Insuring gig workers

Individuals working on a freelance basis are instrumental to the on-demand economy. These "gig workers" are people tasked with and paid for specific work assignments. Many gig workers offering their services via online platforms are formally independent contractors. To align incentives, platforms typically compensate gig workers based on the profits resulting from their service to a client. It is not clear, however, whether gig workers, though legally entrepreneurs, behave like firms - for instance whether they are best thought of as risk neutral and selfish economic actors. While purely commission-based compensation of gig workers creates non-distortionary incentives for both quality and quantity provision, such pay schemes may lead to insufficient insurance against income risks. As a consequence, alternative contractual arrangements that provide some insurance against income uncertainty may be superior from the perspective of both the gig workers and the platforms acting as intermediaries. Such alternatives may work particularly well if – as many platforms claim – their gig workers are enthusiastic about their work and thus have an intrinsic desire to do a good job.

In this project we collaborate with an online platform to study how introducing some insurance to their compensation affects gig worker behaviour and the profitability of the platform. In our setting, the platform acts as the intermediary between clients and gig workers, whose task it is to provide remote shopping advice to clients. This service may result in the online sale of physical goods, again handled by the platform. Gig workers choose the quantity offered, i.e., the number of clients they want to serve. Their efforts also determine the quality achieved, i.e., the usefulness of their advice affects the sales to each client. At the outset, gig workers' compensation is commission-based, paying them a fraction of net sales to the clients they advised.

We start from a stylized formal model in which agents choose quantity (number of clients served) and average quality (sales per client) and compensation contracts may reward both. We first show that when agents are risk neutral, a pure sales-based commission is optimal. When agents are risk averse, however, this may no longer hold. In this case it may be preferable to introduce an order bonus - a piece rate based on the number of client consultations independent of final sales or returned items. This provides insurance and an incentive to serve more clients. [Note: the formal model from which we derive our experimental predictions has been uploaded as a supplementary document to this pre-registration].

We implement a natural field experiment (RCT) to test the following predictions: (a) as compared to purely commission-based pay (control group), compensation including costly insurance (treatment) increases gig workers' desired number of jobs; (b) this effect on quantity is larger for more risk averse gig workers; (c) the intervention decreases gig workers' average quality per job; (d) this effect on quality is smaller for gig workers with higher intrinsic motivation [Note: we added this hypothesis as a consequence of developing our theoretical model further. We also added questions on intrinsic motivation to the baseline survey (see below) shortly before entering the field]; (e) for sufficiently risk averse gig workers, platform profits are higher in the treatment group.