The pros and cons of the gig economy in developing countries | Experts’ Opinions

According to a recent World Bank report, demand for online gig work is rising rapidly in developing countries. The ‘gig economy’ which involves a workforce of freelancers and part-time employees rather than full time workers, now accounts for approximately 12% of the global workforce, a significantly higher figure than previously estimated. The growing popularity of this model brings both advantages and disadvantages for developing countries. Let’s take a look at these.

DevelopmentAid: What are the pros and cons of a rising gig economy for developing countries?

“With the significant increase in the contribution of the gig economy to the workforce in some regions of these countries, this pattern appears particularly important in developing countries, especially the poor ones. Gig economy jobs are evolving today due to the number of catalysts that benefit both those job-seekers with a higher education and have specialized skills and those who have some assets that help them to generate income, such as delivery workers. The importance of this model is rising due to the high rates of poverty in these countries and high unemployment rates, especially among youth and university graduates, and the lack of full-time jobs in formal sector institutions. The importance of this model is also apparent in its contribution towards increasing the involvement of women in the income-generating process. For instance, women’s participation rate in the labor force in the Middle East and North Africa region reached 21% in 2023, according to the latest World Bank reports. Digitalization and the emergence of specialized online digital platforms have made it possible for a larger number of job seekers to engage in the gig economy, especially in view of the high availability of remote jobs which has opened the way for qualified workers in developing countries. This model also offers more flexibility and independence for job-seekers as well as the opportunity to increase and diversify their income (even for full-time workers) which is considered essential for a decent life, particularly since most developing countries suffer from low-minimum wages and the lack of implementation of this threshold in many cases. On the other hand, many developing countries suffer from the inefficiency of legal and regulatory schemes regarding the protection of workers’ rights, and limited application of minimum wage requirements, as well as the failure to obtain end-of-service benefits. These issues are expected to exacerbate in the case of gig economy workers who may also have less chance of gaining the benefits that full-time workers receive, such as private health insurance, work-related injury insurance, and participation in retirement funds. These challenges are also exacerbated in developing countries as a result of the fragility and volatility of their labor market in times of economic, political, and health crises such as wars, health pandemics, and hyperinflation among others.”

“Pros:

• Access to global markets. Developing countries gain access to global markets and can sell their goods and services internationally.
• Increased employment. Thanks to the gig economy, people can work remotely from home or anywhere else, which increases the number of jobs and reduces the unemployment rate, especially for women and youth.
• Productivity improvement. Remote work can improve collaboration and knowledge sharing between workers, resulting in increased productivity.
• Economic growth. A gig economy promotes innovation, attracts investment and aids infrastructure development.
• Cost reduction. Remote work allows companies to reduce the cost of renting office space which can lead to lower prices for goods and services.

Cons:

• Lack of infrastructure. Developing countries may lack the necessary infrastructure to support remote work, for example, a stable internet connection, access to technology, notebooks or even smartphones.
• Uneven distribution of wealth. Some companies may move to developed countries where the cost of living is lower and the skill level of employees is higher which will lead to lower living standards in developing countries.
• Staff turnover. Thanks to higher income in the IT sector, personnel may be washed out of real production.
• Lack of transparency and compliance. Sometimes, gig economy workers may be involved in criminal activity, such as fraud. Tax avoidance is also an issue that makes the gig economy seem less attractive for authorities.”

“Without a doubt, the gig economy will play a significant role in shaping our future, thanks to the advantages of this model that are linked to three factors – the internet, digital skills, and automation – all pillars of the digital economy. The gig economy offers benefits for professionals with strong self-management, commitment, and speed in completing specific tasks. It accelerates the process of decentralized employment. However, in developing countries, we shouldn’t view the gig economy as the sole solution for increasing employment rates. Instead, it should be seen as an alternative that can be maximized by a specific group of the population who have solid technical training and certified skills. From the perspective of digital businesses, platform services are disruptive because they democratize access to opportunities. As they continue to grow, countries must analyze and create conditions that foster, rather than inhibit, their innovation. There is still much to discuss regarding the gig economy, and perhaps the question that arises now is whether it will be the catalyst for digital inclusion in society or not.”

