Future of Globalization

Future of Work and the Survival of the Welfare State

More and more people are finding work in the digital economy, but more flexibility also means increased insecurity.

Credit: Stephen Finn Shutterstock.com

Takeaways


  • Europe, like the US, has seen dramatic changes in how people work.
  • More people are finding work in the digital economy“, via online Web- and app-based platforms.
  • Businesses especially like hiring self-employed workers because they save 25-30% on their labor costs.

Europe, like the United States, has seen dramatic changes in how people work. Compared to 15 years ago, many more people have part-time, temp or mini-jobs, or are self-employed.

While the number of full-time jobs has increased recently as the unemployment rate has slowly declined, far more of Europe‘s employment growth has come from part-time and temp jobs.

Even Germany, whose economy has fared better than most in recent years, has seen employment growth driven by part-time jobs, which have doubled since 2000 and now comprise about 27% of all jobs.

These shifts provide a hint about the “future of work,” and have enormous consequences for people’s well-being, as well as for the survival of the social welfare system.

In the latest phase of this trend, more people are finding work in the “digital economy,” via online Web- and app-based platforms.

As self-employed freelancers, some work from home, others out of the dozens of co-working spaces that populate London, Berlin, Paris, Amsterdam, Copenhagen, Hamburg, Munich and Stockholm. They don’t report to a regular workplace or employer, and have flexible work schedules, which is an attractive feature for many.

Gigging in Berlin

An acquaintance, Lutz, gave me a tour of his co-working space in his Neukölln neighborhood in Berlin, where he and a dozen other digital entrepreneurs rent out little cubicles, share office expenses and network.

Lutz and his colleagues are called “clickworkers” because they work over the internet for anybody who hires them for their particular specialty – software development, computer programming, data management, web and graphic design, translation, copy editing and more.

Many work for several different businesses at a time, constantly juggling their various “gigs.” Some do it full-time, others part-time, and a gig can last hours, days or weeks.

Bikes and smartphones

Other occupations are being “disrupted” too, including food delivery, house cleaning, apartment rentals and more. These industries use “platform workers,” which receive customers’ orders via their smart phones or over the Web.

One day as I was hurrying toward the U-Bahn station in Berlin, I was nearly run over by a Foodora deliverer on her bicycle. This “startup platform” offers bicycle delivery of food from restaurants, with the deliverers arranging their working lives around the “ding” of their smart phones when a job arrives.

These jobs are not a bike tour in the park; they are actually physically demanding and even dangerous. If the deliverer gets knocked off their bike and injured they are not entitled to any paid sick leave or lost wage compensation.

Many deliverers complain about low pay, particularly since these self-employed workers are not covered by Germany’s minimum wage law.

Job-seeking CEOs

Silicon Valley likes to call these workers the “CEOs of their own freelancing business,” but that’s just techno happy talk. In reality, many of them spend more time (unpaid) constantly looking for work than actually finding it.

They also don’t have any job security or much coverage from the social welfare system. Wages for these freelancers vary a lot by occupation – those in the tech industry are high, but other occupations barely earn minimum wage.

A closer look at Germany, one of the strongest economies in Europe, is revealing. Overall, the work force has become increasingly complex and “fissured,” with many workers moving between different types of work — from self-employed to temp, from full-time to part-time, to mini-job to “werkvertrag” subcontractor, and back again.

More workers now supplement their income with second, third and fourth jobs. Indeed, Eurostat says the number of Germans holding two jobs at once has nearly doubled in 10 years from 1.2 million to 2.2 million.

Businesses especially like hiring self-employed workers because they save 25-30% on their labor costs. Employers don’t have to pay for these workers‘ health care, retirement pension, sick leave, vacations or injured worker and unemployment compensation.

Self-employed women are not entitled to maternity leave. The self-employed in Germany, like in most European member states, are legally required to pay both the employers‘ half and their own half of the health care contribution.

In Germany, that amounts to a minimum of 14.6% out of their wages. And the self-employed are responsible for saving for their own retirement as well, with no contributions from employers like regularly-employed workers receive.

Downsides of flexibility

Nevertheless, many self-employed workers are attracted to the flexible scheduling, at least at first. But after a while many grow weary of this new kind of grind. A European Commission report found that the self-employed in Germany are 2.5 times more at-risk of poverty than salaried workers.

A study by the “Wissenschaftliches Institut der AOK” found that among low income workers, solo self-employed Germans spend an astounding 46.5% of their income for health insurance.

Not surprisingly, one study found that about half of self-employed workers would accept regular employment if decent jobs were available.

Roman, a digital media whiz and videographer, eked out a living as a self-employed freelancer for nearly 10 years.

“It was really hard to do,” he says. “It’s OK to try when you are in your 20s. But then you hit your 30s and you want more security, more income.”

Now Roman is 35 and thankful that he was able to find a stable job at an engineering university near Dortmund. He says the virtues of “flexibility” are way overrated. He has many friends who are still struggling freelancers, making €100 here, €100 there, and getting older and worn out.

“Hartz” refugees

This reality raises a fundamental question that has long plagued Germany, going back to the Hartz reforms of the Schröder years. Those reforms, which were enacted when Germany was suffering from unemployment rates as high as 11% — the highest since the Nazis were in power – greatly expanded the number of “Ich-AG” solo self-employed mini-businesses.

But that just delayed the hard task of figuring out how to create not only an adequate number of jobs but also good quality jobs. Germany has been kicking that can down the road ever since.

Many of these solo self-employed workers are the so-called “Hartz refugees,” that now nobody knows what to do with.

With so much blurring between different job types and categories, enforcement of labor laws has become more difficult.

Various investigations have found widespread abuse, with businesses treating many types of workers as self-employed in order to avoid paying social security contributions.

This loophole is called “bogus self-employment,” and it allows these employers to wiggle out of legal obligations and robs many workers of their rights. So while about 10% of German workers are classified as “self-employed,” the impact on the economy extends well beyond that.

Further complicating matters, the digital economy makes it much easier to locate and temporarily hire self-employed freelancers instead of permanent workers. That further reduces economic stability, yet many German leaders I have spoken to downplay this threat.

They say that click- and platform workers do not make up enough of the overall German labor force to worry about it.

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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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