Recognising and compensating suppliers for this time is strategic and ethical, fostering a balanced and prosperous ecosystem for all stakeholders involved. Embracing this paradigm shift ensures a sustainable and optimised platform economy.
Throughout economic history, the exploitation and participation of labour have been a significant topic. From slavery to the rise of the platform economy, this narrative has evolved through social, political, and technological changes. To fully understand the complexities of labour within the platform economy, we use a storytelling approach that takes us through time and explains the economic models that shape modern labour dynamics. This approach allows us to appreciate the rich history of labour struggle and progress.
Through storytelling, we can trace the evolution of labour practices and establish connections between historical events and present-day challenges in the digital age. By leveraging the power of narrative, we can delve into the painful realities of slavery and the deceptive allure of indentured labour. Furthermore, we can embark on a journey of discovery to explore the transformative phase of the workers’ movement, where collective action and collaboration led to significant strides in improving workers’ rights, ultimately shaping our contemporary understanding of just and equitable employment.
The tale does not end with history but ushers us into the latest chapter of the platform economy, where a new labour model unfolds. Here, we encounter the paradoxes of maximising profit by balancing supplier utilisation, shedding light on how digital platforms navigate the delicate dance of maintaining customer satisfaction and supplier retention.
Using the power of storytelling, we delve into the complexities of human experiences and highlight the moral dilemmas and economic consequences of prioritising profit over people. Our narrative also examines the importance of regulations and labour protections in creating a fair and just future for workers in the constantly-evolving platform economy.
By blending storytelling with mathematical models, this academic essay comprehensively analyses labour exploitation and participation throughout history and the modern day. This approach enables us to bring economic theory to life through real-world scenarios, providing data-driven insights into the human experience. Ultimately, this exploration of storytelling sheds light on the challenges faced by workers, policymakers, and businesses and encourages constructive dialogue about creating a more equitable and sustainable future for the labour force in the dynamic platform economy.
Story 1 — Slavery
As a prominent sugarcane plantation owner, I’m fixated on maximising my profits.
I am the proud owner of rich, fertile land and have all the resources needed for cultivation, but I need help with the apprehension of high labour costs. To combat this, I devise a strategy that, while effective, is inhumane.
I travel to remote places on a different continent, convincing or, instead, capturing unsuspecting individuals to come to work on my plantation. I bring them to my fields, offering them just enough sustenance to keep them alive. Wages, however, are a luxury I do not provide. Day in and day out, they toil under the relentless sun, their existence reduced to an endless cycle of hard labour. In this plantation, I’m not just the owner but also the master of these unfortunate souls. And they are not workers but rather slaves, subjected to harsh conditions to keep my costs low and profits high.
Story 2 -Indentured labour.
After a wave of global criticism and tightening legal constraints, I am forced to abandon my earlier practice of forced labour. This time, my gaze turns to a distant land where people live in abject poverty and are desperate for change. I realise we have a military base and colonised that region, so we impose our rules. It needs to be different from slavery; it has been banned.
I provide individuals with a hopeful solution through contracts, which are legal documents that ensure payment and the ability to depart at any time. This arrangement is equitable as they have a formal agreement, can reside with their loved ones, and are not restricted or physically restrained as previously experienced.
But the underbelly of this system is still rife with exploitation. Their work hours are gruelling, stretching long into the night, and the pay I offer is barely enough to sustain their livelihoods. And though the contract suggests they are free to leave, the reality is far from this ideal. They are a different country, and they are no way they can travel back to their origin country. Debts pile up, legal constraints tie them down, and a lack of other job opportunities leaves them virtually shackled to their roles. The cycle of poverty and labour exploitation continues, disguised under the veneer of legality and choice.
