Formalization of the gig-economy

gig
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Formalization of the gig-economy
Digital tool that facilitates job formalization of ‘self employed’ workers in the ‘gig-economy’.
SectorMost major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Technology and Communications
Technology
Business Model Description

Design digital tools that facilitate job formalization by supporting employers who have little knowledge of correctly handling a payroll or individuals (who work as independents) to pay salary and social security obligations (HR management technologies).

Expected Impact

This initiative intends to reduce unemployment and informality through digital solutions.

Indicative ReturnDescribes the rate of growth an investment is expected to generate within the IOA. The indicative return is identified for the IOA by establishing its Internal Rate of Return (IRR), Return of Investment (ROI) or Gross Profit Margin (GPM).
> 25% (in IRR)
Investment TimeframeDescribes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.
Medium Term (5–10 years)
Market SizeDescribes the value of potential addressable market of the IOA. The market size is identified for the IOA by establishing the value in USD, identifying the Compound Annual Growth Rate (CAGR) or providing a numeric unit critical to the IOA.
USD 100 million - USD 1 billion
Average Ticket Size (USD)Describes the USD amount for a typical investment required in the IOA.
USD 1 million - USD 10 million
Direct ImpactDescribes the primary SDG(s) the IOA addresses.
Decent Work and Economic Growth (SDG 8)
Indirect ImpactDescribes the secondary SDG(s) the IOA addresses.
Good health and well-being (SDG 3) Reduced Inequalities (SDG 10)
Country
SectorMost major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Technology and Communications
TC

Development need: >Only 42.56% of households in Colombia have a computers and/or tablets and around and 73% have a mobile phone (1).

Policy priority: > Modernization law of 2019 intends to modernize institutions and focalize investments to facilitate the deployment of high cost infrastructure in the ICT sector. Auctions of the connectivity expectrum have taken place (2)(3).

Gender inequalities and marginalization issues: >Only 6.11% of women work in the ICT sector, without growth over the last years (5).

Investment opportunities: >The IT sector is expected to grow with prospects for U.S. companies derived from the Trade Agreement (4).

SubsectorMost major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Technology
TC.1

Development need: >Low penetration of technology in companies: internet of stuff (14,8%), robotics (11,1%), 3D printers (4,8%), virtual reality (1,7%), Big Data (16,8%) and AI (9,7%). Only 16% of large companies as of 2017 sold through digital channels. (7)

Policy priority: >Modernization law of 2019 intends to modernize institutions and focalize investments to facilitate the deployment of high cost infrastructure in the ICT sector. Auctions of the connectivity expectrum have taken place (2).

Gender inequalities and marginalization issues: >Only 6.11% of women work in the ICT sector, without growth over the last years (5).

Investment opportunities: >Micro commerce is the sector that is growing the fastest in digital adoption in Colombia (+37%) Digital transformation and efficient management through Big Data and AI, digital economy adoption, digital and mobile banking (6).

Key bottlenecks: >The main bottlenecks and obstacles include capex intensive connectivity development, transport infrastructure lags and low skills and adoption of technologies.

IndustriesMost major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Software and IT Services
TC-SI
Investment Opportunity Area

Formalization of the gig-economy

Digital tool that facilitates job formalization of ‘self employed’ workers in the ‘gig-economy’.
Business Model

Design digital tools that facilitate job formalization by supporting employers who have little knowledge of correctly handling a payroll or individuals (who work as independents) to pay salary and social security obligations (HR management technologies).

Market Size (USD)Describes the value in USD of a potential addressable market of the IOA.
USD 100 million - USD 1 billion

> Considering that around 21M Colombians work under informality, and using the average monthly fee that Symplifica (a human resources consultant formalizing employees) charges to its users $1.5USD, the market size would be US $375M. (8)

IRRDescribes an expected annual rate of growth of the IOA investment.
> 25%
ROIDescribes an expected return from the IOA investment over its lifetime.
> 25%

> Accordant to Oliver Wyman, he IRR of workers retirement plans is over 60% at all income levels in Singapore (9).

> According to the WSJ, the ROI of contributing to the formal healthcare and pension systems increases has a 45% ROI(10).

TimeframeDescribes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.
Medium Term (5–10 years)

According to local investors interviewed, they estimate a holding period of 4 to 7 years in workforce connectivity investments.

