Commentary,  Gig Economy,  Labour Standards

Don’t be Fooled by Ontario’s ‘Minimum Wage’ for Gig Workers

Just months before a provincial election, the Ontario government has announced a plan to guarantee a ‘minimum wage’ of $15/hour for gig workers. It sounds good, but there are some big devils lurking in the details. In practice, the plan will have absolutely zero impact on the incomes of gig workers. Anyone who accepts that this ‘minimum wage’ will lift gig workers’ incomes does not understand how the gig business model works.

The biggest problem is that the so-called minimum wage will only apply for time gig workers spend engaged on an assignment: driving a passenger, delivering a meal, or performing some other assigned task. But gig workers regularly spend a great deal of time (often over half of their work day) waiting for those assigned fares/tasks, or traveling back to central hubs after completing a task. This unpaid time is excluded from this new ‘minimum wage,’ with enormous effects. For example, if a gig workers spent half their work day waiting, then the ‘minimum wage’ only pays $7.50 per hour.

This idea of paying workers only for time they are ‘actively engaged’ on a specific task would have nefarious and destructive impacts if applied to other occupations. Retail clerks would be paid only when actively helping a customer. But what if it was a slow day? They could earn almost nothing. Firefighters could be paid only when they are called out on an emergency – not for the time they spend being ready to respond quickly and effectively. Cybersecurity experts would be paid only when their company’s website was under attack.

For centuries employers have tried to shift the cost and risk of fluctuations in their business onto the backs of their workers, using a whole range of strategies: such as piece work, on-demand hiring, labour hire services, and others. There is nothing new in the digital platform industry’s strategy to do exactly the same thing – other than the (economically trivial) fact that they use a smart phone to organize this exploitation. The claim by Uber and others that this is a whole ‘new model’, driven by technology, that requires a ‘new regulatory context’, is a historical lie.

Even worse than not paying for waiting time, is the impact of the endogeneity of labour supply in the platform business model on the realized earnings of gig workers – and this is another gaping hole in this so-called ‘minimium wage’ law. Companies like Uber depend on enough workers signing onto their app to keep a surplus pool of drivers available to quickly meet customer orders. It is to Uber’s benefit to have many workers waiting: it keeps response times lower and consumer satisfaction higher. And since the cost of that unpaid waiting time is borne by workers, Uber has no incentive to try to match labour supply with demand more efficiently. This is why this so-called ‘high-tech’ industry is one of the least productive industries in the whole economy: tens of thousands of workers spend milli0ons of (unpaid) hours sitting around doing literally nothing.

Gig workers make a calculation about how much time they will spend waiting, when they sign on to the app. That’s why they typically work inconvenient or anti-social hours (like evenings and weekends): not because they love the ‘flexibility’ of working weekends, but because that’s the only time they have a reasonable chance of making any money at all.

This labour supply response, so vital to the platform business model, will defeat the desired impact of this so-called minimum wage. Lifting the wage for ‘engaged’ time, without limiting labour supply (or forcing the platforms to pay for waiting time), will spark a resulting increase in labour supply (that is, the number of workers signed on waiting) until the actual realized wage (including waiting time) falls so low that workers are deterred again from signing on. So long as enough desperate workers are willing to sign on for effective wages well below the true minimum wage (as is self-evidently true today), this measure will therefore have no impact on realized earnings. This would be true even if the rate was higher than the legal minimum: like the 120% threshold currently jointly advocated by Uber and the UFCW.

The claim that workers voluntarily sign on, even if their realized earnings fall below the legal minimum, does not confirm the appeal of this supposedly ‘flexible’ employment model. It merely confirms the desperation of workers (most of whom, including new immigrants, students, and other marginalized workers, have little access to other, better jobs). The reason we have a minimum wage is precisely to constraint the ‘freedom’ and ‘flexibility’ of desperate workers to work for less – because of the costs (to them, and to others) that unrestrained exploitation has on our broader economy and society.

Another huge problem with the Ontario proposal is how it will treat gig workers’ expenses (including vehicle, gas, insurance, phone, data, etc.). Generally accepted accounting principles would require a business to fairly and fully account for these expenses. Doing so would add several dollars to the required payment, in order for gig workers to realize net income (after expenses) equal to the legal minimum wage. Uber and the other platforms, however, will dispute this. They claim that most drivers already had a car, so they should be willing to work without fully accounting for the cost of that vehicle. At most, they would allow for relatively token expense margins to reflect only incremental depreciation or maintenance directly associated with an additional trip.

No other business treats capital assets, depreciation, and maintenance this way. In fact, they’d be hauled into court by shareholders if they tried. Why should gig workers be forced to pretend their capital equipment is largely ‘free’?

The Ontario government is also exploring a proposed ‘portable benefits’ package, and this idea is also a sham. It would accumulate funds in personal accounts to supposedly pay for normal benefits (like supplementary health, pension, and insurance coverage). But without effective regulation of base pay, a platform can easily offset any new cost associated with this program by unilaterally adjusting its revenue sharing formula with workers (as they are free to do anytime). It seems to put a few dollars per day into a driver’s left pocket, while taking it out of their right.

This portable benefits model would also allow Uber and the other platforms to continue to free-ride on taxpayers. By denying normal employment-related benefits and levies (including EI, CPP, workers compensation, and employer health tax), Uber shifts that burden to both gig workers and to taxpayers – since the costs of those exclusions ultimately fall onto public programs. When Uber evades paying employer health tax, the rest of pay more for medicare. When Uber evades CPP premiums, the rest of pay more for GIS benefits (which ultimately will be paid to low-income retired gig workers). Ontario’s ‘benefits’ program would only ratify that rip-off of both workers and taxpayers.

Make no mistake: This approach to regulating gig work will do absolutely nothing for gig workers. It is all about a government, preparing to fight an election, wanting to pose as ‘supporting worker rights’. And it is about companies like Uber (and their allies) posing as being committed to treating gig workers ‘more fairly’.

In fact, the Ontario approach is worse than doing nothing, because it confuses the discussion about gig jobs, and will leave many workers thinking they now have ‘protection’ (when they don’t). At the end of the day, however, after accounting for their operating costs and unpaid time, they’ll still be left with well-below-minimum wages. Many will then give up in despair (indeed, the turnover of gig workers is already astronomical, often over 100% per year).

And this, in fact, may be the biggest threat to the viability of the gig sector. As labour markets tighten, platforms are finding it impossible to recruit and retain enough drivers under the existing employment system. Already Uber fares and wait times are soaring in many cities because of lack of drivers. The company continues to burn cash (even as revenues grow), and its share price has fallen by almost half over the past year. Investors have been willing to subsidize the company’s huge and cumulating losses (over $20 billion U.S. since its founding), in hopes of future stock-market gains. But their willingness to continue doing so is increasingly in question.

Ontario’s manipulative ‘minimum wage’ is an attempt to forestall genuine legislative and regulatory changes that I think are still coming. For example, workers at gig platforms already have the right to unionize through normal channels, and achieve genuine collective bargaining rights – they don’t need any special ‘law’, just clarification that they are indeed workers (whether employees or dependent contractors) not independent businesses. And several cases at the Ontario Labour Relations Board and other judicial bodies are challenging the attempts of gig platforms to evade normal employment responsibilities and protections.

In the meantime, these money-burning financialized platforms face bigger and more urgent threats to their future viability.

Jim Stanford is Economist and Director of the Centre for Future Work. He divides his time between Sydney, Australia and Vancouver, Canada. Jim is one of Canada’s best-known economic commentators. He served for over 20 years as Economist and Director of Policy with Unifor, Canada’s largest private-sector trade union.