When a consumer pays for motorcycle-based gig work, where does the money go?
Following the approach of an earlier, similar post on car ride-hailing, and again using data gathered by the Fairwork Indonesia team in Jakarta, we can break this down using the generic model shown below:
a. Amount paid by customer: the service payment plus a platform fee (sometimes called an order or service or transaction processing fee) plus – sometimes – a tip.
b. Amount paid to platform: platforms typically take a commission (a set percentage of the customer service payment, usually between 10-25%) and often also charge a platform fee.
c. Amount paid to worker: all of the tip and the service payment minus the platform’s commission. In some instances – at the end of a shift or at the end of a week – the worker might also get a bonus payment from the platform e.g. for completing a certain number of tasks or being available for work consistently and/or at particular times. There may also be other criteria that impact access to bonus payments such as low order cancellation rates or high customer feedback ratings. Bonuses are paid to the worker from the platform’s share which is taken from the platform’s commission; sometimes also from the platform fee; and in some instances more than this (in other words, in these cases, the worker earns more than the amount paid by the customer due to an additional subsidy taken by the platform from investment or other sources of capital).
The two charts below show the distribution of customer payments for two motorcycle-based gig work platforms (which were charging a 20% gross commission on the customer service payment plus a fee). Figure 1 presents data for riders who own their own motorcycle (the majority of riders in our sample). Figure 2 presents data for riders who finance their vehicle through loan repayments or (less frequently) rental.
We can draw a number of conclusions:
i. Shares of the Pie: the worker’s true net income (i.e. after work-related costs have been taken into account) is a significant share – around two-thirds – of the total payment made by the customer. Aside from the net income earned by the worker, the great majority of the customer payment is captured by large private businesses; typically multinationals – the platform, fuel companies, vehicle finance houses, telecom providers. A significant chunk of vehicle servicing and maintenance costs even goes this way via parts, oil, tyres, etc.
ii. Fuel Costs: fuel makes up a very significant proportion of costs: around 80% of costs for bike owners; about half of costs for those who finance their motorcycle. It is therefore not surprising that the price of fuel is always at the forefront of workers’ minds: a relatively small rise can cause quite a significant reduction in their net income.
iii. Financing vs. Owning: as expected, the net income of those who finance their vehicle is a lower proportion of customer payment than that of vehicle owners. In absolute terms, these two groups take home about the same net income (non-owners’ net income was about 5% lower). It’s not completely clear how this happens but one contributing factor is that workers who finance their bikes work longer hours in order to help towards earning the extra to cover their repayments: an average 78-hour week compared to a 66-hour week for those who owned their bikes.
iv. Bonuses and Platform Subsidies: as noted below, the figures here are calculated on the basis of 23.5% of rider income deriving from platform bonus payments. The platform gross commission plus fee represent just over 32% of the customer payment; yet the platform’s net earning is 5% or 6% only. In other words, and absent unknown factors, the platform is on average paying substantially more than its entire commission to workers.
On this basis, one can calculate the tipping point at which platforms earn nothing and are having to subsidise worker income from investment or other sources of capital. As illustrated in Figure 3, for this instance, this will happen when worker bonuses make up more than 30% of their income. Yet one can find examples in Indonesia where the effect of bonuses is to more than double workers’ basic pay (i.e. bonuses make up more than 50% of worker income). In such circumstances platforms must be significantly subsidising gig work from capital. If this is widespread, it may help to explain why so many gig work platforms report operating losses.
Network effects – the greater value of a platform to users as more users participate – would predict the emergence of monopoly (single seller of services to customers) and monopsony (single buyer of services from workers). Yet this has not happened in most gig economy markets – including those of Indonesia – which, instead, are oligopolies/oligopsonies, meaning there is competition between platforms for both customers and workers. It is that competition which in part motivates the payment of bonuses to workers.
– Although insurance is shown as 0%, there are small payments against this item by some workers; just that they are so negligible a component that they rounded down to zero percent.
– The average figures we have included are that 25% of rider income is made up from tips and bonuses, of which tips make up 1.5%. This must be seen as a very rough-and-ready average because platforms’ bonus payment schemes are continuously changing; their availability typically varies between workers (e.g. with tiered systems such that the highest bonus payments are only accessible by workers who meet particular criteria on workload, availability, cancellation rates, customer ratings, etc.); and workers’ ability to meet the targets necessary for bonus payment varies from day to day. Bonuses are typically also only achievable for those working very long shifts: some of our sample were working 15- and in a couple of instances 18-hour days.
– The figures here do not take into account any customer-side promotions that platforms occasionally run; the assumption being that these may not alter the share of rider income.
– Fairwork data from South Africa showed riders’ net income to be 55% of the total customer payment, but this did not separately account for bonuses, which will increase the percentage. Overall, distribution of income will vary between platforms and locations so the figures above should be seen as illustrative rather than universal.
Post by Richard Heeks, Treviliana Putri, Paska Darmawan, Amri Asmara, Nabiyla Risfa, Amelinda Kusumaningtyas & Ruth Simanjuntak.Follow @CDDManchester