Upwork and the dictatorship of online marketplaces

Upwork is not the only autocracy that oppresses the poor and weak, but it’s the one that does it so explicitly. With new pricing introduced this May, they have a progressive tax system of 7.7% to 22.7%. The poorest bracket hits… freelances with the lowest income. How come? Let’s see.

Online Marketplaces Are a State

“Unfair advantage” is a term that fully applies to online marketplaces. It’s anywhere from hard to impossible to build a competing marketplace.

eBay Effect

Many major players with close to unlimited resources tried to repeat the success of eBay, Microsoft, and Yahoo. They all failed: buyers want the largest selection, so they stick to eBay, and sellers want more buyers, so they stick to eBay.
Upwork has an enormous unfair advantage. It’s the largest freelance marketplace in the world:

• 9 million registered freelancers
• 4 million registered clients
• A larger “population” than Switzerland, Cuba, or Guinea

Just as with Cuba or Switzerland, it’s not easy to leave Upwork for something else. As a reputation bank, Upwork keeps your reputation capital. Losing your reputation capital and building it from scratch on a new, better platform? You’ll find yourself among online refugees, a phenomenon that’s yet to be studied.

What is clear now: Upwork’s policies have an enormous effect on the policies of millions of people. A stronger effect than the policies of their own governments.

Marketplace Fee is a Tax

It’s a hidden tax. Although hidden, it decreases the purchasing power of the members.

It cannot be avoided; they collect it way more effectively than the state. While some small businesses in the US are under-taxed up to 70%, you can’t avoid paying Upwork (or can you?)

It has no deductions. If you do graphic design and need to buy a new monitor, you pay for it out of your post-fee dollars.

You’re still tax-liable in your own country. There’s no double tax treaty between Upwork and your state.

Progressive Scale for the Poor

Let’s face it: the rich pay fewer taxes. The appearance of the social state in the 20th century hasn’t resolved that; in fact, the gap between rich and poor has been growing since the 80s.
The Case of Liliane Bettencourt
Being a principal shareholder of L’Oreal, she didn’t work a day in her life. While her wealth is over 36 billion, she claims she hasn’t spent more than 5 million dollars a year. Indeed, no matter how sophisticated your taste is, you can’t possibly spend more on everyday life. She’s taxed on this relatively modest income rather than her enormous revenue of her enormous capital. The latter is largely untaxed due to loopholes.
The progressive scale is not the same everywhere.

• Good: Scandinavian states are more fair; it comes at the high price of a ~55% income tax of national income
• Bad: Developing countries enjoy a low tax of 10-15% of the national income, resulting in high income inequality
• Horrible: Autocracies with highly concentrated power are worse of all, but they don’t care. They rely on a limited circle of supporters to preserve the dictator’s power. In exchange, a dictator distributes wealth among his circle.

Still, the global trend is the same: even in Scandinavia, inequality increases.

Upwork’s Case

Upwork introduced this progressive scale on May 3, 2016:

• 20% for the smallest jobs—for $500 or less
• 10% for jobs from $500.01 to $10,000
• 5% for jobs over $10,000

Who falls into the top bracket?

• Low paid jobs from poor countries
• Low paid jobs from rich countries
• Poorly-qualified freelancers because they are easily replaceable

Upwork CEO’s Reasoning

1. They don’t get money from shorter jobs
2. They made this decision in tough cooperation with the community

What do we see here? 

• Stephan speaks in favor of the fewer rich, earning well above $10,000
• His concern is revenue for stakeholders
• Although he was interviewed by the community manager, the whole show has nothing to do with the interests of most community members
• According to Thomas Piketty, the United States has “a record level of inequality of income from labor (probably higher than in any other society at any time in the past).” As bad as this is, many of the lowest-paid Upwork freelancers won’t pay any income tax in the US.

Questions to Mr. Kasriel

1. Who is more likely to have a budget under $500: a design firm from New York or a virtual assistant from Bangladesh?
2. Which part of the community approves the changes: those who earn under $500 per project or over $10,000?

The answer is probably in the graph provided by Upwork, according to which a freelancer regarded by Upwork earns way more than $10,000:

We Need Better Regulations

We have yet to see policies that limit the power of Upwork and other marketplaces:

• To limit the monopoly of the App Store and Google Play with its 30% commission on the whole industry of mobile development. They reject apps with any hint of separate payment handling

• To limit Noun Project getting 60% or more for subscriptions (the model they push hard to customers)

• To limit Envato from preserving its monopoly by punishing authors who sell elsewhere.

• • We want a fair trade policy. While social states introduce the minimum wage, Envato sets astonishingly low prices, so 1000 icons may cost as little as $9.

We’ll have a better world where human skill, talent, and hard work get paid, not the monopoly of the online marketplaces.

See you soon, Upwork.

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By the way, we partner now with Payoneer (a cool way for freelancers to get paid by marketplaces and customers from abroad – we use it ourselves): you can get a $25 discount for our unlimited plan after you receive a $100 payment to your account if you register via this link. Great deal, we think 😉

About the Author
Ivan Boyko is the founder of Icons8. He got his first job after drawing a banner with a CTR of 43%. After years of creating icons, he specializes in rapid prototyping and backlog grooming.