The Gig Economy: A Boon for Workers?

By: Ines Ajmi

The gig economy has opened up a wealth of opportunities for workers — but is it truly a desirable ‘future of work’?

Nowadays a multitude of mundane tasks, be it getting a ride, having food delivered, or fixing a bookshelf, take little more than a click. Enabled by the Internet, the spectacular growth of apps and websites linking together independent workers and potential consumers has created what has been dubbed the “gig economy”. By contrast to “traditional” workers, who are linked to a firm by long-term contracts, workers in the gig economy are self-employed and move from one short-term project to another.

The gig economy may already represent as much as 30% of the U.S. workforce and is projected to reach as much as 43% by 2020 (Forbes). With this growth has come greater scrutiny over independent worker’s status. Is the “gig economy” “democratizing capitalism” (New Yorker 2017) or making workers more vulnerable?

Proponents of the “gig economy” point out the flexibility ‘freelancing’ offers to workers: the latter can choose their work hours, change their schedule as much as they want, and take-on the tasks they find most appealing. Indeed, at least 72% of workers report freelancing by choice, with a job satisfaction slightly higher that of traditional workers (McKinsey). Moreover, this freedom no doubt benefits demographics who would otherwise not have the time for full-time work (e.g. seniors, caretakers).

But for others, “freelancing” is not as much a choice as a stop-gap measure to complement their primary income and relieve the pressure of student debt. As noted by Bridgeworks, a Minnesota-based consultancy company, the post-2008 financial crisis created a division between older millennials, who were able to find work right in time, and younger millennials, “who had to compete with laid-off adults for service jobs” (Star Tribunes). The latter found themselves having to work as independents despite an overwhelming preference for traditional employment (Forbes).

Moreover, for people working for big online marketplaces such as TaskRabbit, Doordash, etc, the ‘flexibility’ touted by those companies can feel like a lure. The costs of entry can be high (for Uber/Lyft drivers especially), the training minimal, and, more importantly, the income is highly variable. The piece rate paid per gig is most profitable during peak hours, but workers who for whom it is a part-time job are often already busy during those times. As a result, they have to work much longer hours, with little prior knowledge of how much they might earn (The Guardian).

Simultaneously, both the competition between employees and the commission taken by their companies have grown: Uber, for instance, now takes a 20% cut of each fare. As this share increases, making a living off of the gig economy has become much harder. In fact, this wage uncertainty may be more acute for full-timers, who eschewed another career path with potentially more secure income streams.

In the food delivery industry, a similar phenomenon has been occurring on restaurants’ end. As their revenue share of sit-down customers has declined, restaurants have become more dependent on deliveries. Yet the intermediaries they rely on have been increasing their cut per delivery (themselves barely making a profit). Restaurants have thus found themselves squeezed on both ends (New Yorker 2018).

The final major challenge faced by all independents is that they do not have access to the same benefits as traditional workers, which includes paid holidays, sick leave, and insurance. For contractors, the sparsity of the coverage they are offered is no fluke: companies intentionally hire de-facto employees as contractors to “avoid paying national insurance contributions” (The Guardian). Thus, companies are not always liable for accidents which occur during a worker’s shift.

The lack of worker benefits has been one of the most criticized problems of the “gig economy”, yet few of the solutions put forward so far have been easy-to-implement. Professor Ursula Huws of the Hertfordshire Business School proposes to fix the discrepancy in benefits by defining the status of “genuine freelancers” more tightly and classifying the rest as “dependent worker[s] with certain rights” (The Guardian). The solution is tempting, for it acknowledges the vast spectrum of professions and situations found in independent work (which includes white-collar occupations such as lawyers, designers, architects, etc), while refitting our social safety net to our changing economy. However, it would likely face resistance from the businesses involved. Basic mandatory insurance policies for Uber, Lyft, and Airbnb had to be fought for and, with many companies barely making a profit, the argument will surely be made that further regulation risks stifling innovation (New Yorker 2014).

Another proposed solution is to add a tax on gig economy services, which would go towards a worker benefit fund. Though interesting, it is unclear how easily services outside of the big marketplaces could be taxed and whether the amount taxed would be sufficient to accommodate all gig economy workers.

Overall, there is no doubt that the gig economy had many benefits, including greater flexibility for workers. However, independence comes with a cost: a lackluster benefits coverage which may create significant problems for them in the long-run. This has been a major concern and one of the most apparent drawbacks of the ‘gig economy’ model and, though a few solutions have been put forward, little has changed as of yet. Finding the right balance between the freedom valued by many gig workers and social protections is no easy task, but will be necessary if the ‘gig economy’ model is to last.