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World Justice Day and Labour Market Policy

Involuntarily Freelance

February 14, 2020 | by KAROLA KLATT

Photo by Hannah Wei on Unsplash

The creation of better jobs is one of the U.N.’s demands to mark World Justice Day on February 20. Non-standard forms of employment are on the rise in the industrialized countries and the growing precarity is threatening the future of social welfare.

Digitization and the increasing flexibility of labor markets have transformed employment patterns in industrialized countries: The number of people who work full-time for a single employer is decreasing by the day. In contrast, the number of freelancers, people taking on second jobs to boost earnings and those in marginal employment is growing steadily. Package couriers, delivery workers and drivers, as well as graphic designers, translators and programmers are all looking for jobs using Internet platforms such as Fiverr, MyHammer, Uber, TaskRabbit or freelance. Many of them seek additional income in the so-called gig economy, where people take on short-term jobs, jumping from project to project. Increasing numbers of workers make all their income with such temporary contracts.

The gig economy has contributed to the recent fall in unemployment in most industrialized countries.  Some nations, like those particularly hard hit by the effects of the financial crisis, have seen a dramatic fall in unemployment over the last few years. By contrast, the risk of poverty has not sunk to the same extent. Observers therefore warn of a growing army of digital-day laborers who have no fixed income and do not make provisions for sickness, unemployment and old age. It is difficult to say how large this army actually is, because these contractual nomads are not recorded statistically. However, an increase in non-regular employment patterns can be seen in the traditional labor market.

Deteriorating job quality

The authors of the Bertelsmann Stiftung's Index 2019 Report "Social Justice in the EU and OECD" (SJI), which examines social justice in 41 industrialized countries, indicates increasing differences in income and job quality. One reason for this, they argue, is the rising flexibility of labor markets, which, while contributing significantly to employment growth, has also spurred a rise in less conventional employment structures such as part-time work or fixed-term contracts: "For example, in 23 of the 41 countries surveyed by the SJI since 2008, the share of involuntary part-time work vis-a-vis total part-time work has increased, and in some cases, substantially so."

A study by the McKinsey Global Institute (MGI) from 2016, which explicitly deals with the freelancers of the gig economy, concludes that the proportion of involuntary contract workers is higher than generally assumed. Based on an analysis of available statistics and the results of their own survey, the authors estimate that in the U.S. and the EU-15 countries (all member states that joined the European Union before April 2004) a total of 20 to 30 percent of the working population are doing freelance work – and 30 percent of them do so involuntarily.

Part-time trap burdens the Greek pension system

The SJI report authors observe a particularly strong increase in involuntary part-time employment in the crisis-ridden southern European countries, especially in Greece: "The slight improvement in Greek labor-market conditions has also been clouded by a further rise in the incidence of precarious employment. Involuntary part-time employment accounts for a 70.1 percent share of all part-time employment, while 21.7 percent of the working population are low-income earners."

The disastrous effects of the trend towards low-paid non-standard forms of work in conjunction with an aging population are shown by pension forecasts. According to a calculation for the European Commission, the retirement age in Greece would have to be raised to over 70 years by 2050 if pensions are to remain financially viable. Today, the approximately 2.6 million Greek pensioners are compared with only 3.9 million people in employment, 2.5 million of whom work in the private sector. Of these, 28.7 percent work part-time, earn an average of only 409 euros per month and thus make only limited contributions to the pension fund.

The Greek government remains reluctant to further slash pensions, which it would actually be forced to make due to the international commitments to its creditors and in view of the high proportion of work that is hardly subject to social security contributions. This is why, according to the 2019 Bertelsmann Stiftung's Sustainable Governance Indicators (SGI), Greek pension policy does not meet the requirements of intergenerational justice. "Moreover, pension policy does not meet intergenerational equity requirements. Existing arrangements primarily serve the interests of middle- and old-age groups at the expense of younger generations of workers," the country experts conclude. With only 4 out of 10 possible points, they consider the Greek pension system to be one of the worst in the context of industrialized countries.

Japanese government wants to boost stable working conditions

A demographic time bomb is also ticking in Japan where the highest life expectancy meets one of the lowest birth rates. Nowhere else in the world has such an unfavorable ratio of people of working age to pensioners. And yet, according to the 2019 SGI country report, precarious employment is on the rise here too: "In a country once hailed as the epitome of equitable growth, a new precariat has emerged, with 40 percent of the labor force in non-regular employment."

Job insecurity in Japan affects women and a relatively young group of well-educated academics who were unable to find employment during the so-called labor-market ice age in the late 1990s and early 2000s after they graduated from university. Amid fears for the country's productivity and in anticipation of a future jump in social security costs, the government has targeted a range of measures for this specific group, which should create more regular employment. In addition to more targeted training and job placement measures, the government is also looking into creating financial incentives for companies that hire people between 35 and 45 for an indefinite period.

In the U.S., contract nomads are almost the rule

In the U.S. in particular, non-regular employment contracts are increasing significantly, especially among young people. "The younger an employed person is, the more likely he or she is to work freelance," the authors of the study "Freelancing in America 2019" note and support this assertion with figures from last year: "Freelancing was 29 percent of employed baby boomers (age 55+), 31 percent of Generation X (age 39-54), 40 percent of the millennium generation (age 23-38) and 53 percent of Generation Z (age 18-22)."

Even if many well-educated job-market nomads in industrialized countries voluntarily choose self-employment because they expect more flexibility, variety and higher salaries for their professional careers, many other gig workers are involuntarily freelance, according to the McKinsey study: "Scaling up the results of our survey suggests that 50 million Americans and Europeans are independent out of necessity, and more than 20 million of them rely on independent work as their primary source of income. For them, independent work is simply better than the alternative of unemployment or an undesirable traditional job. Temporary workers are clearly part of this story. Many are not in temporary roles by choice; they would prefer the perceived stability of a traditional job."

It is important to keep an eye on job quality when making labor markets more flexible, because non-regular, insecure employment increases the risk of poverty in industrialized countries and also places a heavy burden on social security systems, raising a big question mark over their long-term viability.

Karola Klatt is a science journalist and editor of SGI News and the Bertelsmann Stiftung's BTI Blog.

Translated from German by Jess Smee

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