How the gig economy could suffer from a labour shortage – but workers may be better off

The long-term impact of COVID-19 on the economy will not be clear for some time. But in the UK, the easing of pandemic related restrictions has coincided with significant labour shortages and the driving up of wages. Statistics show that wages have risen 7.4% in the past year, and the number of job vacancies has continued to rise (up to 953,000 in July 2021).

Those vacancies have appeared amid continued travel restrictions from abroad, and the prolonged furlough scheme, which is keeping over 1 million people tied to employers that don’t have work available for them.

The wage increase has been most noticeable in sectors with the highest demand such as hospitality, haulage and distribution, where trained staff have become more valuable – and perhaps, as a result, more selective about the jobs they do.

Zero-hours contracts, for example, may become less appealing when people have the choice of jobs with guaranteed shifts. There is a similar impact on the related gig economy, in which workers are paid as and when they work, often for digital platforms like Uber or Deliveroo. Again, workers may decide that a more traditional and regular income is preferable.

This could become a major problem for these firms, as their business model depends on workers not being paid while they are waiting between fares or deliveries. Uber drivers may have recently won worker rights, but even this does not entitle them to earn while they are logged on and available rather than driving a passenger.

Yet high customer service (and satisfaction) levels depend on enough drivers being available when a booking arrives, or delivery riders when a takeaway order is made. So to attract and retain drivers and riders, firms will need to pay more.

There is evidence that is indeed happening. Uber’s cut from each fare has fallen for the same period from 25.8% last year to 18.7% this year, as they offer increased incentives to attract drivers.

But it is likely customers will end up covering this cost with increased fares as Uber attempts to reduce its losses by the end of the year. All of the major “taxi app” platforms are currently making significant and continuing losses, so it seems likely that significant price increases for passengers will be unavoidable.

Yet consumers can be highly sensitive to price rises, which may in turn lead to a drop in demand as users choose other forms of transport. When Uber first appeared in London, low fares increased customer demand to such an extent that driver numbers (across all firms) increased from 65,000 to 120,000, with Uber claiming 45,000 of them. Increased fares may reverse this trend.

Supply and demand

It is likely that labour shortages will drive costs higher and service levels will decline. Takeaway food delivery in particular requires high availability of riders to avoid food arriving cold. The need to reheat a burger and chips after delivery is hardly an appealing prospect.

For ride hailing, the challenges over labour shortages and price sensitivity may mean it becomes impossible to justify the high valuations accorded by stock markets and venture capital investors.

One of the major investors in Uber, which holds over 20% of the shares, is rapidly reducing its exposure, selling a third of their shares over the next few months, suggesting they they may be losing faith in ride hailing to make profits.

In this and other sectors, labour shortages in the UK may well be here to stay. Brexit has made access for unskilled migrant workers more difficult, as the current rise in British “staycations” and the extra pressure it has placed on the domestic hospitality industry has shown.

But while labour shortages are bad for output and customer service, they may well help to improve improve pay and conditions for some of the lowest paid in society. Among them, gig workers and those on zero hours contracts may benefit the most.

John Colley does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.