Should we be prepared to pay more for gig-economy services?

The Supreme Court’s ruling last month that a group of Uber drivers were not self-employed contractors but workers for the taxi-hailing app – and were thus owed all the associated rights of workers – demanded a response from Uber.

And this week the San Francisco tech firm’s response came. It has agreed to give its 70,000 UK drivers a guaranteed minimum wage, holiday pay and pensions, a decision that has been hailed by some campaigners as a victory for all gig economy workers.

“Other gig economy companies should take note – this is the end of the road for bogus self-employment,” said Mick Rix of the GMB union.

Yet it’s striking that Uber also said this week that it did not expect this change in pay and conditions to push up fares for UK customers, nor to impact on its profit targets.

And some of the drivers who originally took Uber to court argue that the company is still “short-changing” drivers because it turns out they will only be guaranteed the minimum wage under the new system when they accept a ride on the app, rather than from the moment they log on to it.

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Nor will Uber Eats couriers benefit from the new system.

This casts doubt on whether this is as significant a reform of Uber’s operating model as it has been presented to be.

But it also raises the question of whether it’s actually possible for app-based gig-economy companies such as Uber and Deliveroo to offer such cheap prices to customers and still pay their workers decently and provide them with acceptable working conditions.

Is there something inherent in the model that means one or the other must go?

Or could there be a responsibility on those of us who consume these services to change our expectations of ultra-low prices?

One app-based company, Just Eat, argues that it is possible to treat workers properly in the sector while delivering excellent value for customers.

In December the company, which merged with the Netherlands-based Takeaway.com last year, announced plans to offer full employment rights to more than 1,000 new UK couriers, bringing benefits including hourly wages, sick pay, and pension contributions.

Yet it should be noted that Just Eat’s model has historically been different from that of its big rival Deliveroo (which is planning a £1bn stock market float).

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Most of the orders placed through Just Eat’s app are currently delivered by takeaway outlets themselves.

It will also employ its riders not directly but through an agency, which some campaigners fear could undermine the company’s pledges to guarantee the status of these workers.

Nevertheless, Just Eat’s UK boss, Andrew Kenny, did (unlike Uber) accept in December that the benefits for newly-recruited UK delivery workers would increase the firm’s operating costs. He said the company still thought this was “the right thing to do”.

A complication when it comes to evaluating the sustainability of business models in this sector is that many app-based employers have traditionally been more concerned with building market share than delivering profits.

Many have burned through vast amounts of investors’ cash to provide services below cost in order to build up as large a customer base as possible.

Despite finally floating on the stock market in 2019, Uber still reported titanic losses of $6.7bn in 2020.

Deliveroo reported a loss of £224m for 2020.

The economic logic of this is the theory that the companies which emerge as dominant from this digital scramble will, ultimately, be able to set the prices at a rate which ensures strong profits.

Whether this is realistic or not, given that the barriers to entry in these markets may not be as high as some claim, is highly questionable.

Yet the dash-for-market-share strategy makes it hard to determine what the impact of treating workers more generously would be on the long-term viability of these companies.

Some have wondered whether consumers might have a role to play in driving behaviour change in these companies, perhaps opting for providers who treat workers better, in the manner of shoppers who buy Fairtrade chocolate and fruit.

But Professor Alan Manning, the eminent labour-market economist who was until last year the chair of the Government’s independent Migration Advisory Committee, thinks it’s impractical to expect people to choose the more expensive option.

“It’s going to be very hard to tell people they shouldn’t shop around for the best deal,” he told The Independent.

“My view is that it’s up to the regulatory authorities to set the framework within which this all plays out.”

One of the fundamental problems facing regulators in this area is balancing the stated desire of many gig-economy workers for flexibility with the desire of others for stability of earnings and better conditions.

If regulators and politicians compel these companies to treat workers like full-time employees, many could lose the flexibility they crave. Some Uber drivers also log on to other tax app platforms and would resent being effectively compelled by regulators to stick to one.

Professor Manning suggests the key to this puzzle might lie with a strong labour market, giving those app workers who want more stability and better conditions more choice of employment. This could either compel platforms to offer higher wages to retain staff, or, alternatively, they could merely become a repository for those who put a premium on flexibility.

“The best way to give workers power is to give them options – and that comes from a tight labour market,” he says.

“Running the labour market hot is really important. Even before Covid, wage inflation was very subdued – that’s an indication to me that you’re not running it hot enough.”

If that’s right, the focus of politicians when it comes to improving the welfare of gig-economy workers should not merely be on changing the law and clarifying regulation, but on ensuring a booming jobs market in the post-Covid economy.