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
A lot of major players with close to unlimited resources tried to repeat the success of Ebay; Microsoft and Yahoo among them. They all failed: buyers want the largest selection, so they stick to Ebay. 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 even Switzerland, it’s not easy to leave Upwork for something else. As a reputation bank, Upwork keeps your reputation capital. Loosing 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 then 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 it from 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 richer 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 the 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 that 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
stephan

Upwork CEO Stephane Kasriel explains the new pricing

What 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 the 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 it 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:

BLOG-fl-lifetime-billings

An chart by Upwork: the client they want to show earns way more than $10,000.

We Need Better Regulations

We have yet to see policies which 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)

 

From Noun Project’s website. The gray is their share with no risks for them. Noun Project will do some “crazy math” (quote) behind their pricing and take 60%.

From Noun Project’s website. The gray is their share with no risks for them.
Noun Project will do some “crazy math” (quote) behind their pricing and take 60%.

 

  • To limit Envato from preserving its monopoly by punishing authors who sell elsewhere.
Envato’s payout from a $100 sale is $60 for exclusive and $36 for non-exclusive authors

Envato’s payout from a $100 sale is $60 for exclusive and $36 for non-exclusive authors

 

    • 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.


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