Quiet revolution: how Ukraine became the champion of digital work

Technological developments are profoundly modifying the world of work, and Ukraine is among the pioneers of this digital revolution. According to various sources, in 2013-2017, Ukraine occupied the first place in Europe, and the fourth place in the world in terms of work on online platforms that match labour demand and supply, as measured by the amount of financial flows and the number of tasks executed on such platforms. Ukraine also ranks first in the world in «IT freelance».

How did this quiet revolution come about? Who are these Ukraine-based digital workers? What are the conditions of their work? What consequences does digital work have for them, but also for the Ukrainian labour market and the society in general? A new ILO report “Work through Online Platforms in Ukraine: Key Issues and Policy Perspectives” strives to answer these questions.

Why Ukraine?

Digital work became possible because of technological developments: an easier access to the internet throughout the country and the development of global and national online platforms offering work. Such online platforms (the most famous in Ukraine are Upwork.com, Kabanchik.ua, Freelancehunt.com, and Freelance.ua/ru) position themselves as places that match demand and supply of labour. Clients can post tasks, while workers can find those tasks that correspond best to their skills and their availability for doing work. As there are no boundaries in the online world, online platforms allow clients to reach out for the workforce worldwide, while workers gain access to more work opportunities both locally and globally.

But there is a set of other factors making Ukraine unique and distinct from other countries that are competing for the online work. Ukraine is a country with a highly-educated labour force, possessing ample IT and language skills. Yet, the standards of living and earnings of Ukrainians remain relatively low, while unemployment, underemployment, and skill mismatches are high. The latest global economic recession was amplified by the deepest political changes that started in the country in 2013-2014. The Revolution of Dignity that resulted in the ousting of the previous president, the outbreak of a military crisis in the Eastern part of the country in early 2014, and the annexation of Crimea exacerbated the difficult economic and labour market situation. The country is also plagued by informality and poor law enforcement, which reduce not only work opportunities and the quality of existing jobs, but also the confidence in the functioning of social security systems and other public services.

Ukraine is a country with a highly-educated labour force, possessing ample IT and language skills. Yet, the standards of living and earnings of Ukrainians remain relatively low, while unemployment, underemployment, and skill mismatches are high.

The combination of these reasons encourages workers to seek various work opportunities, including online. It also motivates particularly talented professionals to choose digital work in order to transcend local and national markets, and receive pay from abroad. And at the same time, Ukrainian workers are attractive to foreign clients of online platforms who can obtain good-quality work for a relatively low pay, yet keeping earnings from such jobs attractive enough to those who perform them. Digital workers from Ukraine are also often preferred by customers from Europe and America because of cultural proximity. Moreover, Ukraine is also located in the Eastern European time zone, which simplifies online communication of Ukrainian workers with post-Soviet and European clients, in contrast to workers from other regions, such as Asian countries.

Today, online work is available to Ukrainian workers through over forty different platforms. These platforms include those serving mainly the Ukrainian market, but also those serving the post-Soviet, Russian-speaking markets and international markets. Some workers also regularly find work through online social networks. Online, workers perform a variety of tasks, ranging from IT to working with texts, photo and video, tutoring, product testing and writing reviews.

Digital work: key issues

As the phenomenon of online platform work is gaining importance, it also transforms the modes of work and changes how the “work” is viewed by both businesses and workers – throughout the world, but also in Ukraine specifically. As such, it has profound implications for workers, for business models, and for societies.

Workers are increasingly relying on themselves – whether willingly or not – to obtain the skills necessary to operate on the platforms, to find work and clients on the platforms, to develop their reputation and ensure the steady stream of work and income. With few “borders” in the online labour markets, they also search specializations in either local or global labour markets, adapting their knowledge and language skills to work possibilities provided by internationally and locally operating platforms. The work can last from several minutes to several months, and, importantly, it does not give rise to an employment relationship. This means that conditions of work of “freelancers”, as they call themselves, remain outside the scope of labour regulation. While many of them are indeed “free” freelancers, others are not, and for some, the opportunities that the new forms of work represent come with a heavy counter-weight of challenges in terms of competition for work, precariousness, and various forms of dependence on a client or a platform. When questions arise, it is also often unclear whether it is the law of Ukraine, or of the country of origin of the tasks that should be applied, and how it can be enforced.

Workers are increasingly relying on themselves – whether willingly or not – to obtain the skills necessary to operate on the platforms, to find work and clients on the platforms, to develop their reputation and ensure the steady stream of work and income.

In their turn, enterprises, whether international or national, are adapting their human research strategies to identifying workers with relevant skills rather than providing them with skills, and pooling them from worldwide labour market rather than from national markets. Companies in the developed world also precipitate the race to the bottom in working conditions and pay, by outsourcing regular tasks to workers from poorer countries, such as Ukraine. Moreover, by treating digital workers as “freelancers”, enterprises do not contribute to the social security and tax system of the country to which they outsource digital tasks, as they would have done if they delocalized there.

