Closing the Gap: How FinTech Empowers Freelancers in the Gig Economy
The American labor force is experiencing a fundamental paradigm shift: the decline of traditional employment. From 2005 to 2015 the US experienced a small net decline in the conventional workforce, meaning all net employment growth during that period came from other sources.
What’s driving this growth? Over the past few years, journalists and media outlets have documented the rise of a purportedly massive new gig workforce. The “gig economy” — a phrase often closely associated with the “sharing economy” or the “access economy” — refers to an economy in which workers take on a series of short-term jobs and provide services through online and mobile intermediaries like Uber, TaskRabbit, or Airbnb. New research shows, however, that the gig economy doesn’t quite live up to the hype. Alan Kruger and Lawrence Katz — economists at Princeton and Harvard, respectively — recently found that on-demand workers comprise just 0.5% of the US workforce, debunking claims that up to a staggering 22% of Americans are offering services in the gig economy.
Our obsession with the gig economy has obscured a much larger and more important trend: the rise of alternative work arrangements such as temporary help agency workers, on-call workers, contract workers, independent contractors, and freelancers. Alternative work arrangements accounted for 16% of the US workforce in 2016, up from 10% in 2005. Intuit makes a bold claim that contingent workers will comprise 40% of the workforce by 2020. We think that’s a bit aggressive, but the fact that over 80% of large companies “plan to substantially increase their use of a flexible workforce” provides even more evidence that we’re living and breathing a “new normal.”
This shift isn’t happening by accident. 92% of independent contractors are very or somewhat satisfied with their jobs, a statistically significant positive difference compared to standard full-time workers. And over 70% of the individuals we surveyed chose at will to become freelancers. Of that group, more than 85% cited a more flexible schedule as a factor contributing to their decision, and over 70% valued being their own boss — in line with Katz and Krugman’s finding that 84% of independent contractors prefer to work for themselves. High income was a consideration for less than 15% of our respondents. The decision to become a freelancer does not seem to be driven by a desire to make a lot of money, but rather by unquantifiable, lifestyle-oriented benefits.
Despite these benefits, freelancing comes with a significant and recurring opportunity cost — about $24,000 annually — that is unlikely to disappear anytime soon, especially since a full 70% of the freelancers we surveyed view freelancing as a long-term career. But freelancers can begin to recoup this opportunity cost using flexible, efficient, technology-driven, and mobile tools designed for individuals who are also businesses. As a starting point, freelancers need a new approach to personal financial management that is grounded in financial technology. FinTech enables freelancers to become smarter spenders, savers, investors, and users of credit — all while reducing costs and saving time.
This is an excerpt from the introduction of a white paper written in partnership with The Wharton School and Moven — a mobile banking technology company. The full white paper is available here. It includes a detailed analysis of the financial opportunity cost facing freelancers; a proposal for a new FinTech-based approach to personal financial management — including opportunities to spend, save, invest, and use credit in smarter ways; and recommendations for policymakers and financial institutions.
