The Rise of the Gig Economy and Its Impact on the Labor Market
The past decade has seen the rapid growth of the gig economy, also known as the platform or on-demand economy. This new economic model is transforming traditional employment and reshaping the labor market in the United States. With companies like Uber, Lyft, TaskRabbit and Upwork leading the way, the gig economy offers workers flexible ways to earn income as freelancers, contractors and temps. However, this seismic shift also raises concerns about job security, benefits and wages. As the gig workforce expands, what is the true impact of this new paradigm on the larger labor market?
Defining the Gig Economy
The gig economy refers to temporary, flexible jobs that typically leverage technology to connect independent workers with customers on demand. Gig workers, also known as contingent workers, freelancers or independents, take on short-term contracts and projects rather than permanent full-time positions. Common gig jobs include rideshare driving, delivery, home services, freelance projects and microtasking.
Key characteristics of gig work are flexibility, collaboration and innovation. Workers can choose when and where to work, for how long and for whom. Customers tap into an on-demand marketplace to find services. The model enables collaboration between independents and businesses while leveraging apps and platforms to facilitate transactions. Proponents argue the gig economy also spurs innovation by empowering enterprising individuals to start their own businesses with low overhead costs.
Estimating the Size of the Gig Workforce
Given the diversity of gig work, estimates of the number of gig workers vary widely. According to a 2016 study by McKinsey, some 162 million people in Europe and the United States, or 20 to 30 percent of the working-age population, engaged in some form of independent work.[ Meanwhile, a 2018 Gallup survey found that 36 percent of U.S. workers participate in the gig economy through either their primary or secondary jobs. That translates into roughly 57 million Americans earning income through gig work.
The exact percentage is unclear, but most data suggests a significant minority of the U.S. workforce now participates in the gig economy in some capacity. This labor market shift could have major implications for incomes, job stability and access to employee benefits.
Gig Economy in the United States
| Category | Data |
|---|---|
| Size of the gig workforce | 36% of U.S. workers participate in the gig economy in some capacity (Gallup 2018) |
| Types of gig jobs | Rideshare driving, delivery, home services, freelance projects, microtasking |
| Demographics | Younger generations more likely to participate, but gig work spans all ages |
| Earnings | Median hourly earnings range from $6.46 (transportation) to $28.47 (professional services) (BLS 2018) |
| Motivations | – Extra income (50%) – Be own boss (31%) – Flexible schedule (30%) (Pew Research 2018) |
| Benefits access | – 15% have access to retirement benefits – 13% have access to health insurance (BLS 2018) |
| Job security | – 63% say gig work provides security vs. traditional jobs – 44% worry about income volatility (Pew Research 2018) |
Impact on Incomes and Job Stability
For workers, the gig economy offers a double-edged sword. Gig jobs provide people with flexible ways to earn extra income. However, critics argue companies exploit gig workers with low wages and insecure employment.
On the upside, gig platforms enable almost anyone to monetize their skills and time. Students, caregivers, retirees and others unable to commit to 9-to-5 jobs can work when convenient. Laid-off employees also use gig work to supplement income during unemployment. According to the U.S. Bureau of Labor Statistics (BLS), 1.6 million people benefit from the additional income provided by gig work.
The flexibility empowers people to become micro-entrepreneurs. A musician can take on an extra gig performing at a wedding while an accountant can pick up freelance tax preparation projects. Individuals can choose how much or how little to work at any given time. For those who traditionally struggle to access steady employment, platforms provide opportunities to earn.
However, concerns persist around unstable incomes and lack of job security. Gig jobs rarely provide steady salaries or guaranteed minimum pay. Earnings fluctuate based on consumer demand and the availability of gig workers. Workers must constantly compete for each project or shift while dealing with erratic downtime between tasks.
With no employer obligation, gig workers also face the stresses of unstable work volumes and income insecurity. Unless highly skilled experts in their fields, gig workers typically earn low hourly wages after factoring in unpaid working time and expenses. Most gig jobs do not come with benefits like health insurance, paid time off or retirement savings plans either.
While advocates argue the model offers workers flexibility and autonomy, critics say it shifts financial risk onto employees while letting companies avoid the costs and responsibilities of formal employment. More research is needed to better understand trade-offs for gig workers between flexibility of schedules and precariousness of work.
Effects on Employee Benefits and Protections
Beyond income stability, the explosive growth of the gig economy also raises concerns regarding access to employee benefits and protections.
Independent contractors and freelancers face several disadvantages compared to formal employees. Gig workers must pay both portions of Social Security and Medicare taxes while formal employees pay only a portion. Gig workers also miss out on unemployment insurance, workers’ compensation, employer-sponsored health insurance, paid leave, family medical leave and anti-discrimination protections.
Unless gig companies voluntarily extend benefits, the contingent workforce remains vulnerable. For example, during the COVID-19 pandemic, many gig workers struggled financially when work dried up. Without employee safeguards, gig workers had limited access to relief programs like paid sick leave and unemployment benefits.
Some gig companies like Uber do offer certain protections like health insurance and insurance for injuries on the job. However, benefits apply inconsistently across platforms. Regulation may be necessary to close gaps in the social safety net for gig workers.
Thus, as the gig economy matures, larger trends around automation, globalization and demographics will likely further transform the labor landscape. Gig work offers real benefits for companies and workers but also surfaces tensions between flexibility and security.
Advances in technology and AI will inevitably change the nature of gig work over time. As more tasks become automated, jobs revolving around uniquely human skills and emotional intelligence may become more valuable. But automation and offshoring may also displace some gig workers or drive down wages for routine tasks.
Demographic shifts will also impact the future workforce. Millennials and Generation Z show a preference for flexible work arrangements. At the same time, aging Baby Boomers exiting the workplace may turn to gig work for supplemental income. As the working population changes, the gig economy will continue reshaping employment.
While there are open questions, the gig economy offers a promising way forward. As the pioneer of a new economic model, the U.S. now has opportunities to set standards for work and protections for the 21st century. With proactive policies and continued innovation, the gig economy can promote inclusive and sustainable jobs for the future.