The Federal Trade Commission (FTC) has announced that it will use its “full authority” to investigate “unfair, deceptive and anti-competitive practices” by so-called gig economy companies. Exactly how this will happen is telegraphed by the word “algorithm” appearing 16 times in the FTC’s 17-page announcement. The agency explained:
[G]ig companies may use opaque algorithms to generate more revenue from customer payments for worker services than customers or workers understand. These dynamics require a review of the promises that gig platforms make, or information they don’t disclose, about the financial offering of gig work.
Mission creep in federal agencies is rarely a good thing, especially when it comes to law enforcement. But in this case, the FTC may have chosen the thin edge of the wedge. Algorithms have rightfully been a contentious issue for workers in the gig economy sphere.
Algorithms are computer-based mathematical formulas used by companies to perform a variety of calculations. Streaming services use them to recommend programs to viewers based on what they’ve seen before. Gig economy companies such as B. Delivery services use them to calculate wage rates for individual jobs. These formulas can be quite complex, taking into account factors such as distance traveled, time of day, amount of traffic on the road, etc. Exactly which factors are used in a given situation is unclear, making the calculations difficult to predict.
A common complaint from rideshare drivers is that they are unable to determine how much to pay to pick up a passenger until they have committed to taking the fare. Many argue that this confusion is intentional on the part of companies. The rideshare model is about having as many potential drivers available as possible in order to guarantee passengers a fast service. Therefore, the argument goes, companies don’t want to make it easier for drivers to determine if a fare is worth it.
The companies counter that the algorithms are complex because they have to be – they’re constantly juggling numerous different factors such as time, distance, traffic and road structure, all in real time. In addition, the information comes from GPS satellites, which need clear skies to provide up-to-date data.
Drivers have the right to refuse a ride, and if they don’t like a particular company’s practices, they can work for that company’s competitors – which many drivers do. But there are only a limited number of companies they can do this for, and frustration with the status quo is leading some drivers to align themselves with lawyers, unions and nonprofit groups who would try to turn the FTC against the gig economy – bring forward companies.
Free markets work best when they are transparent and the players in them can make informed decisions. The best way to deal with regulatory issues is to address them before the FBI gets involved. Gig economy companies need to move in the direction of openness with their customers if they want to keep the government off their backs.