The first example illustrates a form of what we now call Chattel slavery. In this system, individuals are treated as the property of others, who can buy, sell, and rent them as they please. Slaves have no rights and are forced to work under conditions determined by their owners. They receive no payment beyond the bare minimum necessary to keep them alive and able to work. Chattel slavery has been practised in many societies throughout history and was notably prevalent in the Americas from the 16th to the 19th centuries.
The second example illustrates a form of Indentured labour. Here, individuals sign a contract, or “indenture,” agreeing to work for a certain period in exchange for something, often passage to a new country. However, their work conditions are often extremely harsh, and their wages are minimal. They technically have the right to leave, but this is often not a realistic option due to debt, legal restrictions, or a lack of alternative opportunities. Indentured labour was also common, particularly in the 17th to early 19th centuries and in other parts of the world at various times.
Story 3—Industrialization and Organized Labour
As we continue exploring through time, we reach the third phase, witnessing a significant change in the social and economic landscape. This change is brought about by the emergence of industrialisation, which profoundly impacts production systems and alters labour dynamics.
The emergence of the workers’ movement brought about a profound transformation in employment dynamics. Workers, once solitary entities in the industrial landscape, began to realise the power of unity and the benefits of collective action. As a result, they formed associations based on shared experiences and aspirations, heralding a new era in labour relations.
This movement had far-reaching implications for workers’ rights. Employees were legally empowered to organise and strike for the first time, giving them greater bargaining power in their interactions with employers. These changes also had a ripple effect on the legislative framework, leading to the enactment of laws that protected children from labour and established minimum wage requirements and workplace safety regulations.
The workers’ movement’s persistent efforts resulted in significant improvements in compensation and benefits for workers. Health insurance, pensions, job security, and protection against discrimination — once merely aspirational — became standard features of employment contracts. These advancements profoundly impacted workers’ living conditions and significantly promoted social equality.
However, the workers’ movement faced opposition from some quarters who viewed it as hindering economic growth and industrialisation. This was primarily due to its unwavering commitment to protecting workers’ rights, which often translated into increased operational costs for employers.
Nevertheless, it is crucial to acknowledge that these perceived setbacks are a testament to the movement’s unwavering focus on fair wages and curbing exploitation. While this may impact short-term profits, it undoubtedly fosters long-term social justice.
The workers’ movement is a defining chapter in labour history, underscoring the immense power of collective action in securing workers’ rights. Its enduring legacy continues to influence contemporary labour practices and is a crucial reminder that worker welfare and industrial growth are not mutually exclusive. Despite facing resistance and criticism, the movement remains a beacon of social justice, tirelessly advocating for workers’ rights worldwide.
Story 4 — Platform Labour
A new labour model surfaces in this most recent chapter of our journey. As the entrepreneur of this bold new venture, I find myself approaching a potential worker, a character who has accompanied me through the harsh realities of our past narratives.
With a welcoming smile, I begin,
“Welcome to my latest enterprise. This time, I have a rather unconventional proposition for you. You might recall our previous engagements — when I was a slave owner, a landowner employing indentured labourers, or a factory owner. The common thread through those chapters was maximizing your labour while minimizing your compensation. It might have been ruthless, perhaps unethical, but it was a strategic decision to drive down all costs, labour being a significant one, to maximize my profits. In this new venture, the dynamics are set to shift. When you join my firm, you’ll have the freedom to work as you wish, and you’ll be compensated for your efforts. However, there is a catch: I only require your services on certain occasions. It may seem unusual, but having you work full-time would harm my profits in this innovative business model. If you work constantly, I’ll lose money and be less profitable”
“Understandably, you might be puzzled. It’s simple to grasp that less work from you implies lower costs for me. But the notion of you working less — your lower utilisation — leading to higher revenue for me might sound paradoxical.”
With a look of profound confusion etched on his face, the worker responds,
“That does indeed sound strange. How do my partial employment and idle time lead to your increased profits? I can understand the reduced costs as you’re not paying me full-time. But the concept of higher revenue due to my lower work hours defies conventional wisdom.”