Average Ticket Size (USD)Describes the USD amount for a typical investment required in the IOA.
USD 1 million - USD 10 million
Capital - Limited Investor Interest
> Some companies may be skeptical about the qualifications of a non-traditional job applicants.
Capital - CapEx Intensive
> Companies or independent employers might not be willing to pay social benefits and taxes.
Sustainable Development Need

> 47% of employees in Colombia are informal meaning they do not contribute to paying social security, or work with the absence of contracts between the worker and contractor (11).

> 46% out of the 25,000 workers in popular delivery services contribute to health insurance pay and 7% to a retirement fund .71% out of the 88,000 ‘uber drivers’(4), 71% contribute to health insurance pay and 36% to a retirement fund (12).

> “Self-employed” workers (part of the gig economy), don’t enjoy basic benefits such as family leave and sick pay, mental health support and critical injury pay.

Gender & Marginalisation

> According to DANE informality levels among women are higher than men's with 48.% and 45% respectively (13).

Expected Development Outcome

> Promote decent and formal work, allowing to increasing social security coverage for everyone.

> Improve the ‘safety net’ for the ‘self-employed’ by making sure they have access to health benefits and retirement fund.

> Foster employers and employees awareness about social security benefits, which lead to a healthier and more capable labour market.

Gender & Marginalisation

> Close gender informality gaps.

Primary SDGs addressed
8 - Decent Work and Economic Growth
Decent Work and Economic Growth (SDG 8)

8.3.1 Proportion of informal employment in total employment, by sector and sex

8.8.2 Level of national compliance with labour rights (freedom of association and collective bargaining) based on International Labour Organization (ILO) textual sources and national legislation, by sex and migrant status

Current Level

52% formality in 2018 (14).

60% of formality by 2030 (14).

Target Level

37.5% of population affiliated to labour insurance (14).

48% of population affiliated to labour insurance by 2030 (14).

Secondary SDGs addressed
3 - Good Health and Well-Being
Good health and well-being (SDG 3)
10 - Reduced Inequalities
Reduced Inequalities (SDG 10)
Directly impacted stakeholders
People
>48% of the total occupied population in Colombia that work in the informality. >People that work as a freelancers and ‘on-demand’ platforms (e.g. Uber and Rappi).
Gender inequality and/or marginalization
> 28% of women and 31% of young professionals are unemployed, being those who have the hardest time finding a job and contribute less to health and social security (15).
Corporates
>Technological companies such as Uber, Rappi that are exposed to receive lawsuits. >SMEs that do not have payroll department.
Indirectly impacted stakeholders
Public sector
> Working towards reducing unemployment and informality with the aid of new technology .
Corporates
> Companies providing services for the growing Gig-economy.
Outcome Risks

> Motivating employers to formalize their workers might lead to increased unemployment due to higher hiring costs and thus leaving population still unprotected and unaffiliated to health insurance.

> Gender inequality and/or marginalization risk: Increased formalization might lead employers to perceive female hiring as more expensive, thus reducing incentives to hire them and fostering inequalities.

> Broaden tax base and thus increase social spending: an increase of formal employment will include more tax payers in the system.

Impact Risks

External risk: > Currently in Colombia there is no clear legal framework for the formalization of the gig-economy. > Administrative paper work could result costly and timely for entrepreneurs. > Lag in connection infrastructure in rural areas and the popularization of technology to encourage formalization could lead to even further inequalities in informality between urban and rural areas.

Drop off risk: > Low understanding of technologies and low skill set can hinder implementation and reduce positive impacts.

Shareholder participation risk: > There can be socio-cultural barriers when it comes to formalization because informal economies comprise strong networks of trust and independence .

What

Positive and significant outcome due to increase in labour formalization.

Who

Population currently not enjoying the benefits of a safety net for health or retirement.

Risk

Lack of formalization will worsen worker conditions in the long term or trap them in low quality jobs, underpaid and unsustainable.

Impact Thesis

This initiative intends to reduce unemployment and informality through digital solutions.

Policy Environment

(Plan Nacional de Desarrollo): Generate services that help people acquire quality jobs, with an emphasis on groups with greater unemployment. Reduce job informality to 41.2%, contribute to connect 2 million job vacancies and reduce unemployment to 7.6% (16).

