Gig Economy and Its Impact on Delivery Services: Favoring Businesses Over Delivery Workers.

"The Gig Economy: How Delivery Services Thrive at the Expense of Workers"

By Akhilesh Sharma, Director, Adamant HR

Introduction:

The gig economy has revolutionized industries across the globe, with delivery services standing out as one of the most transformed sectors. While companies have benefitted greatly from this shift, it has raised concerns about whether these benefits extend equally to the delivery workers themselves. This article delves into the gig economy’s impact on delivery services, with a critical look at how the advantages for businesses often come at the expense of gig workers.

The Rise of the Gig Economy in Delivery:

The advent of the gig economy has allowed delivery businesses to tap into a flexible, on-demand workforce, reducing their operational costs and enabling scalability. In 2021, the global gig economy workforce hit approximately 59 million in the U.S., accounting for over 36% of the labor force . In delivery services, the likes of Uber Eats, Postmates, and DoorDash have paved the way for companies to move away from the traditional model of full-time employees.

While this has provided cost benefits for businesses, it has also sparked a debate about the fairness of this model. On-demand apps rely heavily on independent contractors who lack the legal protections and benefits of regular employees. As businesses enjoy greater profitability, gig workers face income volatility and job insecurity, which raises the question: is the gig economy disproportionately favoring businesses?

How the Gig Economy Favors Businesses:

1. Cost Reduction through Externalization of Labor Risks: One of the biggest advantages for businesses is the reduction in labor costs. By classifying gig workers as independent contractors, companies are not required to provide healthcare, retirement benefits, or paid leave. According to McKinsey, companies that rely on gig workers can save 20-30% in employment costs, allowing them to operate with leaner margins and scale without the burden of traditional employment costs .

Moreover, businesses shift much of the operational risk onto the workers themselves. Delivery drivers are responsible for their own vehicle maintenance, fuel costs, and insurance, which significantly reduces the overhead for companies. This externalization of labor costs has proven to be a winning strategy for companies seeking to minimize financial liability.

2. Scalability Without Long-Term Commitment: For companies, the gig economy provides unparalleled flexibility. During peak demand, such as holidays or promotional periods, companies can quickly scale up their workforce by onboarding gig workers without making long-term commitments. Once demand subsides, they can easily scale down, avoiding the costs associated with hiring and firing full-time employees. This flexibility, however, often leaves gig workers in precarious financial positions, as their income is dependent on fluctuating demand.

3. Increased Profit Margins via Competitive Pricing: With fewer labor costs and the ability to dynamically adjust their workforce, businesses are able to offer competitive pricing to consumers. This is especially beneficial in industries like food delivery, where price sensitivity can drive customer loyalty. According to a report by Allied Market Research, the global online food delivery services market is projected to reach $192 billion by 2025, largely driven by gig-based delivery models that keep operational costs low .

However, this cost-saving strategy often leaves gig workers bearing the brunt of competitive pricing, as companies may reduce delivery fees or offer discounts without increasing worker compensation, directly affecting their earnings.

Challenges Faced by Gig Workers:

1. Lack of Worker Protections and Job Security: For delivery workers, the benefits businesses enjoy come at a steep personal cost. Classified as independent contractors, gig workers are not entitled to minimum wage protections, health benefits, or paid leave. According to a study by the Economic Policy Institute, 56% of gig workers in the delivery sector earn less than the minimum wage after accounting for expenses such as fuel and vehicle maintenance . This income instability is compounded by the fact that gig workers are often at the mercy of platform algorithms, which can deprioritize workers based on customer ratings or inactivity, further reducing their earning potential.

2. Algorithmic Control and Earnings Volatility: Delivery workers in the gig economy are subject to algorithmic management, which assigns tasks based on variables like location, driver rating, and efficiency. However, these systems are not always transparent, and many workers report significant earnings volatility. According to Pew Research, nearly 30% of gig workers reported that they struggle to make ends meet due to unpredictable earnings, while businesses benefit from being able to dynamically adjust service costs to maximize profits .

3. Absence of Career Growth and Long-Term Stability: Unlike traditional employment, where workers can aspire to career progression and job security, the gig economy offers limited opportunities for long-term growth. Gig workers typically do not have access to skill development programs or upward mobility within the company. In essence, they remain stuck in low-wage, low-security jobs while businesses thrive on their labor.

The Business-Worker Divide: A Growing Tension:

As businesses continue to capitalize on the gig economy, the disparity between corporate profits and worker welfare has widened. This imbalance has not gone unnoticed, and several governments are now stepping in to regulate gig economy practices. In California, Assembly Bill 5 (AB5) seeks to reclassify gig workers as employees, providing them with access to benefits such as minimum wage, paid leave, and health insurance. While this move is seen as a positive step for worker protections, many businesses argue that such regulations would increase operational costs and reduce their competitive edge.

According to a survey by the National Employment Law Project, 65% of gig workers support the reclassification as employees to ensure better protections, but the logistics industry remains resistant, as such changes could significantly impact their cost structure .

Conclusion: Who Truly Benefits from the Gig Economy?

While the gig economy has undoubtedly revolutionized the delivery sector, its benefits are skewed heavily in favor of businesses. Companies have been able to scale rapidly, reduce operational costs, and increase profit margins through the use of gig workers. However, the lack of worker protections, earnings instability, and minimal opportunities for career advancement raise concerns about the long-term sustainability of this model.

At Adamant HR, we believe that a more balanced approach is needed. While businesses must remain competitive and agile, they also have a responsibility to ensure fair compensation and protections for their workers. As the gig economy continues to evolve, companies that address these disparities will be better positioned to succeed in a regulatory environment that increasingly prioritizes worker rights.