Such transformations in the world of work inevitably carry both a strong potential for benefitting the Ukrainian society, as well as considerable risks. A good understanding of such risks is important for creating responses for their management, in order to enhance the benefits of the work transformation brought about by the platforms.

Working Conditions of Ukrainian Digital Workers

Working conditions of Ukrainian onliners were analyzed thanks to the representative quantitative and qualitative surveys conducted in the fall and winter of 2017.

The surveys revealed that Ukrainian digital workers are relatively young, and overwhelmingly educated: 55% report having either a specialists or a Masters degree, and 2% have doctorate degrees. A quarter of all respondents consider work through platforms as their main source of income. Nearly a third of respondents perform work exclusively for Ukrainian clients, others work fully or partially for clients from abroad. Main non-Ukrainian clients are Russians and Americans (Figure 1).

At this early stage, Ukrainian digital workers are generally satisfied with online work and view it as an important source of income. They highlight many positive aspects in their work, including accessing wider markets for work, often having better pay for their work (compared to their offline work, which is not always in the same field), finding fulfilling tasks, having flexibility of working time, being able to devote more time to families and hobbies, and being independent from a particular employer. Many apply their skills better than in the offline economy, and many practice constant skill-upgrading in order to reach more and better online work.

Yet, the surveys also revealed important challenges and risks that numerous Ukrainian digital workers face. Almost a half of workers actually risk being in disguised employment relationship rather than genuinely “free”, either because they depend for their income on one main client (and sometimes one platform), or because clients control their work and leave them little autonomy for execution of tasks. In other words, these workers are wrongly classified as freelancers, and should have been considered as salaried employees, subject to protections offered by the labour law.

About a fifth of workers works long hours (over 48 per week), and a third works atypical hours, such as during the night. The proportion of such workers is higher among online freelancers than in the offline economy. The majority of workers also constantly search for new work or spend about a third of their time on unpaid activities in order to access work.

While the majority suggested that flexibility is a key aspect of freelance work, only a third can afford taking holidays at any time, and over a half stated that they could not afford not to work for 4 weeks in a year.

The majority of respondents (80%) receive project-based pay, while 12% receive hourly pay, and 8% receive other type of pay including salary-like transfers. Monthly incomes from online work are, on average, slightly above the average gross wage in the country.

The majority of respondents (80%) receive project-based pay, while 12% receive hourly pay, and 8% receive other type of pay including salary-like transfers. Monthly incomes from online work are, on average, slightly above the average gross wage in the country. However, since the gross average wage includes social security contributions, paid leave and payments in case of sickness, it cannot be said that online earnings are superior to offline earnings. There is also an important gender gap in pay: average male earnings from online work are 2.2 times higher than average female earnings. This gap is substantially higher than the gender pay in the offline Ukrainian economy, estimated at 23,7% in 2014. This gap is also observed along the whole earnings distribution. Verification of what stands behind this difference suggested that it is the segregation of men and women into different types of activity, and the fact that male-dominated activities are more oriented towards foreign markets which pay more, while female-dominated activities are more oriented towards local market which pays less.

While some workers are constantly trying to stay abreast of new developments and improve their skills, many others – especially women –  are also performing tasks that are not demanding, thus potentially deskilling themselves or at least underutilizing their skills.

The vast majority of workers have to comply with the regulations established by platforms, such as paying commissions (85% of workers have to do so), and sometimes having their accounts blocked. Almost a third of respondents have experienced non-pay for their online work. Half of these workers believe that the reason for this was clients’ fraud.

Finally, three quarters of platform workers do not save in any way for their retirement. In addition, three quarters of all workers also work informally and are not registered with administrative or tax authorities – again, the propensity of informal work is higher than in the offline economy.

Digital Worker: The Future of Work?

Given this, digital work provides important opportunities for Ukrainian workers and for the society, but also raises important questions on the sustainability and the future of the social model that it offers.

Clearly, there is scope for an explicit governmental policy to fully unleash the potential from digital work for Ukraine. Such policy can first and foremost aim at facilitating formalization of the activity of Ukrainian online workers, and legalizing their incomes from the platforms. Equally important is allowing for an easier money transfer and foreign currency withdrawal by individuals. An explicit governmental policy could also aim at developing certain minimum protections of the basic rights of online workers. This could include setting the basis for transparency of the platform’s rules, such as those governing ratings, profile deactivation, commissions, changes of terms and conditions of use, portability of ratings and experience between platforms.

Importantly, any such policy should be developed jointly with the online workers, the clients and the owners of the platforms (either local owners or country representatives of international platforms). Potentially, dialogue with other countries on these issues could be initiated. The policy to embrace the digital work revolution should also be an integral part of a general employment policy, strongly articulated with the country’s strategy on skills, social protection, and poverty reduction. Some governments, such as in Estonia, Malaysia, or Nigeria, have already developed digital strategies for their countries in order to embrace the digital revolution and fully grasp its benefits for their workers. Is Ukrainian government next?