The Gig Economy – The Future of Work?
Updated: Jan 24, 2021
The Gig Economy–The Future of Work?
Written by: Swapnil Pathak
From every person who had their food delivered from an outlet, or to those who solicited private tutorship for a difficult subject in school and every other job in between, they have gig workers to thank. The Gig Economy is a growing subset of the world economy that hires independent contractors or freelancers to work with greater autonomy and flexibility in their work life than traditional workers in a full-time job. The higher degree of autonomy is derived from the worker being able to determine their own workload and work schedules to a greater degree than traditional employees. An example of this is a freelance photographer who can be commissioned solely for photos for a specific task instead of applying for a job at the magazine. A higher flexibility is derived from the fact that independent workers are likely to be paid by the hour, or by the number of assignments completed.
In current times, more people now have the technical tools and open-mindedness to explore an alternative career path such as this. Therefore, as the economy went from handing out flyers to IT savvy contract workers it begs the question: How far can the gig economy push traditional boundaries, and will it be the future of work?
A study by McKinsey Global Institute states that as of 2016, the US boasts 68 million and EU boasts 94 million independent workers. (McKinsey Global Institute, 2016). To explore further, this article explores the key drivers and challenges in the Gig economy and the impact they have on its future in work.
To understand the potential of Independent work, it is necessary to know how it got to this point. Here are some key drivers.
Advancements in the IT services and digital platforms brought internet-based services like mobile messaging applications, online job listings and cloud-based collaboration tools. This has ripened the environment for the gig economy.
Before the 2000s, traditional job listings had the furthest outreach in the newspaper classifieds, flyers, or from word-of-mouth. In the last decade however, digital platforms such as ‘Airbnb, ‘E-Bay’ and ‘Skillshare’ have allowed the demand and supply for ah-hoc tasks or on-call services to find their home in one purpose-built web application. It made for a marketplace to match willing buyers and sellers of goods and services. The rise in digital services coincided with the rise in widespread mobile phones ownership and WiFi connectivity among urban and rural populations that supported the online marketplaces. An example of digital services’ benefit are the search algorithms. Apps and websites use sophisticated search algorithms to connect willing individual workers with companies offering the task. (McKinsey Global Institute, 2016) . Not only is the process of matching counterparties quicker, the incorporated online payment systems enable seamless payment for every task.
Globalisation bridging skill gaps in the service sector
Over the past 2 decades, world population has seen rapid globalisation which has markedly helped the gig economy. The world of independent work has reaped globalisation’s benefits, owing to greater viability of air travel, digitalisation and an improved standard of living especially amongst the developing world.
Multinational Corporations have long had the labour and capital resources to engage in business all over the world. Recently, due to globalisation, companies without a global presence and less-savvy job seekers can reach out to each other more effectively. Data from 2018 Securities and Exchange Commission (SEC) filings from Upwork show that 20% of freelancing fees originate from the US while 30% comes from India and the Philippines. (Financial Times, 2018) From a skills perspective, developing countries look a lot more like developed countries. The labour force is more educated and literate than ever before. The UN Development Program tracking a Human Development Index (HDI) shows developing nations have increased their standard of living rapidly over the past 3 decades. Job seekers in more developing nations have the tools to support skilled labour like fast internet, improved healthcare and more graduate level job seekers. Previously, only traditional workplaces in developed countries could boast such skilled labour. The ability to work in skilled jobs, remotely even, has been democratized by globalisation. Companies all over value these skills and more are willing to try outsourcing it out of their countries in search of skilled, remote labour sometimes with cheaper hiring costs as well.
Figure 1: Human Development Index of various countries
Source: (United Nations Development Programme, 2018)
Research echoes these trends. The images below show how most demand arises from countries like the USA, Canada or the UK. Meanwhile the supply of digital workers is more densely populated in India and Philippines even though the USA and UK still contribute a significant supply. The trend behind this imbalance is captured well in research showing that a country becomes wealthier, traditional employment makes up a greater share of total employment. (McKinsey Global Institute, 2016). Therefore, globalisation will let skilled workers albeit from less developed countries, take a larger share of the gig economy workforce in developed countries than ever before.
Figure 2: Distribution of buyers of Digital work
Source: (Graham, 2017)
Figure 3: Distribution of sellers of Digital work.
Source: (Graham, 2017)
Figure 4: Relationship between GDP per capita and traditional employment
Source: (McKinsey Global Institute, 2016)
Uncertainty surrounding employment welfare and protections.
Independent work bundles more flexibility with more uncertainty. Companies with full-time employment contracts offer in-kind income to the workers. Many times, companies get recognition for the level of employment benefits they provide. Independent workers do not enjoy these aspects of a job. A survey found that 40-50% of hiring managers in the Asia Pacific region find workers losing their protections to be an impact of growing flexible work arrangements across a range of industries. Figure below breaks down the perceived impacts from workers. (Kelly Services, 2018)
Policymakers are being nudged to bring about changes. The crux of the issue is whether gig workers are classified in law as ‘independent contractors. The status of independent contractors will entitle these workers at least the bare minimum in benefits like insurance or reimbursements for certain spending. There have been curious developments on the matter. In late November 2020, a new California law lobbied for by Uber and Lyft said these companies can classify their drivers as independent contractors instead of employees. The latter is entitled to benefits like health care. Simultaneously, the law provided a wage floor to the drivers as lobbied for by labour advocates. (Newyorktimes, 2020). This hints at a tug of war between companies and the workers for the level of welfare provided.
