The Gig Economy in Latin America: A Better Alternative to Informality?

By Isabel Morales

One of the effects of the COVID-19 pandemic I observed in Colombia, was how the number of street vendors that were usually settled in commercial areas, were now relying on residential areas to make a living. With lockdowns in place, workers depending on earning their day-to-day income by selling their products or services to a large crowd of people, no longer had that option. Latin American economies have long struggled with persistently high levels of informality that lower productivity and economic growth. The informal economy is the diversified set of economic activities that fall outside of the regulated economy tax system, such as street vending or unregistered taxi drivers (Alexander, 2019). Informality that reached about 56 percent throughout the region before the pandemic is estimated to increase to around 62 percent caused by the effects on formal jobs (Arboleda et al., 2020). Informal employment often remains the only way for low-skilled workers to escape from poverty. But, with the rise of jobs within the gig economy, many informal workers and other vulnerable groups are resorting to the gig economy to earn a daily profit. So, is working in the gig economy really a better alternative to informality in Latin America?

The gig economy is based on flexible, temporary, or freelance jobs that usually involve connecting with clients or customers through an online platform. Examples of jobs within the gig economy include being a driver for a company like Uber or being an independent writer for a freelance writing company. Advantages of working in the gig economy are often associated with the flexibility that comes with it. From not having a set schedule and working the hours one desires to not having a boss, gig workers have a lot of freedom and independence. Another advantage is related to the low barriers of entry as several jobs do not require many specific skills or previous experience (WGU, 2018). Concerns about the rise of the gig economy in the U.S. and Europe are usually linked to the loss of traditional jobs and the evasion of taxes and governmental regulations. Yet, in Latin America, these issues are proven to be less of a concern because formal jobs are not the standard (Loughran, 2019). Therefore, for vulnerable groups in Latin America, the gig economy might seem like a great way to earn a daily and higher income than they would by working informally.

Several delivery companies in Latin America rapidly started gaining popularity before the pandemic, such as PedidosYa, Rappi, and Glovo. Evidently, after the pandemic, the demand for deliveries increased and these companies’ earnings grew tremendously. Rappi, Latin America’s highest funded on-demand delivery startup, is a great example of a company within the gig economy to observe the advantages and disadvantages of this job sector and what it can offer workers. Rappi is a Colombian consumer tech start up that is essentially a marketplace connecting users who want to purchase food, groceries, clothes, and more with contractors who fulfil them. In other words, it serves to be Latin America’s “everything store” (Contxto, 2020).

Since its founding in 2015, Rappi became very successful. In April 2019, it received a $1 billion investment from Japan’s Softbank—the single largest investment into a Latin American startup (Contxto, 2020). So, why are these companies so successful in Latin America in the first place? Wealth inequality plays a huge role by creating a space where the class being served is comfortable paying service providers, and the servers are happy to maintain a living doing so. Although this is a trend that happens all around the world, the Latin American economic model characterized by high levels of informality and inequality creates a huge opportunity for these types of companies to grow. Another reason is related to increased migration into Colombia, specifically from Venezuela. Venezuelan migrants are usually looking for any kind of job, and delivery companies seem to be one of the best or only options (Contxto, 2020). According to reports, Rappi couriers in Colombia make from $20 to $30 in a 14-hour shift. That amount is low for Colombian standards, but the hourly pay in the busiest part of the day is from $2.30 to $2.90—double what workers on minimum wage ($1.16) make per hour. Besides the possibility of higher income, working for Rappi or similar companies provides more flexibility for refugees and migrants trying to integrate. They can devote time and resources to the search of a more “traditional” full-time job while still having some income (Bahar, 2020).  

Though a company like Rappi might seem like a lifeline for migrants and other informal workers, the benefits might not be as rewarding when considering the downsides of the gig economy. First, jobs within the gig economy do not come with work benefits or protections. Because workers are not full-time employees, they need to handle their own health insurance, retirement plans, and buy their own equipment (Gonçalves, 2020). For instance, a survey conducted by the Rosario University in Bogotá, showed that 53.9% of the workers working for Rappi in Colombia were not affiliated with social security coverage and more than 91.2% had no occupational hazard insurance (Jaramillo Jassir, 2020). This is worrisome because almost 37% of workers have suffered accidents caused by crashes or falls. Second, delivery companies control their employees through an algorithm which keeps track of a worker’s average rating and the number of deliveries they accept. Due to the application’s algorithm, workers are not as free to choose the number of deliveries they want to carry out in a day because if they reject certain orders, the application will sanction them by not sending them as many later. So, their only choice is to comply with most of the orders sent to them, obligating them to work the same number of hours as a full-time job. Third, delivery companies in the gig economy do not provide their workers with the equipment needed for deliveries. So, the workers themselves need to buy a mode of transport for delivery, such as a bicycle or motorcycle, and pay for gas and maintenance. Although additional pieces of equipment such as food delivery bags and uniforms are not required by the company, some Rappi workers claimed certain restaurants would not hand them the ordered food if they did not own the company’s official delivery bag and customers will also poorly rate them if they do not deliver their food in the specific delivery bag (La Pulla, 2021).

