Regulation of the Gig Economy on the Horizon

The gig economy is coming under greater scrutiny in Australia after online food delivery player Menulog announced that some of its delivery riders will be reclassified as employees rather than contractors. This change will entitle those delivery riders to the minimum wage, sick leave, annual leave, workers’ compensation and superannuation.

‘More businesses hiring independent contractors through the gig economy is expected to put downward pressure on the wages of Australian workers,’ said IBISWorld Senior Industry Analyst Yin Yeoh.

Measuring the gig economy

Popular platforms such as UberEATS, Deliveroo and Airtasker have made the gig economy a well-known aspect of the Australian labour landscape. However, the exact nature of the gig economy remains debatable. In general, workers are included in the gig economy if they typically lose a portion of their earnings to an intermediary manager, such as the Uber platform. In addition, gig workers usually don’t control their own brand, and are contractually prevented from working directly with clients outside of the intermediary platform’s control.

‘In August 2020, almost one million independent contractors worked in Australia, accounting for 8.2% of the total workforce. However, only a fraction of these workers are part of the gig economy, with many being self-employed freelancers,’ said Ms Yeoh.

Industries in the gig economy

The two most notable industries in the gig economy are the Online Food Ordering and Delivery Services industry, and the Ridesharing Services industry. Both have displayed significant growth over the past five years, at 43.8% and 20.4%, respectively. These industries have disrupted existing systems, with the Taxi and Limousine Transport industry declining at an annualised 7.2% over the past five years and the Restaurants industry being led to pay commissions of up to 35% to Uber and Deliveroo.

‘Ridesharing revenue is expected to decline by 6.6% in 2020-21, while revenue for online food ordering and delivery services is expected to grow by 12.1%,’ said Ms Yeoh.

Services have been increasingly outsourced across the economy over the past decade, leading to more Australians hiring household cleaners, gardeners, removalists and people to do other miscellaneous tasks. The gig economy has captured much of the demand for this small-scale outsourcing through accessible platforms such as Airtasker and Freelancer.

‘Demand for gig workers has been widespread, both from businesses looking for short-term staff and from households looking to outsource basic chores. As the gig economy’s scale is rising every year, greater regulation has become likely,’ said Ms Yeoh.

Regulating the gig economy

In recognition of the rising influence of the gig economy, the Federal Government’s Senate Select Committee on Job Security is currently investigating the impact of precarious employment on the economy, wages, social cohesion and workplace rights.

‘Digital platforms have helped get more people into the workforce. These platforms have also enabled work to become more flexible, which is a key concern for younger generations. However, gig economy workers are overrepresented in financially vulnerable population segments, including recent immigrants, students and the formerly unemployed,’ said Ms Yeoh.

Gig work can be problematic from a social point of view. As more businesses hire independent contractors through the gig economy, this trend puts downward pressure on the wages of Australian workers.

‘As the gig economy expands, the traditional idea of a stable, permanent, full-time, paid job will be increasingly out of reach, as jobs are being replaced by contract gig work. Casualisation and contract-based work is expected to have contributed to wage stagnation in Australia over the past decade,’ said Ms Yeoh.

However, risks are associated with regulating the gig economy, which relies largely on providing cheap services. In one case, major online food-delivery platform Foodora exited its Australian operations in August 2018, amid a dispute about the classification of its workers and worker underpayment.

‘Legislating the minimum wage for industries in the gig economy could potentially shake up the subcontractor business model, profitability and potentially gig workers’ jobs. For instance, if delivery costs increase for food delivery, consumers will become more likely to pick up food from restaurants instead. While the number of gig economy workers is relatively small now, it is increasing and decisions about how to regulate the gig economy will have profound flow-on effects,’ concluded Ms Yeoh.

IBISWorld reports used to develop this release:

For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Jason Aravanis
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647

Email: mediarelations@ibisworld.com