Everything You Need to Know About the ‘Gig Economy’

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It has been called the sharing, on-demand, and gig economy. It has been recognized as a revolution and has had that titled stripped in the same year. It’s everything economists are excited about, and at the same time, the thing that policy makers fear most.

But in 2016, years after it was first introduced as an idea, what exactly is it?

What Defines the Gig Economy?

The gig economy is a bit difficult to define because even the experts consistently contradict each other. Essentially, it is the growing sector of the American workforce that makes the majority of their income by stringing together multiple freelance or contract work positions. Often times, these positions are facilitated through traditional means such as freelance staffing agencies for designers or developers. However, recently, many more gig economy workers are finding their work through some sort of online or mobile platform such as the Uber, Thumbtack, or Taskrabbit apps.

The Impact of This “So-called” Gig Economy?

If the gig economy has high enough participation rates, then it could completely redefine the employee/employer relationship for U.S. workers. However, measuring the size of the gig economy has proven divisive, and has many experts debating whether or not it’s big enough to have any meaningful impact on our overall economy.

To illustrate this divide, consider this: When thought leaders first started discussing the Gig Economy (back in 2011) one Reuters’ reporter claimed that this “freelance surge” is the “industrial revolution” of the 21st century. That’s quite a hefty claim.

However, a Wall Street Journal reporter, years later — theoretically when much more should be understood about this economic phenomenon — declared “proof of a ‘gig economy’ is hard to find.” So, if it is in fact a revolution, the WSJ claimed, it’s an invisible one.

Who Has Been Tasked With Defining It

First and foremost, the experts pushing the conversation around the Gig Economy aren’t the policy makers who have been tasked with understanding, defining and regulating this new economy. In fact, in 2005 (more than five years before the gig economy started seriously making headlines) “the government stopped counting independent workers in a meaningful and accurate way.”

This lack of a standard metric makes it all but impossible to measure the actual size of the gig economy. This essentially splits experts into two camps: (1) Those who perceive a huge gig economy and deem it a “revolution” and (2) those who continuously point to the lack of evidence pertaining to the actual size of the gig economy.

Without a Standard Metric, Can We Ever Measure It?

Great question, and a great segway to some recent news.

Last month, TIME released what many believe to be the first, comprehensive survey conducted on the gig economy, and the results are sure to be debated by pundits for months. TIME had Penn Schoen Berland Research conduct 3,000 online interviews with American adults from November 16-25, 2015, to determine the size, growth, and general disposition toward the Gig Economy.

The big stat? 44 percent of American adults participate in the gig economy.

After years of debate, the numbers are finally in; the gig economy exists, and it’s just as big as it has been perceived. In fact, the gig economy is large enough to have a real effect on our economy, when measured through a comprehensive study like TIME’s.

The Effect on Workers

Remember that reporter who called the gig economy the new Industrial Revolution? She might be right.

Currently in the U.S., and even in the UK, there exists two types of workers. Regular workers are probably like your mom and dad; they worked at one or two companies their entire lives, received great benefits, a retirement plan, and a gold watch when it was all said and done. They traded in the hours of 9 a.m. – 5 p.m., Monday-Friday, 52 weeks a year, for the security that comes along with being an employee that fills out a W-2 form.

Contract workers are a lot different. They fill out what’s known as a 1099, meaning when they do work for a company, they are working as a self-employed individual who is being contracted for a finite amount of time. Until Silicon Valley gave birth to the likes of Uber, Airbnb, and Taskrabbit, a contractor was someone like your plumber.

However, a freelancer today could be someone who provides Uber rides during the morning, buys groceries for a Taskrabbit user in the afternoon, and is hosting out-of-towners in their spare bedroom through the Airbnb app at night. The main difference between a gig economy freelancer and your traditional contractor lies within their benefits and job security.

Are You Saying Contractors Aren’t Receiving Benefits?

Traditional contractors like your plumber, or a carpenter, have been afforded protections through government programs such as the “hour bank”. The “hour bank” provides workers with benefits that they would receive from a single employer, when they meet the requirements of fulfilling contract work for multiple clients/customers, thus stringing together a full week’s work. These benefits include basic health insurance, protection from random termination, and unemployment benefits should they lose their job.

Gig economy contract workers are afforded no such protections. They fall somewhere within the grey area that lies between W-2 and 1099 employees, and because of this, have become some of the most vulnerable workers in our economy. Since they’re considered contract workers they don’t receive the job protections a normal full-time employee enjoys. Likewise, because they aren’t traditional contractors, such as plumbers, carpenters, and the like, they are unable to take advantages of government programs such as the “hour bank.”

