The Sharing Economy and the Rise of the Freelancer

The past five years have seen the global rise of the sharing economy and, particularly in Australia, the market is dominated by Airbnb and Uber. [1] Further abroad, the sharing economy encompasses nearly every aspect of the service industry; from dog walking (Pawshake) to home cooked meals (EatWith) and everything in between. While the sharing of goods and services is nothing new, we are now providing our goods to complete strangers via the phones in our pocket. The age-old adage “don’t get into a stranger’s car,” and one too many Law & Order SVU episodes means that I, like most people, have a healthy scepticism when talking and engaging with strangers off the street; so why has it suddenly become acceptable to get into a stranger’s car? And what does it mean for the traditional firm-based model of labour supply?

The sharing economy is based on a peer-to-peer or a collaborative consumption model, [2] whereby individuals are able to sell their services directly to consumers through a central coordinating platform, i.e. an app that bypasses traditional providers. [3] The convenience and low price offered by Uber and other ride sharing companies is having a huge impact on the taxi industry. Airbnb is not only increasing the supply of accommodation alongside traditional hotels, but is also offering alternatives for every price level. This makes the sharing economy interesting in that it is not simply “generating purely incremental economic activity” but is changing the way we consume our goods and services. [4]

The benefits of the sharing economy are evident— it cuts down waste, enables the community to better use resources, enhances competition and provides alternatives at lower prices. You need not look further than a grid-locked Melbourne on a Friday night, with cars carrying one passenger. Further, these peer-to-peer sites also exist in a regulatory grey area and have created the notion of the “collarless worker.” This, I believe, is the main problem with the sharing economy.

While the drivers of Uber provide their services under a company’s brand via their app, they are not employed in the traditional sense—they are a new type of freelancer. So what’s the problem of having a workforce made up of freelancers? While it is a flexible working environment, there is very little tethering workers to a safety net. These collarless workers “have no set hours, no guaranteed wages, conditions or entitlements.” [5] If this is just a job aimed at supplementing income, however, then it is understandable. On the other hand, flooding the market with “micro-suppliers” [6] puts downward pressure on wages. Essentially, if this is someone’s primary occupation they would be better off pursuing the traditional model within a Taxi company, where they get access to the full range of rights and benefits: superannuation, sick and holiday leave, overtime, and guaranteed wages. [7]

As Shelby Clarke (founder of RelayRides) articulates, “Where do we land on the spectrum between employment and exploitation?” [8]

The other interesting aspect of the sharing economy is its ability to overcome society’s natural distrust of strangers. Purchasing goods and services through the “traditional” route ensures society is protected “by a framework of rules that guarantee my safety and legal rights.” [9] These apps have very little oversight in terms of background checks and yet they are popular. So how did they gain our trust? The big factor is self-regulation through signalling mechanisms, often in the form of a ratings system—where both the consumer and provider rate each other. These companies operate only if they have strong online reputations and this ensures bad actors are ejected from the market. Three years ago the idea of strangers renting out their possessions seemed crazy, but is this still the case? To an extent. As Monash Professor Stephen King states, “relying on the market and reputation to sort out consumer protection issues can lead to lots of damage along the way.” [10] This is why the government, regulatory authorities and I feel that there is room for a regulatory structure within the sharing economy.

It is important to note regulation could kill the sharing economy, so we have to determine when to intervene. Basic economics states the best time to intervene is when there is market failure and externalities exist. Importantly, issues arise when it comes to accessibility standards for the disabled within the sharing economy—“Australians with disability have a fundamental right to live active engaged lives … and should be able to participate fully in our community.” [11] In particular, the hotel industry has called for action to ensure accessibility is promoted and maintained in regard to Airbnb’s introduction in the market. Is it therefore reasonable to request such stringent regulations? If I’m organising a trip using www.couchsurfing.com, I’m not expecting Buckingham Palace. [12] It is not going to be viable to require every listing on Airbnb to have disability access; it would simply kill the site. However, I don’t believe that the market will necessarily fix the problem itself. When it comes to disability access, the costs of having wheelchair access remain high. I believe the government and regulatory authorities have a role to play in ensuring that accessibility is promoted and maintained as these new app-based providers emerge.

A regulatory structure is needed and these peer-to- peer sites “cannot grow as regulatory cowboys.” [13] However, the regulatory structure does not necessarily have to be the one that was initially designed for firms in regulated industries. In particular, the government needs to separate genuine concerns from claims made by traditional firms who fear losing their revenue to the sharing economy.

Steph recently graduated from a double degree in Arts and Economics. She is particularly interested in economics as it seeks to explain the complex processes of human behaviour.

[1] Federal Opposition Discussion Paper, Sharing the Future: Getting Policy right in the Age of the App, Canberra, 24th March 2015, 2.

[2] Ibid.

[3] Ibid.

[4] Georgios Zervas et al. The Rise of the Sharing Economy: Estimating the Impact of Airbnb on the Hotel Industry, Boston University School of Management, No.2013-16, 2.

[5] Federal Opposition Discussion Paper, Sharing the Future: Getting Policy right in the Age of the App, Canberra, 24th March 2015, 2. and Georgios Zervas et al. The Rise of the Sharing Economy: Estimating the Impact of Airbnb on the Hotel Industry, Boston University School of Management, No.2013-16, 2.

[6] Ibid.

[7] Joel Stein, Some French Guy Has my Car, Time Magazine, 9th February 2015, 33.

[8] Ibid.

[9] Ibid.

[10] Professor Stephen King, The Three Regulatory Challenges for the Sharing Economy, Monash University http://monash.edu/news/show/the-three-Illus.regulatory-challenges-for-the-sharing-economy, viewed 23/08/2015.

[11] Federal Opposition Discussion Paper, Sharing the Future: Getting Policy right in the Age of the App, Canberra, 24th March 2015, 2. and Georgios Zervas et al. The Rise of the Sharing Economy: Estimating the Impact of Airbnb on the Hotel Industry, Boston University School of Management, No.2013-16, 2.

[12] Professor Stephen King, A Caring, Sharing Economy?, Monash University Business School http://business.monash.edu/news-and-events/news/a-caring,-sharing-economy, viewed 28/08/2015.

[13] Professor Stephen King, The Three Regulatory Challenges for the Sharing Economy, Monash University http://monash.edu/news/show/the-three-Illus.regulatory-challenges-for-the-sharing-economy, viewed 23/08/2015.

Illustration: Mariah Arvanitakis