continue to grow. These skills, however, do not require academic retraining. Jobs requiring high social skills have had the fastest rate of job growth in the US between 1980 and 2012, and don’t call for professional qualifications.

In the UK, however, those jobs demanding high social skills, such as care work, nursing, and teaching, are running short of staff. It is estimated that by 2037 the shortage in the care sector will exceed 750,000 workers.

This suggests is that there are plenty of jobs out there, but something about the labour market in Britain is preventing recruitment. Indeed, the UK is notorious for having one of the highest skills gaps between jobs and workers in the developed world, which has contributed to low productivity growth and which needs to be fixed.

The staff shortage in social work jobs can most clearly be explained by the fact that their wages are not market determined. This means that when the NHS or state schools have a labour shortage, they cannot increase wages to attract more workers. The failure of the wages to signal market demand means that the unemployed workforce does not believe that these jobs are the best ones for which to retrain.

In the US care sector, however, wages more accurately affect market demand. The median salary for nurses is almost three times higher in the US than the UK, and there is an abundance of registered nurses either working or in training.

If the Labour Party were truly serious about improving the quality of work available, and honestly wanted to harness technological innovation to improve lives, it would seek to remove regulatory barriers rather not hamfistedly make things worse  by nationalising companies and creating worker owned co-operatives.

Ryan Khurana is a Research Fellow at the Consumer Choice Center and the Institute of Research in Economic and Fiscal Issues