(Gig economy bill): The labour ministry coordinated a draft of a government bill (to be approved in 2020) that seeks to establish rules for workers in the ‘gig economy’ to make their contributions to social security.(17)

(Colombia se formaliza - Encadenamientos Productivos Formales): the Ministry of Industry, Commerce and Tourism has been fostering formalization through training programs for companies in the same supply chains (18).

Financial Environment

Other incentives: Start-ups such as Collective Benefits raised £3.3 million seed round led by Stride.VC, alongside existing investors Delin Ventures, Insurtech Gateway and angels from executives at Uber.

Fiscal incentives: the government has incentives for formalization such as exception from registering fees and contributions to compensation funds for a year for companies willing to formalize (21).

Financial incentives: Credits for banks and other facilities are only available for formal companies, providing an incentive for companies to formalize.

Regulatory Environment

(Decree number 1273(2018): It establishes the rules of social security and health payment for independent workers (19).

(T-722/17): The constitutional court declared that the domestic workers must receive the benefits of social security and therefore, employers must pay them according to the number of days worked (20).

(Law 1780 of 2016): seeks to promote entrepreneurships through exemptions in registration fees and compensation funds contribution (21).

Private Sector

Symplifica: It is a digital platform that facilitates the payment of wages and social security for employees. Banks providing credits for young enterprises as an incentive for formalization.

Government

The national government is an important actor promoting fair work conditions and contributions to health and social security.

Non-Profit

IDB, Fundación Corona, Prosperidad Social and SECO, led the successful structuring of a social impact bond to transform the way of addressing the challenges of employability in Colombia and achieve greater cost effectiveness of employability projects for difficult to place populations

Sector Sources
  • 1) MINTIC (2020) Indicadores básicos de TIC en los hogares. Accessed february 8th 2021 2) MINTIC (2019) ¿Qué es el Proyecto de Ley de Modernización del Sector TIC? Accessed february 8th 2021 3) Oxford Business Group (2020) - New ICT laws and attention to innovation increase Colombia's internet coverage. Accessed January 26 2021 4) International Trade Administration (2020) – Information and Communication Technology. Accessed January 26 2021 5) Semana (2018) Analítica de datos, una de las tecnologías con más futuro en el 2018. Accessed February 8th 2021 6) EMIS Insights (2020), Colombia ICT Sector Report 2021-2022 7) MINTIC (2018) Así usan la tecnología las mujeres en Colombia - Accessed February 8th 2021 -https://www.mintic.gov.co/portal/inicio/Sala-de-Prensa/MinTIC-en-los-Medios/64128:Asi-usan-la-tecnologia-las-mujeres-en-Colombia
IOA Sources
  • 8) Dinero (2018) - Symplifica operará la gestión de empleados del hogar más grande del país. Accessed May 21st 2020 (link) 9) Oliver Wyman (2017) -HEALTH RISK MANAGEMENT AND FUNDING IN THE “GIG ECONOMY”. Accessed February 8th 2020 10) WSJ (2019) - When the Safety Net Pays for Itself. Accessed August 15th 2020 11) Fasecolda (2018)- Trabajo formal en Colombia: realidad y restos, Fasecolda. Accessed June 30th 2020 12) ElPaís (2020) - Uber, Rappi y las demás: quién, cómo y por qué trabaja en las plataformas. Accessed June 29th 2020 13) DANE (2020) Empleo informal y seguridad social. Accessed February 8th 2020 14) DNP (2018) Objetivos de desarrollo sostenible. Accessed February 8th 2021 15) ElTiempo (2020) – 43,5 % de la población desocupada perdió el empleo por la pandemia. Accessed August 20th 2020 16) DNP (2017) – Plan Nacional de Desarrollo 16) DNP (2017) – Plan Nacional de Desarrollo 18) MINCIT (n.d.) Formalización empresarial. Accessed February 8th 2021 19) Ministerio de Salud y Protección Social (2018) – Decreto número 1273 2018. Accessed June 30th 2020 20) Fasecolda – Elementos fundamentales para la protección de los trabajadores en la economía Gig. Accessed June 10th 2020 21) Cámara de comercio de Bogotá (2016) -Ley de emprendimiento juvenil. Accessed February 8th 2021 22) DANE (2019) – Principales indicadores del mercado laboral Diciembre 2019. Accessed June 30th 2020