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August 19, 2015

The Freelance Economy – Part II

Working at the convergence of precarious positions and the digital revolution

Last week, we at the DEEP Centre blog explored the trend towards precarious work and the challenges this trend presents for young workers and the Canadian economy. In Toronto, it is estimated that 44% of working adults are temporary, freelance, and/or contract employees. The trend towards precarious employment primarily affects those over the age of 55, those under the age of 30, women, and minorities. This type of employment comes with a great deal of uncertainty and without the traditional perks of employment such as benefits, sick days, and pensions. This uncertainty and increasing lack of social safety net has profound implications for the national economy by making it more difficult for individuals to save, buy assets, and/or invest. However, for many, the situation isn’t entirely dire. Flexible work arrangements offer a significant amount of freedom – allowing young people to achieve a better work/life balance, to take greater control over what they work on and who they work with, and gives them the chance to design their own careers. In many cases, these advantages outweigh the added challenges of the freelance economy.

For the broader economy, the increase in independent workers and solo entrepreneurs also offers significant opportunity. In particular, the flexibility and on-demand delivery of services that this model espouses could unleash new sources of innovation and wealth generation. Freelance-based companies such as Uber and TaskRabbit have garnered massive market valuations, making it appear that this new model can be tremendously successful and that it is being celebrated by both consumers and investors.

There are risks, of course. Uber, for example, has been at the center of growing tension between workers unions and consumer protection advocates on one side and those that embrace the disruption on the other. In Toronto, the introduction of UberX – a service where almost anyone with a car can provide taxi services through the Uber app – has ignited fierce debate. While Uber is an international corporation, the services its drivers offer fall within municipal jurisdictions (which typically require taxi drivers to obtain a license, maintain a safe driving record, and be above board with any criminal history).

Those advocating against Uber state that the company is destroying the taxi industry and isn’t as safe as traditional companies. Since UberX began operations in Toronto, one taxi fleet owner has said that the earnings of his drivers are down 40 to 50%. Uber has become a major point of contention at Toronto City Hall where the impact of Uber on the taxi industry, public transit ridership, and urban problems such as congestion is being examined. In June – due to pressure from the Taxi Unions, evidence of exorbitant surge pricing, and an incident of sexual assault against an Uber passenger – the City of Toronto sought a permanent injunction to shut down all of Uber’s operations (a decision is pending). In July, 36 UberX drivers were fined with operating unlicensed transportation services, a move which in the mind of Toronto City Councillor Jim Karygiannis is one of many future strikes against the “unlicensed bandit taxis”. Consumers have also been warned that they could be charged with fines of up to $20,000 for using the UberX service.

Those in favour of Uber argue that the technology is a vital innovation that is shining sunlight into a traditionally dirty business. In 2012, it cost $360,000 to obtain a Toronto taxi license (which are extremely limited in availability). By 2014 (two years after Uber came to town), the price had fallen to less than $100,000. Previously, the high cost of obtaining a license (not to mention, a car) meant that it was usually out of reach for many trying to enter the business. Those that amassed enough wealth to own multiple plates created companies that took advantage of otherwise impoverished individuals to operate their fleets. One writer describes Uber as “the sword that will finally cut through the Gordian knot of misguided regulation that ensnares the Toronto cab business.” Those that use Uber are vocal in their support of the ability to order a cab with a touch, of not having to worry about having cash, and the freedom to order all sorts of vehicles depending on need. The individuals operating UberX cars are diverse: including students, recent immigrants, and older individuals looking to make a little extra on trips they would be making anyways. Uber has opened up the taxi industry to new participants, modernized the service, and brought down the cost of the system for everyone.

The goal moving forward – for policy makers, innovators, and consumers – will be to determine a way to harness this new normal while also providing the same social safety net that increased economic stability and social cohesion over the last century. The need to do so (and do so quickly) is only growing. In the US, an estimated 53 million temporary/freelance/contingent employment are contributing $700 billion to the American economy. In Canada, it is estimated that as many as one in eight Canadians work independently. While these jobs may not be ideal in the traditional sense, they are a vital source of income in an economic environment with fewer permanent options than before. Supported by the digital revolution, individuals no longer have to rely on big business or government to provide them with employment. Despite the City of Toronto’s attempts, it will not be possible to put the genie back in the bottle. Banning disruptive companies will not solve these problems; open and uninfluenced policy discussions and regulatory updates can. In the case of Uber, increased oversight, transparency in pricing, and creating greater assurances for consumer safety should be put in place to bridge the divide.

For young adults, solutions to our current predicaments are not necessarily obvious. In many cases, the direct routes to public, private, and non-profit careers are no longer available. It might take longer to buy a house, start a family, and have enough to retire. However, a new wave of entrepreneurship that is riding on digital innovation presents immense possibility. Small digital firms are becoming large enough to employ the new work force and new companies and organizations are emerging every day. We are changing our expectations. Canadian policy makers still have their work cut out for them: policy solutions that ensure wealth is redistributed properly, that the basic necessities of life are attainable for most, and that the support structures of the national economy remain intact in the post-boomer world are not yet in discussion. While Switzerland debates a guaranteed income, Ontario tinkers with small and short-term hiring incentives. The freelance, sharing, and knowledge economies are revolutionary and will require a revolutionary social safety net in order to be successful.

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