Therefore, the welfare of workers is a balancing act that also has the interests of other players at work. Internationally, the varying degrees of success of legislation will decide whether it will be a smooth ride for the Gig economy.
Figure 5: Potential impacts on Industries by independent work.
Source: (Kelly Services, 2018)
How well market players and workers can maintain long-term relationships in a short-term environment
From a market perspective, an important concern is worker retention. The concern is that independent workers are more often seen as dispensable and replaceable. This is because the gig economy sees a global oversupply of labour relative to demand (Graham et al, 2017). This creates an environment where companies only retain independent workers who excel in every task and are held to a higher standard than traditional workers. Several companies use algorithmic management systems to gauge performance of independent workers. At Uber, this system is used to ‘deactivate’ workers with ratings deemed too low. (Rosenblat, 2016) While turnover rates in the service sector are typically high, some gig-startups could have a turnover rate as high as 500% per year. (Business Insider, 2019) These factors may force companies to not value independent workers in the long-term and is detrimental to the future of the Gig economy.
From the perspective of gig workers, the long-term viability of the industry is an open question. The concern is that gig workers do not have the same bargaining power on certain aspects of their job the same way traditional workers do. Given the temporary nature of the job, workers may not be able to form a strong foundation in a firm or rapport with a group of colleagues for very long. Therefore, their reputation and quality of work for one task determines one’s ability to clinch their next task. This results in a highly competitive labour market, sometimes to the detriment of the workers. In a 2019 survey, it was found that 54% reported having to work at a very fast pace, 60% reported tight deadlines and 22% reported experiencing physical pain from working. (Wood, 2019) The workflow in this line of work is fast while the workload on workers is a burgeoning problem.
Moreover, workers’ ability to exert control over flexible working time has been found to be dependent on worker power. (AJ, 2016) .Independent workers in professional services might face the brunt of this effect as they work alongside full-time employees with better work-life balance. Independent workers may also face a greater need to up-skill their portfolios to remain relevant. (McKinsey Global Institute, 2016). Those with lesser skills will have lesser bargaining powers on what kind of tasks or pay they receive. This is in stark contrast to traditional jobs where a position or seniority in a company determines those aspects automatically. The ability and will of workers to adapt to this workflow in the long-term is a key determinant in the future of gig work.
What does the future hold for the Gig Economy?
The research on this segment of the economy paints a promising yet complicated future. The main drivers of the gig economy, digitalisation and globalisation, are the same factors that are accelerating growth in other areas of the economy. This suggests that the market for independent workers and their services will swell as digital services are more widely adopted and companies more readily source workers from outside their borders. In the future, skilled talents will be empowered by these drivers to seek the best career opportunities. If companies offer independent work that can compete with traditional jobs in terms of pay and employment benefits, the gig economy may be a lucrative job market in the future.
However, the economy faces strong headwinds. The needs of independent workers for employment welfare often might be at odds with a corporation’s interests in keeping costs low. Employers are tasked with balancing these interests as independent workers lack the bargaining power in the workplace to assert their demands. In the coming decades, it is unclear how employers will satisfy both parties.
There is a glut of workers who are willing and adequately skilled to work in various industries as independent contractors. Given the ripe conditions to work independently, workers are being enticed to join the movement. However, it is an uphill battle for the gig economy to redefine work itself. The gig economy has the potential to redefine employment practices given sustained efforts by employers, governments and labour advocates in creating an equitable and reliable job market in the coming decades.
AJ, W. (2016). Flexible scheduling, degradation of job quality and barriers to collective voice. Human Relations.
Business Insider. (2019, May 7). More Uber and Lyft drivers are using the app to fit their schedules, but those who make it a full-time job are barely earning a livable wage. Retrieved from Business Insider.
Financial Times. (2018, October 30). How to manage the gig economy’s growing global jobs market. Retrieved from Financial Times.
Graham, M. (2017). Digital labour and development: impacts of global digital labour platforms and the gig economy on worker livelihoods. Retrieved from SAGE Journals.
Kelly Services. (2018). APAC Workforce Insights | Gig Economy: How Free Agents Are Redifining Work. Retrieved from PersolKelly.
McKinsey Global Institute. (2016). Independent Work: Choice, Necessity and the Gig Economy.
Rosenblat. (2016). Algorithmic labor and information asymmetries: a case study of Uber Drivers. Retrieved from International Journal of Communication.
United Nations Development Programme. (2018). Human Development Data. Retrieved from HDR.
Wood. (2019). Good Gig, Bad Gig: Autonomy and Algorithmic Control in the Global Gig Economy. Retrieved from SAGE Journals.