Is the Gig-Economy crushing the “American Dream”
The gig economy, freelance or short-term contract jobs or commodity, has changed our world in the last 10 years. It is hard to remember the days without Uber, electric scooters zooming around the city, or someone advertising their guest bedroom for rent to strangers. But this has become the new normal and most of us have probably done at least one of the things mentioned above. Most of us love the recent technological inventions, which have improved services such as traveling, taxi, hotel, etc. while lowering costs, receiving better service and creating accessibility 24/7.
The Gig Economy is not new to the 21st century. Prior to the Industrial Revolution, numerous people worked jobs which would now be considered as the gig-economy such as farming, transportation, and sharecropping. It turns out that the gigging so many people are talking about and taking part in is a way of life that’s not all that different from the way we lived.
The 40-hour standard, full-time employee-employer relationship is a fairly new phenomenon. And yet this model is slowly changing back to gigging, while the same society fought hard, a few decades ago, for stable jobs and improved employee conditions. How does this new way of employment affect the American economy, people and government? Looking at the past uncovers some of the benefits, challenges, and consequences of the gig economy.
During the agricultural and industrial revolutions, skilled labor was essential to work in farms and factories. Businesses and government channeled billions of dollars into science and research. Governments and businesses have funded science not out of pure curiosity, but because they believe it can help them gain more power and attain some cherished goals.
Recent growth in the gig economy has been primarily fueled by the money of venture capitalists (VC’s). As personal computing reached consumer markets in the 1980s, venture capitalists found a new platform to invest in. During the 1990 tech bubble, the internet made VC’s billions which led to explosive growth in new tech companies in Silicon Valley. Quickly, VC’s and Silicon Valley business model changed from investing in a profitable business to investing in companies with an idea and ability to attract consumers as fast as they can and grow rapidly and figure out how to get to profitability later. Billions made during the tech bubble led VC’s to take the risk in startups and hoping that one of their investments will turn into tech “unicorns”.
Throughout this growth phase in the tech industry, the US and the rest of the world were hit by one of the worst recessions in recent history. This led to whole new sharing concepts and the timing couldn’t be right. In addition, the millennial generation hit the workforce, around the time of ’08 recession, and many of them preferred experiences than owning things; these caused a huge growth in the demand side of this industry. And providers, people providing the service, we’re looking for other ways to make supplemental income required very low and, in some cases, zero investment fueled the growth of the supply side.
During the current technological revolution, companies are striving to move towards robotics, AI and automation which will eliminate the human element in most of the industries, with monotonous jobs. Going forward, do companies have the incentives that align with the public?
I don’t think so.
Gig economy platforms, such as Airbnb and VRBO, Uber and Lyft in their sprint for market power undercut the traditional companies. These strategies created new unicorns that grow and become immensely valuable for their founders and staff. While this furious competition is excellent for consumers, it comes at the expense of the people who are driving and biking rain or shine. As we all have seen in several reports that this side of the spectrum, providers, are barely making minimum wage while the other side of the spectrum, the VC’s, founders and the employees are enjoying the millions in profits.
What does this mean to the future of the American middle-class?
Of course, these new platforms gave Americans additional source of income but why do a lot of middle-class and lower-middle-class, who were comfortable with their incomes a decade ago, want to undertake second or third jobs. The average American still has a relatively high income compared to a person in a nominally rich country. Only their income does not go very far. Most of the income is eaten up by striving to afford the basics of life. We have already seen how healthcare costs have risen dramatically in the last few decades. But then there is education. Below is a graphic from “Bureau of Labor Statistics” showing how the median income increased from 1990 to 2018 compared to other necessities such as housing, gas, prescription drugs, etc. The company’s enormous profits from the gig economy workers often come by paying close to minimum wages to the providers and expecting the government to subsidize the expense of the healthcare costs and welfare benefits workers who fall below the poverty level. And this new business strategy, using the government to provide the supplemental income to employees within the gig economy, is creating the elite 10% and shrinking middle class.
Recently, the U.S. Bureau of Labor Statistics published a report that 16.5 million people make up the “gig economy.” And according to a Future Workforce Report from Upwork, 59% of U.S. companies are now using flexible workforces to some degree — remote workers and freelancers. These practices obviously save money and allow businesses to have leaner traditional workforces but employees who are participating in it are the ones impacted most. For these employees, this means unpredictable future incomes, no 401K for retirement, no health insurance, etc.
The gig economy is here to stay. If you think about it, the reason we have the gig economy is because of huge macroeconomic forces, like globalization, global trade, and technology shifts like the rise of smartphones and infrastructure that provide cheap and easy access to data. We all know that any of those trends are going away, and so I think the gig economy is not either. As an increasing number of individuals that are walking away from the traditional employment relationship, they are losing the benefits such as 401K and pension, which reduces their safety net in case of emergency or after retirement. Gig workers, however, are entitled to the same crucial safety net as the rest of the labor force which falls on the government in case of emergency and same goes with the health insurance. This increases the burden on the government, to avoid economic distress, the government either must impose higher taxes or reduce future spending. Since raising taxes weakens incentives and further slows economic growth — worsening the debt-to-GDP ratio — the better approach is to slow government spending growth which is hard considering the rate at which we are moving towards gig economy. The exploding national debt will be an increasing burden on our children, economic growth and our future standard of living.
America’s still an innovator today. Unfortunately, what it’s innovating now is a new kind of poverty, where the middle class is no longer existing. It’s the reversal of the “American Dream”. It’s people who expect to live better lives finding themselves in the grim, unfamiliar dilemma of never being able to reach their dreams, no matter what they do.
Yet poverty is poverty.
So, what’s the point of what I’m saying? What should be done?
I believe that companies should focus on increasing shareholders value while government imposes necessary rules that will protect employees pay & benefits. Throughout human history, there have been revolutions and humans who have always figured out new ways to provide employment to displaced workers. But this time it is different. First, change is happening fast, and second, people don’t have enough time and resources to prepare for the jobs of the future.
History tells us loud and clear that the great imbalance of wealth in society will result in a societal insurgency. The government has trained us to look at the wrong statistics, which paint only the current picture such as unemployment, GDP. These numbers provide no indication of the future economy. And the truth is we, as a society, are already overdue for the future. Unless the government outlines gigging more narrowly and provides stronger safety nets for gig workers, gig capitalism cannot endure.
