Lessons from the Informal Economy: Managing on Irregular Payments in the Gig Economy

Last week, an unusual report was released in Great Britain. Lloyds Banking Group (LBG), together with the Resolution Foundation, addressed the question of earnings volatility in the UK, a first for a developed country with a formal economy. Their research and analysis made use of anonymised transaction data from over seven million LBG accounts. That is, technically speaking, the financially included in the erstwhile first world.

To their surprise, accustomed as they were to only considering income changes on an annual basis, three-quarters of all workers did not receive the same paycheck from month to month – the problem being most acute for low-paid workers in the gig economy or on zero-hours contracts.

As the Guardian, when reporting on the household financial management behaviour of gig economy workers discovers:

The Resolution Foundation found that for those on the lowest annual incomes, the average monthly fluctuation in pay was £180 – which can make the difference between paying the rent or feeding the family.

As my research over the past decade, on the financial management behaviour of the lower income demographic (also known in older publications as the Bottom or Base of the Pyramid) in the informal and rural economies of developing countries has found, irregular and unpredictable cash flows from a variety of sources is the norm.

What is different here, however, are the coping mechanisms.

Many are forced to turn to crippling payday loans or high-cost credit cards to make it through to the end of the month

In the developed country context such as the UK, gig economy and lower income workers have no recourse to customary and established coping mechanisms that can be seen across the developed world, from rural Philippines to upcountry Kenya.

Seasonality in rural regions, closely intertwined with the natural year and its direct impact on farming activities is a recognized and known fact of life. Incomes are seen to change by as much as 50% between the high and the low seasons. And, among urban traders and merchants, festivals and harvests mean peak consumer activity, and everyone prepares for the rush.

Knowing this, the informal economic ecosystem leverages social networks and trusted relationships to carry them through hard times and the low seasons; looking forward to the peak sales periods and the harvests to cover the difference. Numerous risk mitigation behaviours and coping mechanisms are established within households, customized to rural and urban contexts, as well as the context of the primary income source. These were the same coping mechanisms heard to be in use among India’s informal sector when hit by the liquidity crunch of the demonetization of 2016.

Just the way you can purchase one single cigarette or a 100 grams of shredded cabbage, depending on what you have in your pocket, you can find ways to adapt your daily lifestyle to your income in the flexible, negotiable, and reciprocal people’s economy of the Global South. The informal economy’s commercial operating environment is designed to maintain the dignity of their customer base.

These options are not available in the UK, or other developed and advanced nations of the Global North. Thus, gig economy workers forced to manage on unpredictable and irregular income streams from a variety of sources in the formal economy struggle to afford their groceries and expenses. In fact, I’d be curious to know if prepaid mobile subscribers (pay as you go) are increasing in proportion to the precariousness of employment and volatility of income discovered by the analysts at Lloyds.

If, as the researchers at the Centre for Global Development have found, the gig economy and the informal economy are the present, and the future of work in Africa, then there are lessons from the established customs and coping mechanisms which can inform beneficial solutions and tools for the developed world, for the UK, and for the Global North.

It’s time we recognized the truth about the future of work in Africa: it isn’t in the growth of full-time formal sector jobs. The future of work will be people working multiple gigs with “somewhat formal” entities. This is already true, and it will be for the foreseeable future.

This is true for the whole world now, not just Africa. And, it will change the way we think of platform design, payment plans, as well as policy frameworks, for our near and emerging future.

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