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Is the gig up for the European platform economy? Lawmakers in Brussels are currently discussing new labor rules to enhance the protection of drivers and riders. Uber asserts that if their drivers were to be classified as employees, it would result in job cuts, price increases, and downsizing. Deliveroo, a UK-based platform, has already pulled out of Spain due to the government’s decision to strengthen rider rights.
For platform companies, this presents a clear risk. The fixed working hours mandated by these rules do not align with their flexible business models. If platforms are obligated to guarantee working hours, they will need to hire a specific number of riders, coordinate deliveries, and manage labor distribution.
The exact impact of such a rule change is uncertain, but according to Citigroup, it could potentially increase labor costs by 30%. This is a significant amount, considering the narrow profit margins of platforms.
Let’s take Deliveroo as an example. In 2022, it generated £855 million in revenues outside of the UK and Ireland, out of a total of £2 billion. The gross profit outside of the UK amounted to £237 million, indicating a cost of goods sold of £618 million. If we assume that the majority of this cost is related to riders and increase it by 30%, it would roughly cut the international gross profit in half.
It’s important to note that not all of Deliveroo’s international business comes from the EU. According to estimates by Citigroup, the EU accounts for less than 30% of its gross transaction value. Additionally, lower marketing expenses could offset the added overhead. These quick estimates provide a hint of the potential impact.
However, it’s unlikely that the outcome will be as severe. While the European parliament considers all 28 million gig workers in the EU as employees, the European Commission believes that only 5.5 million are misclassified as self-employed.
Any rule changes will need to be translated into local employment legislation in the EU member states, allowing for some flexibility in the process. Italy has already implemented measures to protect gig workers from strict algorithms without dismantling the platform model. When the distinction between workers and contractors becomes blurred, this kind of adaptable approach can provide a viable option.
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