I can’t help but smile. This is a new game where I’ve upended the traditional business model, challenging age-old norms of labour utilisation for profit. The stage is now set for me to unravel this economic conundrum, perhaps shattering long-held beliefs of labour exploitation for profit. The next act promises to explore this new economic reality profoundly.
Why do you look surprised? This model already exists.
Let’s examine an instance from the digital economy — a ride-hailing service that operates through a mobile app like Uber or Lyft. As the founder and owner of this business, I am briefing my driver — who also happens to be my “employee” — about a peculiar situation.
As a driver for my rideshare company, you can choose your own working hours. Simply log in to the app whenever you’re available to start driving. While I appreciate it when drivers work as much as possible to increase the number of rides and our company’s income, I also value a balance. Having enough drivers to provide quick service is essential, which is one of our main selling points. However, if fewer drivers are on the road simultaneously, each driver may receive more occasional rides and experience idle time.
You might think,
“Less work, less pay, more idle time — that’s a loss for me.” However, consider this: in times of high demand, if there are no idle drivers, I lose customers as the wait time increases, so your idle ( no work, no paid time) is critical for lower customer attrition”
This way, we break away from the traditional paradigm where more work directly equals more revenue. Instead, we enter a new model where a strategic, demand-based position can maximise profits. The driver cannot complain for I pay for the rides, but I will make sure there are enough idle riders all the time so that I keep customers happy by keeping the wait time low. It is easier to achieve this if there is a lot of unemployment in the economy. After all, the drivers have no other option but to wait in the cab for the next ride.
In conclusion, the gig economy model we have developed underscores the transactional nature of the relationship between suppliers and the platform. Suppliers receive payment for the rides they undertake, reflecting the essence of their work’s productivity. However, a crucial revelation arises from our analysis — the idle time of suppliers must no longer be overlooked as unproductive. On the contrary, it has emerged as a critical factor in reducing wait time, a pivotal aspect of enhancing customer satisfaction and ultimately bolstering the platform’s valuation. Therefore, recognizing and compensating suppliers for their idle time is not merely an ethical consideration but a strategic imperative to generate value for the platform and foster a sustainable ecosystem. By embracing this paradigm shift, the gig economy can strike a harmonious balance between supplier compensation, reduced wait time, and customer retention, leading to an optimised and prosperous model for all stakeholders involved.
Note — Bench employees are skilled professionals without active projects on a company’s payroll. They are idle workers. Retaining them offers swift project mobilization, reduces turnover, and can enhance company valuation. by providing a competitive edge to showcase readiness for future opportunities.
Mathematical Model
The simplest profit model for any business is revenues minus costs. In this case, we will only consider the operational costs:
1. N: Number of customers
2. R: Revenue generated per customer
3. OC: Operational cost (tech, staff, etc.)
4. C: Cost of acquiring each customer
5. M: Number of suppliers
6. S: Cost of acquiring and training each supplier
7. U: Utilization rate of suppliers
8. a(U): Supplier attrition rate decreasing with U
9. b(U): Customer attrition rate increasing with U
10. Rc: Cost of replacing a customer who leaves
11. Rs: Cost of replacing a supplier who leaves
12. E: General employment rate
13. a(U, E): Supplier attrition rate, decreasing with both U and E
Step 1: Basic Model
Here, profit is just revenue from customers minus operational costs. The more customers the platform has and the higher the revenue per customer, the higher the profit.
P = N * R — OC
Step 2: Including Acquisition Costs
P = (N * R) — {(N * C) — (M * S) — (OC)}
Here, customer acquisition costs (N * C) and supplier acquisition costs (M * S) are added to the operational costs. To profit, the revenue per customer must be greater than the combined operational, customer, and supplier acquisition costs.
