Saturday 24 March 2018

In a Tinder economy, who is really picking up the tab?

Apps can help the modern worker, but having greater flexibility in the workforce is no free lunch. Economist Rory O'Farrell reports

Apps reduce the frictions of flexibility
Apps reduce the frictions of flexibility

In the 1991 film Father of the Bride, the father (played by Steve Martin) is unimpressed that his prospective son-in-law is an independent IT consultant without a regular employer. That is until the daughter explains he is so well paid that no company can afford to keep him on staff. The ­following year, the film ­adaptation of John ­Steinbeck's Of Mice and Men graphically showed the hardship faced by farm labourers as they wandered from one farm to another, looking for work. Though technology facilitates the move towards flexible work, including 'gig work', some continue to benefit more than others.

Technology lowers the cost of collecting information. Traditionally, when looking for a gardener or a solicitor to do a one-off job, or 'gig', we ask friends or family to recommend someone that can do a good job. Alternatively, we could randomly pick someone from the Yellow Pages who is available at a time that suits.

Apps can show times when people are available, and also offer reviews showing a worker's reliability. By reducing the time and effort of finding someone to do a job, these apps have the potential to increase demand for such services. People may have avoided getting trees pruned, or asking a solicitor to prepare a will, because the effort of finding someone was just too high. Technology can potentially benefit such workers, especially for those in already established 'gig' occupations. Despite this, there is a long-term fall in the number of self-employed working alone, from 15.4pc of workers in 1985 to 10.5pc today, as Ireland moved towards Western European norms.

It makes little sense having several apps that do the same thing. In time, one app could become the access point for a 'gig' service, in a similar way to how supermarkets are for food. This can cause a power imbalance between the workers and app owners. Some app developers have also been accused of facilitating a world of 'bogus self-employment' where apps are used to circumvent employee protections and the requirement for employers to pay PRSI for their staff. Self-employed workers gain flexibility, but lack protections such as sick pay, paid holidays and some unemployment payments if work dries up.

However, even in a world with Tinder, people still want to form relationships. Once someone finds a reliable electrician or gardener, they are likely to use that person again. Online reviews are only second best when compared with the experience of working with someone and getting to know them. Similarly, once a firm finds a suitable worker, it may be cheaper to offer them a full-time job than pay the costs of constantly searching for staff. This is especially the case for high-skill jobs where it is difficult to monitor jobs, and can take a long time before you know whether the worker is doing a good job or not.

As much work happens in spurts, employers often value flexibility. However, having permanent staff is like paying insurance. A firm may rather pay someone to be present rather than risk disruption while searching for a crucial worker. This is why factories often permanently employ electricians, and banks have IT specialists.

There is a trade off between the cost of paying someone a wage during slack periods, versus the cost of disruption. Though apps could lower the length of such disruptions, the effect is likely to be marginal. High staff turnover comes with a cost, especially when a firm has to spend money on training staff, or integrating them into their workforce, they will not want to lose that worker.

However, for some jobs, it is easier to replace workers, and irregular rostering occurs where there is a sufficiently large pool of idle workers available. Though not directly linked to apps, there has been a move to an "on demand" or "just-in-time" workforce, especially in the retail and hospitality sectors. It is now common for workers in these sectors to be texted their hours at the beginning of the week.

Although not 'gigs' in the full sense - these workers are not registered as self-employed - they do share much in common. While many of these long-term changes are likely to have been driven by changes to regulation (such as for opening hours in shops), technology has cut the cost of posting rosters, allowing them to be changed more frequently. Employers can now use software to notify staff of rosters, rather than phoning each member of staff.

Maintaining a pool of idle workers so as to have such flexibility in the economy is not free, and firms will try to shift such costs on to the workforce, and also the social welfare system. Though some workers (such as students) may want flexible work, there is strong evidence that most low-pay, low-hours workers want more hours, or at very least certainty over rosters from week to week. University of Limerick research shows almost 85,000 employees have irregular rosters.

Irregular rostering makes it more difficult for workers to arrange childcare, take on a second job, or have a normal social life. Apps may help to reduce some of these frictions, but will not eliminate them.

Apps reduce the frictions of flexibility, but flexibility is not a free lunch. Someone has to pay for it.

Rory O'Farrell is an economist with the Economics Department of the OECD. He writes in a personal capacity

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