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The Uberization of Retirement: What does the Gig Economy Tell Us About Failing Pension Systems?

30 Jun 2017


The Uberization of Retirement: What does the Gig Economy Tell Us About Failing Pension Systems?
The gig economy and its innovative approach to employment is attracting increased attention in policy debates. Often assumed to be the purview of younger, tech-savvy generations, these new forms of work are however increasingly being adopted by seniors. This piece explores why more and more older people are moving into the gig economy and what this tells us about the state of traditional pension systems in a changing world.

Saskia Sickinger has a Master's degree in Development Administration and Planning from University College London (UCL). Her research interests cover sustainable urban development, social transformation and approaches to development management . At the time of writing, she was a research intern with UNRISD in the Social Policy and Development team.

New forms of work


The gig economy and its innovative approach to employment is attracting increased attention in policy debates, both for its ability to create new jobs and for its controversial classification of workers as independent contractors outside of traditional employment contracts. These new forms of work are often associated with the young, who are seen as the natural audience for a technologically driven labour market. In reality however, seniors (for the purposes of this piece, those aged 60+) make up the fastest growing segment of the gig economy, many of whom are pushed into gig economy work by low pension pay-outs and insufficient savings that make it impossible for them to fully retire. While the flexibility of the gig economy may be appealing to some of those who still have their health and some financial resources, it is nevertheless a poor substitute for policies that provide sustainable and inclusive social protection for all. Instead, innovative policy measures and transformative mechanisms are needed to prevent and tackle old age poverty in a rapidly changing labour landscape.

How young is the gig economy really?


It is commonly assumed that the new technologies that drive the digital economy are the purview of the young, and in particular, the so-called millennial generation (born between 1982 and 2000). As the innovations of the “Fourth Industrial Revolution”—as many call the process—have advanced, they have spread to the labour market and created new forms of employment in the digital economy: the labour- and capital platforms focused on short term, often recurring work assignments performed by so-called independent contractors. While names and definitions of these new forms of employment are manifold—the gig economy, the sharing economy and the collaborative economy are prominent ones—in principle, they all refer to the digitally-enabled forms of non-standard employment constituting a change from the post-war model of formal employment. Millennials are seen as the tech-savvy generation, and therefore, as the most interested in flexible gig work.

Yet, a closer look at the demographics of the gig economy paints a different picture. Seniors are the second largest group after millennials and they represent the demographic that is increasing at the fastest pace. Increasingly, available data shows more and more seniors and retirees working part-time and independently. Within the gig economy, seniors are increasingly flocking to online and app-based platforms: AirBnB reports that seniors represent its fastest-growing host demographic (10 percent of its hosts already being over 60), and Uber states that its so-called “new regulars”—those with no previous professional driving experience now driving 30 hours a week or more with the company—skew towards older drivers. This group of drivers is more likely than any other to report working for Uber out of economic necessity because of the instability of other sources of income.

Seniors and self-employment


Not only are seniors the fastest growing demographic in the gig economy, they are also extremely active in self-employment in general. A recent study found that, among those over 65 engaged in work, 48 percent in the US and 57 percent in the EU-15 were independent workers. Naturally, there are positive aspects for seniors or retirees to start or continue working. Some retirees may choose to work to stay active, both physically and mentally, they may be seeking extra income, or may well enjoy the engagement with others and the social side of work.

However not all seniors prolong their working years by choice. For many it is out of economic necessity because they simply cannot afford to retire and must rely on the extra income from independent work to survive. Self-employment exposes seniors to income volatility, which in the absence of adequate social security systems can lead to old age poverty among vulnerable populations. Work through gig economy platforms such as AirBnB or Uber can be unpredictable and unstable, which is particularly problematic considering that those seniors involved in independent work derive a larger percent of their total income from work on online platforms than younger people.

Outdated and inadequate pension and social security systems


While numerous factors contribute to income insecurity later in life, two of the most crucial include low wages that do not allow workers to save for retirement (even for those in traditional employment relationships), and underfunded and deficient pension schemes resulting in low pay-outs to retirees. To take the example of the United States, a recent study found that half of all households aged 55 and over had no retirement savings to supplement the small pay-outs of the federal pension programme. While independent work and work in the gig economy in particular provide a coping mechanism for seniors to offset their lack of adequate pensions and savings, it is not an appropriate solution for tackling old-age poverty, especially under current regulatory frameworks.

The current pension systems in many countries are based on formal, regular employment structures and do not adequately incorporate the increasingly large numbers of those outside these arrangements. This perpetuates a vicious cycle to the detriment of workers and retirees alike. As pension systems fail to take into account the new forms of employment and as demographics shift towards an ageing population, existing systems are unable to collect sufficient tax revenue to sustain themselves, which lowers the available pensions for retirees. As seniors find themselves without adequate income to meet their needs, many are pushed back into the labour market via independent work, increasingly in the gig economy, where they lack the protections previously extended to them in traditional employment.

Unless pensions systems can adapt to the reality of new forms of work, both in terms of ensuring adequate funding and providing old-age income security for workers outside of traditional employment relationships, we will continue to see increased precarity among seniors.

Holistic intervention and new policy structures


To their credit, many governments recognize the need for urgent intervention and are taking first steps to explore possible policy solutions. As the UNRISD Flagship report demonstrates, developing inclusive pension systems is not an impossible task. There have been good approaches towards reforming pension systems in innovative ways, for example by funding these through alternative sources of revenue. For example Bolivia has introduced a universal old age income scheme—Renta Dignidad—funded through a tax on the hydrocarbon sector which has a minimum pension guarantee and a strong redistributive element. While this reform does not directly address the impacts of the gig economy, it does demonstrate universal treatment of formal and informal workers.

This kind of innovative thinking about pensions will be essential to address both the factors that drive seniors into the gig economy AND the issues related to the precarious nature of gig work. Debates around how to further regulate the gig economy are growing: for example a US think tank has suggested creating a new category of workers—between formal and self-employed—and modernizing employment status definitions, and UK trade unionists recommend enforcing workers’ employment rights by imposing punitive fines on employers not meeting their responsibilities. This will need to be met by an equal push to create pensions systems that adequately support seniors and safeguard against old age poverty.

It will require integrated and transformative policy reforms to bring the different aspects of this complex social and economic problem together. In the end, we owe it to ourselves to make that effort to create more stable, universal pensions that are not put at risk by the changing nature of the labour market.

Photo: Sean MacEntee (CC BY 2.0 via Flickr)

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This article reflects the views of the author(s) and does not necessarily represent those of the United Nations Research Institute for Social Development.