FTC To Use Algorithms in Bid to Hobble Gig Economy

The Federal Trade Commission (FTC) has announced that it will use its “full authority” to investigate “unfair, deceptive, and anticompetitive practices” by so-called gig economy companies. Exactly how it will do this is telegraphed by the word “algorithm” appearing 16 times in the FTC’s 17-page announcement. The agency declared:

[G]ig companies may use nontransparent algorithms to capture more revenue from customer payments for workers’ services than customers or workers understand. This dynamic calls for scrutiny of promises gig platforms make, or information they fail to disclose, about the financial proposition of gig work.

Mission creep at 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 been a point of contention for workers in the gig economy sphere and justly so.

Algorithms are computerized mathematical formulas used by companies for a variety of calculations. Streaming services use them to recommend programs to viewers based on what they have watched previously. Gig economy companies such and or delivery services use they to calculate pay rates for individual jobs. These formulas can be quite complex, taking in factors such as the distance traveled, the time of day, the amount of traffic on the road, etc. Precisely what factors are used in any given situation is unclear, making the calculations hard to predict.

A frequent complaint of rideshare drivers is of being unable to determine out how much picking up a passenger will pay until after they commit to taking the fare. Many argue this confusion is deliberate on the part of the companies. The rideshare model involves having as many potential drivers available as possible to ensure quick service for passengers. Therefore, the argument goes, the companies don’t want to make it easier for drivers to determine whether a fare is worth their time.

The companies counter that the algorithms are that complex because they have to be—they are constantly juggling numerous different factors like time, distance, traffic, and the structure of the roads, all in real time. There is also the fact that the information comes from GPS satellites which require clear skies to provide up-to-the-minute data.

Drivers have the right to refuse taking any fare 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 so many companies they can do this for and frustration with the status quo many lead some drivers to ally with lawyers, unions, and nonprofit groups that would seek to sic the FTC on gig economy companies.

Free markets work best when they are transparent and the actors in them can make informed decisions. The best way to deal with regulatory issues is to address them before the feds get involved. Gig economy companies need to err in the direction of openness with their clients if they want to keep the government off their backs.