California began 2020 by enacting a law that restricts the gig economy by limiting freelance work and attempting to push companies into offering full-time jobs with traditional benefits.

Defenders of the law, which could soon be imitated in New York and elsewhere, say that it will protect workers’ rights in the face of companies that try to give them the duties of employees, without any of the benefits, such as holiday and sick pay. But critics say the law unreasonably limits freelance workers and will place a costly burden on companies that are already struggling with thin margins.

In Europe, the EU and the Member States have also struggled to provide a fitting legal framework for those working via online platforms. The terms and conditions of each platform determine whether a worker is de facto employed or self-employed. Existing regulation for self-employed is often relatively clear but is often only enforced on a case-by-case basis. In Paris, for example, a court decided Deliveroo wrongfully classified a rider as self- employed, and we have seen similar cases in London, Madrid and elsewhere.

These cases demonstrate that society is still struggling to get to grips with the diversity of forms of work that characterise the gig economy. They also suggest that the only long-term solution might be an entirely new social contract.

Drivers of change

Freelance workers have been around for centuries. Indeed, ‘freelance’ is a 19th Century term for a medieval mercenary soldier whose lance was not pledged to the service of a lord. It eventually came to refer to someone who was self-employed. However, the Fourth Industrial Revolution, an era of technological convergence that began in the 2000s, supercharged that.

The Fourth Industrial Revolution is, according to McKinsey, “happening ten times faster and at 300 times the scale, or roughly 3,000 times the impact” of the original Industrial Revolution in the late 18th Century. In the 21st Century, small companies could use digital tools, ubiquitous connectivity and cloud storage to rapidly scale their businesses and tap into a smartphone-enabled workforce who could be assigned each task, with complete flexibility.

For the business, the benefit was not paying for idle time and they have gained a better access to a wide array of skills. As the cost of managing and maintaining a workforce increased, companies have been increasingly able to outsource some of the risks. On the other hand, they offered their workers a freedom and flexibility they could not get from typical employment. That has proved popular with young people, retirees and people who are unwilling to work in hierarchical structures, or who are unavailable to work full-time, such as those with responsibility for childcare.

The gig economy is booming

Flexible working has proved popular. In the US, the number of “gig workers” has increased by six million since 2010. The share of independent workers at US businesses in 2019 was 16%. In the UK, around one in 10 people worked flexibly in 2019. In some countries, by some estimates, up to 30% of the working-age population may be involved in flexible labour, whether working full-time in a freelance role or moonlighting outside their main role.

The numbers are likely to keep growing as employees come to value flexibility, but the system isn’t without downsides. People working via online platforms are often classified as self-employed, but face vastly different working conditions, and in some cases they may in fact be closer to an employee than anything else. This matters because freelancers are responsible for organising their own social protection such as protection against loss of income or health insurance. Due to their short term thinking or simply the lack of resources they may fail to do so.

But freelancers are not the only ones who are at risk. In the EU, 13% of workers who are self-employed, temporary or work part-time, lack legal or practical access to unemployment insurance and 8% have no sickness benefits. In South Korea, about half of all workers are outside the unemployment insurance system. In the US, the biggest concern for workers is finding adequate healthcare coverage.

Most economies are still built on the assumption that the ‘typical’ worker is a full-time employee of a single company. The system is not designed for part-time, temporary or self-employed workers who face an increasing number of labour market transitions. As a result, a massive pension shortage looms and we need financing mechanisms to support around one billion people who are expected to need reskilling by 2030. To avoid calamity, we need a New Social Contract.

Redressing the balance

There are three broad groups in any functioning economy: workers, employers and governments. Workers need training and a balance between income security and flexibility. Employers want access to talent, favorable regulations and stability. And governments want tax contributions to fund their activities, a functioning labour market and engagement with business.

Changes to the world of work mean that each group might also need to change what it puts into the system.

• Thus, workers must take ownership of their own employability, contribute taxes regardless of the form of work they are in, and commit to a lifelong career.

• Employers, for their part, must invest in training, provide opportunities for all types of workers, and place social impact at the heart of what they do.

• Finally, the government must facilitate training and skilling systems, enable diverse forms of work and competition, and protect all individuals in the form of transition support and benefits.

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These commitments will translate into actions and policies. The solutions will not be the same in every country or context. What is important, however, is that all labour market stakeholders – workers, companies and governments – engage in a good faith dialogue to identify the steps that need to be taken. It is important that each of them not only points to the other but takes their own responsibilities seriously.

Workers might need to take more responsibility for their own lifelong learning, for example. Meanwhile, the French government’s Compte Personnel d’Activité (CPA) shows how countries are rethinking financing of lifelong learning to support workers in this. It guarantees all employees the right to training, throughout their career, whatever their employment type. By paying into the account, companies provide the funding. This idea of attaching rights to an individual, regardless of status, could one day be applied to sick pay or holiday entitlement.

The world of work is changing amid a technological revolution. We need a new social contract in order to maximise the benefits and minimise the risks. Governments, employers and workers each have a role to play, and responsibility to fulfill. We must step up our efforts and dare to think big. Let’s address the challenges now, and not waste the opportunities of the Fourth Industrial Revolution.