Future of Globalization, Rethinking Europe

The Rise of Digital Workers

As more digital freelancers find work through online labor platforms, taxing their income will become increasingly difficult.

Credit: Antony Oliver www.flickr.com

Takeaways


  • Digital freelancers -- with short daily and weekly working hours, much of it part-time -- are difficult to track.
  • As more of the global economy moves into the online world, governments will be hard-pressed to enforce their laws.
  • If the drift toward a more part-time, freelance economy is not managed carefully, it will undermine the future.

Digital freelancers are difficult to track. The “nano-ization” of their work, with short daily and weekly working hours, much of it part-time, is hard to capture statistically.

Therefore, official numbers may be undercounting. A study by McKinsey Global Institute found that the percentage of Germans working “independent” of the traditional employer-employee relationship is nearly twice that of the government estimate.

For example, the number of German clickworkers seeking gigs on the US-based platform Upwork grew by over 300% to over 59,000 in only the nine months before July 2017. Over 22,400 of those had earned income during July.

That’s just one online labor platform, there are dozens of them. Various studies have found that anywhere from 1-2 million Germans (2.3%-4.6% of all workers) are earning income on them.

Preliminary results from a recent survey commissioned by the Federal Ministry of Labour found 3.1% of workers earned income on these platforms over the previous year. Still another survey found that 22% of German respondents tried to find work via online platforms during the past year, with 4% managing to find work at least once a week.

Other studies have come up with different estimates, unleashing a confusing numbers game that makes policy design a challenge.

Tax evasion of digital platforms

Even more alarming, when these workers are hired by companies or individual clients located in other parts of the world, those clients often do not report to the German authorities how much income was paid to each worker. And the individual worker also likely is not reporting a lot of this “under the radar” income.

In a report written for the European Commission, Professor Gerhard Bäcker from the Universität Duisburg-Essen asked, “How can the incomes of clickworkers be recorded?”

That’s a tough question to answer. One Germany company, called Clickworker, claims to have 900,000 digital workers all over the world. How many of them are Germans, and how many of those pay taxes on their income? How many of the non-Germans pay taxes to their own governments? Nobody really knows.

Undermining the future

By my calculation, approximately €4 billion in annual income from these workers is conceivably going untaxed in Germany alone, and €600 million is not being paid into the German health care fund.

As more digital freelancers find work through these online platforms, that will further erode public funding for education, transportation, healthcare, the environment and more.

This is serious money. I have used Germany as an example, but the same challenges apply across Europe and in the United States. A lot is at stake.

If the drift toward a more “part-time, freelance economy” is not managed carefully, it will undermine the future. It will not only drain taxes from the welfare state, it also will unravel the employer-employee relationship, and the delicate balance of solidarity and co-determination between the different economic sectors.

And as more of the global economy moves into the online world, where Internet-based corporations can hide their transactions and control the massive amounts of big data that increasingly is becoming the “new currency” of the digital age, governments will be hard-pressed to enforce their laws regarding privacy, commerce, labor, taxes and worker surveillance against these global players.

A portable safety net

Germany, Europe, the United States and other developed economies must become better at collecting the data needed to track the activities of the companies, as well as the many different ways people are working today.

In addition, I have proposed creating a portable welfare net for all excluded freelancers. This could be enacted by expanding Germany’s “Hausgewerbetreibende” and “Künstlersozialkasse” programs.

These were created to provide healthcare and social security for self-employed workers who perform certain types of jobs from home, or who are artists, musicians and journalists.

As with regular workers, each business would pay its pro-rated share of social security costs, as would the worker. That money would be used to purchase the worker‘s safety net.

A number of European member states have a version of these programs that could be expanded to make sure no types of workers fall through the cracks.

By doing this, the developed economies would eliminate the “bogus self-employment” loophole, because if a business hires a freelancer it will no longer be able to evade paying its social security contribution.

And people who like flexible work wouldn’t have to sacrifice their social security to have it, and vice versa. That would greatly help prepare the labor force and the developed economies for the Digital Age.

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About Steven Hill

Steven Hill is a journalist and author of the recently published book Die Startup Illusion: Wie die Internet-Ökonomie unseren Sozialstaat ruiniert (www.Startup-Illusion.com). Find him at www.Steven-Hill.com and @StevenHIll1776

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