Gig economy startups are getting bigger. But can they get better?

Photo by iStock/Oleh_Slobodeniuk

The gig economy may seem relatively new, but it is actually centuries old. And in many parts of the world, it is grueling.

For example, an “informal” worker in Mumbai wakes up before 5:00 a.m. to get her children ready for school and prepare and cook food for the home-based lunch service. At 9:30 a.m., she heads to her first employer’s house to prepare the food there. She spends hours cooking and cleaning in three or four different houses before getting home in time for her children to return from school. For many workers, this was a typical day, and has been the case since long before Uber was introduced.

This informal work style, which offers flexibility but little to no worker protection, is nevertheless experiencing rapid growth thanks to the proliferation of digital technologies, the phenomenon of location-independent work, the globalization of the economy and numerous other trends.

Companies seeking efficiency to optimize costs see an advantage in hiring gig workers over full-time employees. And it’s no surprise that tech company founders and investors continue to capitalize on this huge and growing opportunity. In the last two years alone, some 35 venture-backed companies have raised nearly $800 million in gig economy technologies. As both participation and demand grows in developing countries, companies and investors are increasingly turning their attention to these countries.

But companies should not just think about how to grow the gig economy, they should seize the opportunity to improve it and make the informal economy less grueling for the workers who depend on it around the world.

New technologies, same problems

The global workforce is growing, and that is creating exciting opportunities for gig economy companies. But looking at how things have developed so far, the question naturally arises: Could we protect workers better? Here are just a few facts that suggest we can – and must – do better:

• A recent survey of gig drivers in India found that 83% work more than 10 hours a day. Despite these long working hours, 72% said they struggle to meet basic household expenses.

• In Argentina, female gig workers earn only 68% of what their male colleagues earn.

• In Venezuela, gig workers earn less than minimum wage to train AI models in a multi-billion dollar market.

Clearly, governments in some parts of the world have not done enough to ensure that workers are treated fairly. Whether they will do more remains to be seen.

But startup founders should have a sense of responsibility towards workers when building and launching gig economy platforms in developing countries. They can help prevent the problems of the traditional economy from spreading to the technology-enabled gig economy – and they must take on this task. In doing so, they not only help workers, but also increase the chances of gig platforms succeeding.

What can gig economy companies do?

A platform that only connects people with work will not succeed – at least not in the long term. Gig economy companies must also ensure that employees on their platforms are happy and successful. This gives gig platforms an advantage, reduces turnover and builds a brand that represents trust.

With that in mind, here are five pain points in the gig economy that need to be addressed, along with examples of companies investing in the long-term success of their gig workers:

Accreditation. Trainees have traditionally been recognized for their hands-on work experience. We need to rethink this concept for the gig era and give workers recognition for their skills and achievements. Platforms have tried to do this through reviews and star ratings, but this is often not transferable to external opportunities. If workers can list “Cisco Certified” and “SalesForce Certified” on their resumes, gig platforms can do something similar. This would not only strengthen a company’s brand, but also associate the platform with high quality that customers value.

Payments. The gig economy includes family-run businesses, including tour operators, transportation companies, or small inns and AirBnBs that engage on gig platforms. These small business owners need a variety of business solutions to succeed. They need solutions that provide them with digital tools that not only allow them to process and reconcile payments, but also comply with all regulatory requirements and seamlessly manage bookings across multiple gig platforms. By integrating the payment stack, small family businesses can easily reconcile bookings they receive across multiple platforms, including WhatsApp and word of mouth, reducing cancellations and fraud.

Credit. The informal sector is often ignored by formal banking institutions due to the lack of traceable cash flow and formal accounting, leading to gig workers’ high need for credit. Without these funds, many workers struggle to pay for daily operating expenses such as fuel and other necessities. In India, platforms that leverage a large gig workforce are partnering with lending company KarmaLife to offer microloans to gig workers. Such models require strong partnerships where the platform shares the workers’ vast digital footprint with fintechs that know how to originate and structure credit solutions.

Insurance. Informal and gig workers have little to no job security, and their earning potential is variable and uncertain. Family emergencies or the seasonality of certain jobs, for example, can cause workers’ income to fluctuate wildly. Offering them insurance, especially in case they are sick and unable to work, is a no-brainer. It creates more security for workers and goes a long way toward building loyalty on a platform. Workers are more likely to stay with a gig platform for the long term—rather than jumping from one platform to another—if it offers a safety net. This leads to better employee retention and customer service. But founders should learn from the mistakes of others: tying access to health insurance to the number of hours worked, as Swiggy tried to do with gamified insurance (where coverage is entirely dependent on meeting various performance goals), is a counterproductive way to build loyalty.

Higher qualification. Apna, a job tech platform and one of the unicorns of the Indian startup market, realized early on that simply connecting workers with jobs is not enough because workers want to grow and build long-term careers. Companies should take Apna’s lead and provide opportunities for their workers to upskill. This platform leveraged the power of its own large community of workers and created opportunities for peer learning. This increased engagement and had a network effect for the platform, with workers sharing tips on finding jobs, improving their English skills, and acquiring other skills.

These are just a few examples of how gig platforms can reach their full potential.

The global gig economy is not only here to stay, it’s expected to grow to nearly $2 trillion by 2031. This is due to the global job shortage and workers’ increasing demands for flexibility. But there’s no reason why the growth of this new, technology-enabled economy shouldn’t be beneficial for both workers and companies.

The traditional economy may benefit many people, but far too many people around the world are excluded from prosperity or treated unfairly on a daily basis. The new, digital gig economy does not have to reflect these problems.

On-demand work can be a far better experience for workers than it is today, but only if gig platform founders start considering what those workers want. Founders should form partnerships where necessary to give workers tools to achieve both short-term and long-term success.

Those who take this path will build their companies into strong, trusted and successful brands. Those who do not will simply be providing a Band-Aid to hundreds of millions of workers around the world who need much more.

Read more stories by Rahil Rangwala.