The Online Gig Economy: Understanding its Labor Market during a Pandemic

The pandemic has broken and exposed one of the most flexible labor markets in the world: here’s how.

By Haanbi Kim

As the pandemic laid off large volumes of workers from their permanent roles, and with a new wave of pandemic relief funds is enshrouded in uncertainty, laid-off workers have started working as drivers or couriers in the gig economy. This has facilitated a market breakdown with too many people entering within a short time span allured by the ease with which one can transition into the gig economy. The most admired quality of gig work, ease of transition, has become its most detrimental quality.

This sudden, yet significant, influx of new employment in the gig economy has facilitated a market breakdown as supply spirals out of control. Since March, freelancers joining Upwork’s network have increased 50%, and Instacart reported hiring 300,000 new workers just within a month (Semuels, 2020). Because most gig jobs lack employee benefits, as a tradeoff for their flexibility, gig workers aren’t entitled to a form of minimum-wage or paid leave. This means that because their hourly or daily earnings earnings aren’t guaranteed and are predominantly dependent on the instant supply and demand, they take a direct hit from the supply shock, reflected in plummeting wages. After the outbreak last spring, Amazon Flex shifts now earn an estimated $18-20/hour, a significant decrease from the original $28-32/hour (Semuels, 2020). A Lyft driver reports that his payouts halved to $600 per week (Conger Satariano, & Isaac, 2020). The dramatic increase in gig economy labor supply can be associated with the nature of gig work. Workers can choose their own hours, along with little to none set up costs and barriers to entry; all one needs is a phone and a transportation vehicle.

It’s not only supply, but also demand that has taken a hit. According to a University of Chicago study, Americans’ usage of rideshare services fell from 42% to 16%. Although the study does mention that 71% of users would use these services again within a year, this figure can easily change depending on the severity of the pandemic in the next few months. Additionally, 57% of Americans felt more comfortable with curbside pickup than delivery (“How the COVID-19 Pandemic,” 2020). Human contact is inevitable in gig economy services like ridesharing and delivery, and fears of the coronavirus have significantly played into consumption within the gig economy. In transportation services, this sentiment is more severe with high skepticism to traveling. With too many workers idly waiting for a gig, and not enough people wanting those services, demand and supply shocks have constituted into a “double shock” in the labor market to significantly drive down wages.

In dealing with the repercussions from the respective supply and demand shocks, some workers have resorted to desperation. Clever users have developed computer programs called “grabber bots” that snatch up open gigs the moment they are posted, making the search for employment even more difficult. Some have used grabber bots to get an in-demand gig and then sell it to a willing worker, similar to ticket scalping (Semuels, 2020). Employing network companies like Uber and Lyft stated that they would pay 2-weeks paid sick leave (Conger Satariano, & Isaac, 2020). However, it is hard to quantify compensation for 2-weeks of work in the gig economy, especially to a degree that is satisfiable for both the company and the worker.

Economic recessions are common in the long-run, meaning that we can expect gig economy jobs to be in peril in future recessions as well. As a result, lawmakers’ focus has shifted towards implementing laws that can reduce the effects of the current and future recessions on the gig economy labor market. An option that comes first to mind is implementing worker protections like minimum wage and health insurance. Under traditional employment law, a job’s economic security can be enforced through contracts that ensure compensation. Washington University in St. Louis professor Pauline Kim remarks that “government safety net benefits… are attached to an employment relationship,” but establishing commitment to a “relationship” would undermine the gig economy’s most appealing qualities, flexibility and choice, in lieu of guaranteeing security of earnings (Bellon, 2020). How can legal and economic institutions, which aren’t accustomed to the novel structure of the gig economy, be adjusted to curate proper employment laws that can accommodate this sector?

One piece of legislation that has come to attention is California’s Proposition 22 (more formally titled as the Exempts App-based Transportation and Delivery Companies from Providing Employee Benefits to Certain Drivers Initiative Statute), a ballot proposition that will be voted on in the upcoming election. Proposition 22 hopes to balance the flexibility of the gig economy with the security of traditional labor markets. It states to classify gig workers as independent contractors, provide the flexibility to set working hours, and mandate that rideshare and delivery network companies offer worker compensation, albeit to a limited degree compared to those of full-time employee contracts (Proposition 22: Official Voter Information Guide). If Proposition 22 is voted into effect, it would override California Assembly Bill 5 (AB5), which reclassifies gig workers as employees, thus providing benefits and compensation similar to those of full-time employees.

Whether either of these laws will alleviate the effects of a market shock is still dubious. Under Proposition 22, which is more “employee-friendly,” we could expect more “substitution between traditional 9-to-5 jobs and gig work,” as workers become allured by flexible work hours (“How Has COVID-19,” 2020). If this happens in excess, we may observe increased competition and supply amongst gig jobs in the long-run. Under AB5, barriers to entry may grow as employing companies like Uber will limit how many gig workers they employ, which can harm consumer welfare as prices will naturally increase if costs increase (Bergman, 2020). These laws that attempt to guarantee a market better than that of the status quo have potential to break down the market in the long-run. The gig economy’s recent market breakdown accentuates that as it expands, it is imperative to address the problems concerning the economy’s most valuable sector, its labor market. □

Work Cited

Image source
Bellon, Tina. (2020, March 27). “Explainer: Why U.S. Gig Economy Workers Need an Act of Congress to Get Jobless Pay.” Reuters, Thomson Reuters. http://www.reuters.com/article/us-health-coronavirus-gig-benefits-expla/explainer-why-u-s-gig-economy-workers-need-an-act-of-congress-to-get-jobless-pay-idUSKBN21E2B9. 
Bergman, Adam. (2020, Jan 10). Council Post: How California Assembly Bill 5 Affects The Gig Economy. Forbes, Forbes Magazine. http://www.forbes.com/sites/forbesfinancecouncil/2020/01/10/how-california-assembly-bill-5-affects-the-gig-economy/.
Conger, Kate, et al. (2020, March 18). Pandemic Erodes Gig Economy Work. The New York Times, The New York Times. http://www.nytimes.com/2020/03/18/technology/gig-economy-pandemic.html. 
How Has COVID-19 Impacted the ‘Gig’ Economy?: 5 Questions for USC Marshall Marketing Professor Davide Proserpio. (2020, June 2). USC Marshall, University of Southern California Marshall School of Business. http://www.marshall.usc.edu/news/how-has-covid-19-impacted-gig-economy. 
How the COVID-19 Pandemic Has Disrupted Demand in the Gig Economy. (2020, August 19). University of Chicago News. news.uchicago.edu/story/how-covid-19-pandemic-has-disrupted-demand-gig-economy.
Proposition 22: Official Voter Information Guide: California Secretary of State. (n.d.). Proposition 22 | Official Voter Information Guide | California Secretary of State, California Secretary of State, voterguide.sos.ca.gov/propositions/22/.Semuels, Alana. (2020, May 15). Gig Economy Incomes Are Shrinking as Workers Flood Apps. Time, Time. time.com/5836868/gig-economy-coronavirus/.