Some Rappi workers said if they were to push themselves to work 12 hours a day seven days a week, they could earn around three million Colombian pesos a month, equivalent to about $850 dollars. This amount might seem high for this type of job, but the number of hours and the deduction of all the equipment and personal spending must be considered. One may argue that even with that calculation, a worker would still have about one million eight hundred Colombian pesos or $500 dollars to spend, but considering they lack essential protections such as health insurance, work bonuses, and a retirement plan, their income might not seem like much of a benefit (La Pulla, 2021). Thousands of workers have protested for better pay and rights. In the past months, there were strikes throughout Argentina, Brazil, Colombia, and Mexico. The situation in each country is different but their demands are the same: better pay and increasing government regulations to prevent exploitation. Lack of government regulation is one of the biggest problems because workers are rarely able to send or negotiate complaints with big companies, so their demands are mostly ignored (Zorzoli, 2020).

There is no doubt that companies within the gig economy provide aid to hundreds of people in times of crisis. They also allow immigrants desperately seeking a job that are unable to find formal employment, to arrive in a country and begin working right away (Bandeira, 2019). Though the gig economy might be a great option for vulnerable groups seeking jobs, one might argue that these workers are equally as vulnerable under the gig system with long hours, no job security, or benefits. Gig companies are certainly innovative and allow economies to progress but ensuring labor rights for workers and their well-being must equally be progressing for these companies to be a true advancement for the economy and society.

 


References

Alexander, T. F. (2019, October 30). The Global Informal Economy: Large but On The Decline. IMF Blog. https://blogs.imf.org/2019/10/30/the-global-informal-economy-large-but-on-the-decline/

Arboleda, O., Baptista, D., Novella, R., Porto, M. T., Rosas, D., & Soler, N. (2020, April 27). Labor Markets of Latin America and the Caribbean in The Face of The Impact of COVID-19. Banco Interamericano de Desarrollo. https://publications.iadb.org/en/labor-markets-of-latin-america-and-the-caribbean-in-the-face-of-the-impact-of-covid-19

Bahar, D. (2020, April 22). The Gig Economy: A Lifeline for Latin American Migrants – or a Dead End? Americas Quarterly. https://www.americasquarterly.org/article/the-gig-economy-a-lifeline-for-latin-american-migrants-or-a-dead-end/

Bandeira, L. (2019, July). The gig economy is a double-edged sword for migrant workers. BBC. https://www.bbc.com/worklife/article/20190701-the-gig-economy-is-a-double-edged-sword-for-migrant-workers

Contxto. (2020, June 8). What makes a delivery app like Rappi successful in Latin America? https://contxto.com/en/sponsored/rappi-tech-stack/

Gonçalves, A. (2020, February 10). What Are The Pros And Cons Of Working In The Gig Economy? Youmatter. https://youmatter.world/en/pros-cons-gig-economy-27964/

Jaramillo Jassir, I. D. (2020, June). RIDERS: ENTRE EL DESVALOR DEL TRABAJO Y LA SUPERACIÓN DEL CONFINAMIENTO [Between the Unvalued Work and Overcoming Confinement] Friedrich Ebert Stiftung. http://library.fes.de/pdf-files/bueros/kolumbien/16287.pdf

La Pulla. (2021, January 21). Rappi: El lado OSCURO que no nos cuentan | La Pulla | [Video]. YouTube. https://www.youtube.com/watch?v=YTkliK6QVo8&t=284s

Loughran, M. (2019, April 16). Fintech Shaping The Gig Economy For The Better - Uulala. Medium. https://medium.com/uulala/fintech-shaping-the-gig-economy-for-the-better-13c63fd01f19

WGU. (2018, August 31). The Pros and Cons of the Gig Economy. Western Governors University. https://www.wgu.edu/blog/pros-and-cons-gig-economy1808.html

Zorzoli, L. (2020, September 15). Labor Exploitation in Latin America Impedes Economic Recovery. The National Interest. https://nationalinterest.org/blog/reboot/labor-exploitation-latin-america-impedes-economic-recovery-168933

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