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Picture Carrie, who is great at assembling furniture. Justin, meanwhile, just bought a new closet but struggles to set it up. Both register on TaskRabbit, an online platform that matches Carrie’s underused skills with Justin’s need. This is the idea of the sharing economy: enabling people to maximize the use of their “idling capacity,” such as a spare room, an underused car, or some time with a power drill on hand.[i]

Does the sharing economy revolutionize the way we consume? It encourages sustainability by sharing and exchanging rather than owning, and it has the potential to reduce social inequality.[ii] [iii] Critical voices emphasize, however, the risk of labor exploitation and discrimination.[iv] [v] An appropriate regulative framework is necessary to enable the potential of the sharing economy while mitigating its risks.

The sharing economy, collaborative consumption or the platform economy – different names, same idea: online platforms that facilitate peer-to-peer business transactions.[vi] On the one hand, there are for-profit businesses like Airbnb, Uber or TaskRabbit. On the other hand, non-profit platforms encourage social interaction and promote sustainable consumer behavior. [vii] Examples include Food Swap, a network to share great food and a good time with other foodies or Freecycle Network, a place to share, gift and reuse goods for free. They are all premised on the idea of sharing or renting, instead of owning.

Trusting strangers

A key aspect of the sharing economy is social trust, using online rating and reviewing systems. This engineered trust encourages the exchange of goods and services between strangers, and often enables human interaction. Rachel Botsman even proposed the concept of reputation capital as a new social currency to determine access to collaborative consumption.[viii] When Carrie receives 120 good reviews on TaskRabbit, for example, it most likely indicates that she is a skilled handywoman. She acquired a strong reputational capital and in return Justin, as well as other users, are more likely to trust her with assembling their furniture.

Digital platforms can, however, lead to racial discrimination. According to data collected from Airbnb in New York, white hosts can charge approximately 12 percent more than black hosts for a property with similar features. Black hosts also incur a relatively larger price penalty for a poor location score.[ix] In the case of Airbnb, the prominence of the profile picture of the hosts and guests likely supports racial discrimination. Hence, discriminatory practices can be linked to the platform design.[x]

At the same time, the sharing economy can allow for flexible work schedules and greater inclusion in the labor market as it creates new, easily accessible jobs that can particularly benefit long-term unemployed people.[xi] [xii] On the consumer side, social integration may increase. Low income consumers who cannot afford their own car, for example, can now call upon peer-to-peer rental markets instead. A significant improvement in consumer welfare can be observed particularly for the below-median income segment.[xiii] The sharing economy may also democratize access to a higher standard of living and contribute to social equality by encouraging a shift from ownership to renting and sharing. In return, this could save resources and promote more sustainable consumer behavior.

Worker satisfaction within the sharing economy seems to be strongly determined by the degree of financial dependence on platform labor. While the majority of workers consider it a supplementary income, 25 percent earn more than half their income as independent contractors.[xiv] The advantages of the sharing economy are relatively larger for those who already sustain a good standard of living and engage in the platform economy for additional income.[xv] Depending on irregular work as your primary source of income, however, can make it difficult for workers to make ends meet. Low pay rates, exclusion from social protection and job insecurity are a serious concern for independent contractors.[xvi] During a global protest of Uber drivers in spring 2019, the protester’s banners read, “billions to bosses, poverty pay for drivers.”[xvii] Their claim stresses the need to develop a regulative framework for the sharing economy.

Regulating the sharing economy

First, the status of platform workers must be defined clearly to ensure fair working conditions. A worldwide debate centers on whether platform workers are independent contractors or employees. While Australian law classifies Uber drivers as independent contractors, France legally reclassified them as employees.[xviii] [xix]

All workers, legal status notwithstanding, are entitled to appropriate labor rights. Two states in the U.S., New York and California, were among the first to pass bills ensuring independent contractors minimum pay and basic social protection.[xx] European countries such as the United Kingdom are following this lead.[xxi] While national policies vary, the key issue must be to extend social protection to this new group of workers. The debate is not yet settled, however, and might even call for a new definition of labor within the European Union.

Second, platform providers and policy makers alike must address the problem of racial discrimination. As a first step, employment discrimination laws should be extended to independent contractors, allowing them to sue their employers for discriminatory practices based on factors such as race, sex or religion.[xxii] Platform providers should also mitigate potential discrimination by adjusting the platform design to create a more level playing field for people of color. This can be achieved, for example, by a platform design that draws the customer’s attention more towards a worker’s reputation instead of his profile picture. Next, data protection must be ensured for consumer and workers, especially concerning location and contact information.