“A job is the set of tasks performed by an individual, generally assumed to be medium or long-term. A gig is also an individual’s job but it has a specific, usually short-term, duration. Neither situation is new but the increasing use of consultants, external and online workers by governments and corporations is relatively new in developing and developed countries, although development agencies have used these for many years. If managers consider using gig-based personnel, they must ensure they clarify the gig objectives and communicate these clearly to the applicants so that time, effort, and money are not wasted. The reasons for choosing a gig approach are to save money, start work quickly, and gain access to experience, skills and knowledge that are not readily available in the non-digital environment. It provides a much broader population of individuals from which to choose than might be available in an organization or immediate physical workforce. Those responsible must choose the right person for a gig so that they get what they need from it. Here the gig approach can have problems. Often it is difficult to verify if a person’s bona fide and nowadays people aren’t always diligent in providing accurate references for potential gig workers. The rise of Artificial Intelligence (AI) can make it difficult for recruiters to determine if the information received about a potential hire is true. Once the person is hired, they might utilize AI for their work, and it could be difficult to determine the veracity and value of the outcome. While the gig approach can be very useful and cost-effective, there are pitfalls, and the increasing use of AI could constitute a major barrier in ensuring that a high quality result is obtained.”

“Today, technology grants access to remote jobs which allows for more job opportunities. However, many of these jobs do not have Social Security coverage and nor are they truly formal. The International Labour Organization estimates that 70% of the world’s population lacks social insurance and that 90% of the workforce belongs to the informal sector. One of the reasons for this is that many MSMEs demand workers for specific tasks for sporadic times. In Spain, which is a developed country, the gig economy offers more pros than cons: i) flexibility, ii) recover jobs, iii) new business models, iv) income without entry barriers, v) scalable economic income. However, in those developing countries with economic stability, the situation would be the opposite – the gig economy would present more cons than pros, for example, precariousness and inequality, it would have a positive impact in the short term but medium- and long-term, this would be negative. The gig economy is not the most viable way to sustain a country’s economy in the long term as it would increase labor informality and tax evasion. A country with a higher degree of job security is better than a country with employment flexibility and Denmark knows that. In the end, who are the real beneficiaries? In a globalized world, the transnationals and technological corporations.”

“The gig economy is on the rise as more people find it necessary to participate in the new marketplace, and online platforms grow in size and numbers. There are multiple factors to explain this new phenomenon. First and foremost, the high degree of digitization in the entire economic universe has enabled the creation of an online marketplace beyond organizational and geographical boundaries. It was unthinkable a few decades ago to hire a marketing guru for your company’s engagement in a target market overseas with just a click of a button. The second factor, I think, is the global challenges at macro and micro levels, such as rising inflation and living costs, migration, the rigidities of labor regulations, and the general relative decline of the middle class in terms of wealth and income creation, pushing both the young and old into uncharted waters when offering their talent for a living. This is extremely important in developing economies since time and economic space are much entangled in a dynamic way in these countries. Necessities are harder and more imminent. Change vectors are stronger. Future generations and new perceptions constitute another significant factor. Life and work style perceptions have radically changed among generational strata across the globe. New workers want it for themselves, not for hierarchies. This is already well-documented. The third explanation refers to the demand factor. Companies and hierarchies are struggling to deal with extreme complexity with their finite resources now more than ever before. As human organizations seek new ways to adapt to complexity internally and externally of a unit of account (company), the demand for talent and experience will continue to grow exponentially. Even giant multinational companies are experimenting with ways to organize value-added and resources beyond conventional models and modes of operations, much like the gazelles of the savannah; microenterprises.”

See also: What to expect from the job market in 2024? | Experts’ Opinions

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