Step 3: Including Attrition
We now consider the costs of attrition for both customers and suppliers. The attrition rates depend on the supplier utilization (U), which can influence customer satisfaction and supplier satisfaction:
P = N * R — {(N * C) —( M * S) — (N * b(U) * Rc) — (M * a(U) * Rs) — OC}
Here, customer attrition costs (N * b(U) * Rc) and supplier attrition costs (M * a(U) * Rs) are included. If the supplier utilisation is not managed correctly, these costs could significantly affect the platform’s profit.
Step 4: Including General Employment Rate
Lastly, we consider the impact of the general employment rate on supplier attrition:
P = N * R — {(N * C) — (M * S) — (N * b(U) * Rc) — (M * a(U, E) * Rs) — OC}
Here, the supplier attrition rate is now influenced by the general employment rate, which reflects the suppliers’ alternative opportunities. The lower the employment rate (i.e., the fewer job opportunities available to suppliers), the lower the supplier attrition, even with low supplier utilisation.
Explaining the Platform Economy Profit
The following equation illustrates how a platform economy’s profit (P) is calculated. This usually applies to digital services like ride-sharing and food delivery companies and depends on various factors. Let’s take a closer look at each component and analyse how the utilisation of suppliers and the skill level of the workforce affect customer and supplier attrition.
Firstly, N represents the number of customers and R the average revenue per customer. So, N * R represents the total revenue from customers. Subtracting from this is the total costs, comprised of several factors. N * C represents the direct cost of servicing each customer, and M * S is the total cost of acquiring and training each supplier.
The following two terms, N * b (U) * Rc and M * a(U, E) * Rs, represent the costs of attrition, both for customers and suppliers (or ‘drivers’ in the rideshare example). U is the utilisation rate of suppliers, Rc is the cost of customer attrition, and Rs is the cost of supplier attrition.
N * b(U) * Rc suggests that as the utilisation rate of suppliers increases, the number of customers leaving the platform (attrition) may also increase due to longer wait times or decreased service quality. This is multiplied by the cost of replacing these customers, resulting in the total cost of customer attrition related to supplier utilisation.
M * a(U, E) * Rs relates to supplier attrition. As supplier utilisation increases, suppliers might leave the platform due to overwork or lack of idle time. E represents external factors affecting suppliers’ likelihood of going, such as the unemployment rate or alternative employment opportunities. High unemployment or a lack of alternatives means suppliers have little bargaining power, allowing the platform to maintain high utilisation rates without substantial attrition.
Conversely, with lower unemployment rates or better options, suppliers are likely to leave if overworked. The product of these factors and the cost of replacing suppliers (Rs) gives the total cost of supplier attrition.
Finally, OC represents other operational costs not captured by the previous terms.
Given this framework, it is clear that balancing supplier utilisation is crucial in platform economies. High utilisation can increase attrition on both sides — customers and suppliers. However, where unemployment is high, or alternatives are scarce, particularly for lower-skilled work such as rideshare drivers or food delivery personnel, platforms can get away with lower utilisation, thus lowering customer attrition. Note this means each supplier earns less.
The dynamic shifts when considering higher-skilled suppliers, such as masseuses or carpenters. These suppliers generally have access to superior alternative job opportunities and, as a result, possess greater bargaining power.
Consequently, a platform must provide sufficient work opportunities (resulting in extended idle time) to avoid increasing supplier attrition.
Given that these individuals possess specialised skills, the cost of attrition and the expense of onboarding new suppliers is significantly higher. In such scenarios, platforms are likely to prioritise improving the income stream for suppliers to retain their valuable services.
Therefore, in high unemployment scenarios, especially for lower-skilled work, the equation suggests platforms can maximise profits by minimising customer attrition even at higher idle time for suppliers, thereby arguably exploiting these suppliers. It highlights the potential for economic exploitation in the platform economy, particularly for less-skilled workers, and underscores the importance of careful regulatory oversight and labour protections.
(The author is a financial professional with a master’s degree in economics. I am intensely interested in the arts, academia, and social issues related to development and human rights)
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