Finally, national statistical agencies and independent policy advisers should provide further research and more reliable data in order to define the legal status of platform workers, develop appropriate regulations and sanction policies and increase transparency within the sharing economy. This way, the risks of exploitation can be confronted effectively while enabling the potential of the sharing economy.[xxiii]

The sharing economy continues to bear risks such as labor exploitation and racial discrimination. These problems must be confronted with an effective regulatory framework at both EU and member state levels. Nonetheless, the sharing economy has tremendous power: to connect people, reduce the ecological impact of our economic system, and foster a shift from hyper-consumption and individual ownership to sharing and reusing goods. When regulated correctly, the sharing economy can help mitigate the negative effects of market capitalism and reshape our socio-economic system.

References

Photo by Twitter: @jankolario on Unsplash

[i] Rachel Botsman, “The case of collaborative consumption,” TEDxSydney, 2010, accessed 17 February 2020,

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[ii] Botsman, “The case of collaborative consumption.”

[iii] Samuel Fraiberger and Arun Sundararajan, “Peer-to-Peer Rental Markets in the Sharing Economy,” New York University, 2016, accessed 18 February 2020, https://www.hbs.edu/faculty/conferences/2016-dids/Documents/Fraigerber_Sundararajan_March2016.pdf.

[iv] Juliet B Schor et al., “Dependence and Precarity in the Platform Economy,” Boston College, 2017, accessed 15 February 2020, https://pdfs.semanticscholar.org/7b63/572539245ba251d42a11b27e4cd7a385f75c.pdf?_ga=2.89461394.849348073.1582207872-994134628.1582207872.

[v] Benjamin Edelman and Michael Luca, “Digital Discrimination: The Case of Airbnb.com,” Harvard Business School, 2014, accessed 15 February 2020, https://www.hbs.edu/faculty/Publication%20Files/Airbnb_92dd6086-6e46-4eaf-9cea-60fe5ba3c596.pdf.

[vi] Rudy Telles, “Digital matching firms: A new definition in the “sharing economy” space,” Economics and Statistics Administration No. 01‐16, U.S. Department of Commerce (2016): 3-4.

[vii] Juliet B Schor and William Attwood-Charles, “The “sharing“ economy: Labor, inequality, and social connection on for profit platforms,” Boston College, 2016, accessed 20 February 2020, https://doi.org/10.1111/soc4.12493.

[viii] Rachel Botsman, “The currency of the new economy is trust,” TEDGlobal, 2012, accessed 17 February 2020,

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[ix] Edelman and Michael Luca, “Digital Discrimination: The Case of Airbnb.com.”

[x] Edelman and Michael Luca, “Digital Discrimination: The Case of Airbnb.com.”

[xi] Schor and William Attwood-Charles, “The “sharing“ economy: Labor, inequality, and social connection on for profit platforms.”

[xii] Botsman, “The currency of the new economy is trust.”

[xiii] Fraiberger and Arun Sundararajan, “Peer-to-Peer Rental Markets in the Sharing Economy.”

[xiv] Chris Forde et. al., “The Social Protection of Workers in the Platform Economy,” European Parliament, Policy Department A: Economic and Scientific Policy, 2017, accessed 20 February 2020, http://www.europarl.europa.eu/RegData/etudes/STUD/2017/614184/IPOL_STU(2017)614184_EN.pdf.

[xv] Edelman and Michael Luca, “Digital Discrimination: The Case of Airbnb.com.”

[xvi] Schor et al., “Dependence and Precarity in the Platform Economy.”

[xvii] Julia Kollewe, “Uber drivers strike over pay and conditions,” The Guardian, 2019, accessed 22 February 2020, https://www.theguardian.com/technology/2019/may/08/uber-drivers-strike-over-pay-and-conditions.

[xviii] Helene Fouquet, “Uber Drivers’ Self-Employed Status `Fictitious’, France Rules”, Bloomberg, 2020, accessed 13 April 2020, https://www.bloomberg.com/news/articles/2020-03-04/uber-drivers-are-employees-france-s-top-court-rules.

[xix] Paul Karp, “Uber drivers are not emloyees, Fair Work Ombudsman rules”, The Guardian, 2019, accessed 13 April 2020, https://www.theguardian.com/technology/2019/jun/07/uber-drivers-are-not-employees-fair-work-ombudsman-rules.

[xx] Patricia Barnes, “Proposed law would protect independent contractors from employment discrimination and wage theft,” Forbes, 2019, accessed 25 March 2020, https://www.forbes.com/sites/patriciagbarnes/2019/11/13/proposed-federal-law-would-extend-protection-from-discrimination-to-independent-contractors/#7f33cc2844a5.

[xxi] Fouquet, “Uber Drivers’ Self-Employed Status `Fictitious’, France Rules.”

[xxii] Barnes, “Proposed law would protect independent contractors from employment discrimination and wage theft.”

[xxiii] Forde et. al., “The Social Protection of Workers in the Platform Economy.”