The Gig Economy: A Double-edged Sword?
By Mike Jones & Kiet Fong
In 2017, approximately 34% of the U.S. labor force was employed via the gig economy, according to Intuit, and it’s estimated to reach 43% by 2020. Smith’s definition of the gig economy includes freelancers of all sorts — from those who uses digital platforms to deliver services to the local plumber. Alongside this growth is the increasing number of heartbreaking stories of gig economy workers living under or near the poverty line. Many struggle to scour $400 for emergencies. Some live on food stamps and do not have health insurance.
The rise of the “Gig Economy” over this past decade can be attributed to a confluence of factors. But many would argue that The Great 2008 Recession was the main catalyst to this surge in alternative working arrangements. Mass layoffs, hiring freezes, and company-wide cost-cutting measures provide both the demand for and supply of contractor-type workers. Several companies capitalized on this opportunity such as Uber and Taskrabbit.
Since then our economy has more than recovered. We’re experiencing the highest level of full-time employment and the lowest level of unemployment since 1970. (See Figure 1, 2, & 3) Yet the gig economy is prevalent — and growing. As we prepare to usher in the new decade, are we less prepared for a recession today than we were ten years ago? Before the Great Recession, people had traditional employment with steady salaries, company-sponsored benefits, and incentivized retirement saving accounts. Did the rise of the Gig Economy, spurred largely by the last recession, put us in a more vulnerable position for the next one?
We took a look at the numbers. Many gig workers are able to provide benefits for themselves: 91% have medical insurance, 62% have dental insurance, and 41% have retirement plans. That said, gig-only workers fare much worse when it comes to both income and benefits as compared to full-time employees.
FIGURE 1
FIGURE 2
FIGURE 3
The real question is whether or not the immense scale of the gig economy exacerbates the negative effects of an economic downturn. As consumer demand falls in a recession, what happens to the gig workers when there are 30% less orders on Postmates, Uber, and so on? Will that create a significant — and rippling — impact on unemployment and accelerate the downward spiral in a recession? With research collected from the Bureau of Labor and Statistics, the Federal Reserve Bank of St. Louis and from firms like McKinsey and Prudential, we are able to get some answers.
The short answer: not likely.
Here’s what we found out: 34% of the US labor force, 61MM people, is employed via the gig economy, but a majority, about 86%, comprised two categories: (1) self-employed individuals — think your local chiropractor or plumber — and (2) full-time workers who participate in the gig economy for extra income. (See Figure 4) This means that they either provide their own retirement accounts and health insurance or obtain it from their primary jobs. The remaining gig economy participants are gig-only workers, who did not voluntarily choose to be one. In other words, these are the people who would prefer a full-time job instead of their current work arrangement.
FIGURE 4 *note this includes both US & European workers*
The “Gig Economy” that we think of — workers who uses a digital platform to provide goods or services — only makes up roughly 5% of the labor force, and that includes both full-time and part-time gig workers. (See Figure 5)
FIGURE 5 *note this includes both US & European workers*
After we were able to discern the different types of workers in the gig economy, we wanted to know how their financial situation affects the overall economy.
In 2007, 62% of all households between age 32 and 61 had retirement accounts. In 2013, that number dropped down to 57%. Additionally, the participation rate of those with retirement plans declined by 7% from 60% to 53% from 2001 to 2013. However, I’d caution any attribution of these trends to gig-only workers’ lack of access to retirement saving accounts. (See Figure 6, 7, & 8) People are contributing less toward their retirement and savings across the board, not just those in the gig economy.
Figure 6
Figure 7
Figure 8
In conclusion, the portion of the gig economy that we’re interested in — those who use digital platforms to provide goods and services — represents a very small portion of the overall labor force. If a recession does strike, the gig economy won’t accelerate the recession anymore than it did in the past. However, the fight for livable wages and better benefits is one we should support. Earlier this year, California Governor Gavin Newsom signed a new law to help classify gig workers as more than just contractors. Senator Diane Savino and Assemblyman Marcos Crespo is planning to introduce a legislation that’ll allow gig workers to unionize in New York. You can read more about their efforts here and here. They — and many more — are fighting the good fight and they deserve our attention.
SOURCES & RESEARCH
Barron’s — by Adam Roseman founder of Steady App, 37% of the US population in gig economy source; 94% of employment growth came from gig economies source; +1% in Employment = 12 hours of gig economy hours gone source; Defining gig workers = more than just the uber/lyfts but also the welders in auto plants. Source
University of New Hampshire found. Source
Vox: 58% of gig workers struggle to get $400 for emergency bills, whereas 38% of average workers say they struggle source; gig economy startups rely on skirting labor laws to be profitable source, NY Uber drivers’ earnings were so low that 40 percent of drivers qualified for Medicaid, and about 18 percent qualified for food stamps. Source; NYC passes first minimum pay rate for Uber & Lyft drivers, $17.22 per hour (after expenses) which is +$5 from the average for 70k drivers source; In California, Uber drivers can form unions because they’re employees now
Bloomberg Law by Lisa Hogan
Forbes: Gig workers will grow from 36% to 43% by 2020 source
Gig Economy Data Hub [2] [3] [4]
US labor force 160 MM source
Retirement Plan Participation and Accounts [1] [2] [3]
Personal Savings [1] [2] [3] [4]
Median Household Income [1] [2]
BLS (Electronically mediated employment) [1] [2] [3] [4] [5]
BLS Unemployment [1]
FRED Unemployment [1]
Upwork Linkedin Slides Share [1]
Nation 1099 Blog Gig Econ Breakdown [1]
Katz & Krueger Rise & Nature of Alt. Work Arrangement 1995–2015 [1]
Brookings Edu [1]
US FT Employment [1], PT Employment [2]
Ratio of FT and PT [1]
US PT Employment over time [1]
US multiple job holders [1]
California Law lobbying [1]
New York Law Lobbying [1]
New Jerseys Labor Department [1]