Is This Where the Controversy Surrounding the Gig Economy is Coming From?

In part, but not in whole.

Here’s the controversy in a nutshell. Silicon Valley businesses such as Uber, Taskrabbit, and Airbnb created platforms that help individuals provide goods to their peers. This created the sharing or gig economy. The gig economy disrupted many legacy industries — think about how Uber has totally upended the taxi industry.

Because of the success of Gig Economy businesses, this sector of the American economy ballooned, with 44 percent of adults now participating. And not only is participation high, but so is employment, with nearly 54 million Americans adults now holding a job within the Gig Economy. This significant portion of the American workforce is at risk of working in the gray area between W-2 and traditional 1099. Furthermore, many workers have begun to bring class-action suits against the platforms they use for not providing protections that W-2 and traditional 1099 workers have access to.

Does This Mean Gig Economy Companies Are Taking Advantage of Workers?

Not necessarily. It seems that for every lawsuit a group of former workers brings forward, there is a group of equal or greater size praising the status quo.

The problem, however, is that there’s no precedent set for a gig economy. It’s the industrial revolution of our age in the sense that it marks a radical shift in the way many Americans define their employer/employee relationships, and there is no legislation in place to protect those participating in this redefinition.

Lack of legislation has lead to lawsuits, and the fear is that the gig economy could be shut down — like foreign governments have tried to do, or have done, to some sharing apps like Uber. However, now that we know the true size of the Gig Economy, a shutdown might not be possible. It may represent a large enough sector of the American workforce to make it too big to fail.

Can the Gig Economy Succeed, and How?

There’s no silver bullet here, and to say I have the answer would be a bit erroneous. With that said, there are three things that will almost certainly have to happen for the Gig Economy to succeed:

  1. Help from the courts: As stated above, there’s no precedent for many of the lawsuits being brought against gig economy companies. Those who are currently in the courts with former workers will have to hope that they receive favorable rulings from the courts that will allow them to maintain the status quo. If courts come with negative rulings for the gig economy companies, it could mean a major reorganization of the entire sector, or worse, shut down.
  2. Continued growth: Uber is often looked at as the gold standard of this new economy. In just five years it has grown its value into the tens of billions of dollars. The gig economy itself, meaning its entire portfolio of businesses, need to continue their impressive growth to create “too big to fail” value for the American people who use these services.
  3. Sustainable growth: While these companies will need to grow, and grow quickly in new and emerging markets, they’ll also need to do so sustainably. That means they’ll likely need to take on new recruitment marketing technologies that will help them find and onboard new, high-quality talent, without breaking the bank.

For many, the gig economy is a valuable sector of the American marketplace that is headlining our transition to a 21st-century economy. For some, it represents the only chances they have at finding work that provides a liveable wage. Others still, see it as an economic sector that finds itself in an early stage of it’s infancy, and there is much work to be done before we can say its has revolutionized the way we work. However, regardless of which side of the conversation you find yourselves on, the gig economy represents a tremendous opportunity for the American worker — an opportunity that can be supported and leveraged by professionals in the staffing and talent acquisition spaces.

 

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  • NormClausen

    Great article, Sal. One of the interesting points you make is that it’s difficult to define the gig economy. So there’s a tendency to take all of the platforms that allow people to freelance and lump them all together, despite key differences that would warrant more or less regulation.

    For instance, in the case of Uber, we see disruption of traditional taxi companies where workers who used to be eligible for full-time benefits are now seen as independent contractors. Is that fair? It’s not really for me to say. Those workers have to choose what’s most important to them–flexible hours, being their own boss, or having healthcare.

    But there are many other platforms that simply give people who would be already be freelancers a better venue to build their business. A few examples…

    If you rented your vacation home in the ’80s, it was always a side-gig. We can’t expect that to change just because Airbnb has created such a large and efficient marketplace that people are now turning their rentals into full-time jobs.

    If you were a headhunter in the ’90s, you’ve always been an independent company on a contingency-based contract with your clients. It’s no different on RecruitiFi just because you have easier access to submit your great candidates to employers or start your own recruiting business without the friction of business development.

    If you used to make amazing handmade furniture or jewelry, your goal was to open your own brick and mortar store–which meant you were on your own to cover significant overhead, including benefits. Etsy hasn’t changed the nature of the work, they’ve just made it easier and more affordable to get your awesome handmade goods in front of a large consumer market without the tremendous overhead.

    My fear is that government interaction is going to smother these great new business models in red tape and stifle that next great “Industrial Revolution” that you mention. Hopefully the free market will be allowed to decide.