Moral Hazard in the Gig Economy – Who Pays the Price?

 The digital marketplace known as the gig economy keeps expanding because workers find customers online for one-time task-based services. While the World Economic Forum (2024) reported that the gig economy market was valued at $556.7 billion in 2024, it predicted that the market will experience rapid growth to $1,847 billion by 2032. While the projected growth in the gig economy brings about work flexibility and additional opportunities, it is also poised to introduce an economic problem called moral hazard. Moral hazards occur when economic transactions have been carried out, and a party cannot monitor the conduct of another party (Ali et al., 2024). In the gig economy, workers also knowingly or unknowingly cause moral hazards by exploiting the system since their activities remain hidden from the businesses. As the distribution of economic value remains unclear between businesses and workers, the question remains: who really pays the price of these hazards?

Understanding the Issue

The gig economy is a common term, but do people understand the hazards in this sector? While the Gig economy allows businesses to employ independent workers without formal contracts, they cannot observe every activity of the worker hence highlighting the moral hazards problem (World Economic Forum, 2024). When there is a mismatch in the goals of the workers and businesses, the worker tends to make decisions serving their interests ahead of organisational targets. But how do businesses cushion themselves against these unforeseen behaviours? In most cases, businesses use algorithm management systems to provide ratings, penalties, and dynamic payment structures to maintain worker productivity while reducing shirking (Duggan et al., 2020). Moreover, as businesses continue to maintain management control of workers’ activities, they also transfer risks onto workers by treating them as independent contractors. What transpires from such controls and intentional classification as independent contractors? Businesses find it easy to dodge employee safety regulations like job stability, benefit packages, and fair pay systems, resulting in unpredictable market conditions. Gig workers experience all financial risks and employment uncertainties as businesses maximise profits but offer no safeguards.

Real-Life Examples

After understanding the moral hazards in the Gig economy, are there any real-life examples showcasing this issue? The answer is yes. Gig economy platforms such as Uber and Deliveroo demonstrate how workers or businesses cause moral hazards because they prioritise monetary gain over general ethical and safety requirements.

The earnings of Uber drivers heavily depend on the combined factors of trip distance and time of trip. The dynamic payment system motivates drivers to choose longer, non-efficient trips, such as airport trips, which generate higher fares based on distance. However, Uber imposes strict algorithm systems to penalise the biased drivers, hence controlling the biased selection of long distances in Uber compared to other online transport businesses. This is evident in a study showing that conventional taxi drivers follow routes that extend 8% longer than those used by Uber drivers (Liu, Brynjolfsson & Dowlatabadi, 2021).  However, in peak pricing, Uber drivers still stretch their routes to obtain higher fares. As a result, while Uber deploys algorithms to control these behaviors, the dynamic pricing system creates opportunities for moral hazard behaviors, showing that digital monitoring using algorithm systems reduces but does not eliminate such inefficiencies.

What about Deliveroo? Deliveroo riders face work-related pressures that make them vulnerable to practicing unsafe driving habits. The pay couriers earn relies on completing deliveries so many workers are involved in risky behavior like speeding and mobile phone usage while riding. Research shows that multiple food delivery workers actively use mobile phones either during cycling or driving for occupational reasons (Wang & Churchill, 2024). Riders who behave this way are likely to get involved in accidents, thus putting themselves and others in harmful situations. While Deliveroo makes an effort to address such hazardous behaviours, its measures fail to reduce the riders' pressure to expedite over-safe riding. Also, the Deliveroo system of payment based on the number of deliveries completed distributes risks to its workers while preserving company earnings, representing an additional moral hazard in gig platform work.

From these two examples, the pursuit of individual gains in the gig economy creates a myriad of moral hazards in the industry.

Economic Perspective

The platforms behind the gig economy, such as Uber and Deliveroo, employ a wage system that provides minimal and inconsistent pay to workers while directing the associated risks on their employees. Worker incentives to perform opportunistic actions become stronger because this wage system prompts workers to choose longer distances and ride recklessly to increase their income.

From the businesses’ perspective, the cost-cutting approach of outsourcing workers provides companies with financial benefits and flexible staffing while eliminating typical employment responsibilities such as job safety and training. Additionally, through algorithmic management, companies gain access to real-time performance tracking, which helps them control their labour supply outside of permanent hiring roles (Duggan et al., 2020).

However, as a gig worker, an individual has flexible schedules, yet stable financial stability is not guaranteed; they must endure unstable incomes and uncertain working contracts. As a result, workers become susceptible to economic instability because a dynamic pricing system leads to inconsistent earnings, although it might sometimes generate additional income, such as during peak pricing (Dublino, 2025). Therefore, who gains and who loses? From the economic perspective, risks and financial returns in the gig economy are not distributed equally among the parties involved, thereby reflecting the phenomenon of moral hazard.

To sum up, the Gig economy businesses benefit financially the most through their operations while workers bear the losses. Uber and Deliveroo can resolve the dynamic pricing issue by implementing base rate floors that establish minimum income regardless of demand shifts (Kenton, 2024). Additionally, by implementing a government standard guaranteed minimum wage, workers' financial stability will not be compromised because these wages ensure livable earnings even when market demand changes (Sloneek, n.d.). By following this regulation, both risk-shifting behavior is contained, and an equitable long-term framework develops for the gig economy.

 

 

 

 

 

 

References

Ali, N. M., Salim, S. M. S., Mansur, M., & Shahiri, H. I. (2024). Moral Hazard Behaviors and Mitigation Strategies: A Systematic Review. Jurnal Ekonomi Malaysia, 58(1). http://dx.doi.org/10.17576/JEM-2024-5801-01

Dublino, J. (2025). What Is Dynamic Pricing and How Does It Affect E-Commerce?. business.com. https://www.business.com/articles/what-is-dynamic-pricing-and-how-does-it-affect-ecommerce/

Duggan, J., Sherman, U., Carbery, R., & McDonnell, A. (2020). Algorithmic management and app‐work in the gig economy: A research agenda for employment relations and HRM. Human Resource Management Journal, 30(1), 114-132. https://doi.org/10.1111/1748-8583.12258

Kenton, W. (2024). Price Controls: Types, Examples, Pros & Cons. Investopedia. https://www.investopedia.com/terms/p/price-controls.asp

Liu, M., Brynjolfsson, E., & Dowlatabadi, J. (2021). Do digital platforms reduce moral hazard? The case of Uber and taxis. Management Science, 67(8), 4665-4685. https://doi.org/10.1287/mnsc.2020.3721

Sloneek. (n.d.). What Is Guaranteed Minimum Wage?. sloneek.com. https://www.sloneek.com/lexicon/guaranteed-minimum-wage/

Wang, Q., & Churchill, B. (2024). Risky business: How food-delivery platform riders understand and manage safety at work. Journal of Sociology. https://doi.org/10.1177/14407833241246571

World Economic Forum. (2024). What is the gig economy and what's the deal for gig workers? WORLD ECONOMIC FOBUM. https://www.weforum.org/stories/2024/11/what-gig-economy-workers/