5 Problems With the Gig Economy

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Looking for an alternative to a traditional 9-to-5 job? Thanks to smartphone culture, there are now apps that allow users to perform on-demand tasks such as the delivery of items, grocery shopping and more. With the success of Uber, there’s now an app and startup out there now for nearly every conceivable task. This has given rise to what’s being called the “gig economy,” where people work as individual contractors performing specific jobs. Presidential candidates Hillary Clinton and Jeb Bush mentioned this trend in recent campaign speeches, and without question, companies such as Uber, Airbnb and TaskRabbit are changing the job market. Is this a fad, a niche market, or does the rise of the gig economy signal a fundamental shift in the definition of employment?

 

5. Gig Economy May be Hurting the Job Market

Is the rise in "on-demand" jobs for services such as Uber hampering the growth of full-time employment?

Is the rise in ”on-demand” jobs for services such as Uber hampering the growth of full-time employment?

Everyone laments the struggles of the middle class, and the loss of high-paying, full-time jobs. Many have viewed the rise of the gig economy as a byproduct of the Great Recession and the subsequent lukewarm recovery, as people work piecemeal part-time jobs while waiting for another full-time opportunity in a stronger economy. But are “on-demand” jobs performed by independent contractors enhancing the economy, or are they hampering the recovery? Here’s an example: Say a mid-sized company needs marketing work done a few times a week. In the past, a company might have kept a salaried employee aboard to handle this work and other duties. Now, the company can easily outsource this work to freelance sites, at tremendous savings.

What some see as an exciting new thing has actually been with us for a while, in the form of freelancing and self-employed businesses. What’s new is the ability of cyber-connectivity to easily link workers with companies needing a task performed.

 

4. Some On-Demand Jobs Pay Low Wages

The gig economy (aka the 1099 economy) is changing the way many people think about work. © Sen. Mark Warner

The gig economy (aka the “1099 economy”) is changing the way many people think about work. © Sen. Mark Warner

Do folks really make a livable wage driving for Uber, or is it all a big “race to the bottom,” for salaries that turn out to be far lower than minimum wage? Uber claimed in late 2014 that New York City drivers were making a median salary of almost $91,000 a year, but when Slate.com pressed the issue, the company failed to produce a single example of what a pundit dubbed the “Uber Unicorn.” Slate did find that, in general terms, drivers who worked 50 to 60 or more hours a week typically earned more per hour than those who worked less than 30 hours a week. As for other on-demand services, results will obviously vary greatly. For the site Fiverr, where companies post tasks they’re willing to pay for at rates from $5 and up, if it takes you two minutes to perform a $5 task, good for you; if it takes an hour, that’s not so good.

As is often the case with hot new ways touted to get rich working online, behind every Cinderella story there are countless attempts yielding a few cents return. Sure, there are YouTubers and self-published authors on Amazon that are wildly successful, but they’re overshadowed by legions of authors behind them making at most a few dollars a month.

 

3. Gig Workers Have Few Rights, Benefits

The ride-sharing service Lyft, like Uber, has led to new regulations in many cities and states in which it operates. © LIza Sperling

The ride-sharing service Lyft, like Uber, has prompted new regulations and scrutiny in many places in which it operates. © Liza Sperling

Is the traditional employment path of “get a degree, enter a profession, and retire at 65” dying out? Sure, highly specialized jobs requiring years of training will probably always exist, but more people are working task-to-task these days. One noted economist, former U.S. Secretary of Labor Robert Reich, estimates that within five years, 40 percent of the U.S. workforce will be comprised of independent contractors; he believes that within a decade, most of the workforce will fit in that category. Will we one day have brain surgeons bid on the task of removing our tumor?

There are advantages to gig work. You have freedom and a flexible schedule, and get to choose your own hours. But you also have to pay your own Social Security taxes, find your own health insurance, and fully fund your own retirement (with no matching 401K contributions in the gig economy). If you’re injured, there’s no workman’s compensation or sick pay. Vacation pay? Forget about it. In short, most of the benefits that exist for people working in traditional jobs do not exist in these new economy positions.

Perhaps it was inevitable that some people who’ve entered this gig economy (aka the “1099 economy”) would come to resent their status: If they’re acting the part of employee for a company, shouldn’t they enjoy the same benefits? Uber and Lyft drivers in California have filed a class-action lawsuit against those companies, asking they be classified as employees rather than independent contractors. And in June, California labor officials ruled that these drivers are, in fact, employees, and not contractors (the decision has been appealed). In the wake of this debate about what constitutes an employee in the new economy, several on-demand startups, including Shyp and Instacart, have already moved to make their contractors employees.

 

2. Private Contractors Fuel ‘Ghost Economy’

The gig economy poses problems for traditional measures of economic activity, such as the unemployment rate. © Bytemarks

The gig economy poses problems in analyzing traditional measures of economic activity, such as the unemployment rate. © Bytemarks

Independent gig workers are becoming a sort of ghost economy in the new employment landscape. One problem that always skews the official unemployment rate is the fact that the numbers only reflect those who are actually counted, namely folks collecting unemployment and actively seeking a traditional job. The figure does not count those who are working part-time but under-employed.

So it’s difficult to determine the actual unemployment rate, when many people are making ends meet by working a handful of on-demand contract jobs. In turn, this may affect policy and decision-making. How can the government tell whether to act on issues such as extending unemployment benefits, offering increased job training etc., when all these on-demand workers aren’t even counted in the statistics?

 

1. On-Demand Jobs Raise Numerous Legal Issues

Cab drivers and their supporters march to protest Uber in Portland in early 2015; © Aaron Parecki

Cab drivers and their supporters march to protest Uber in Portland in early 2015. © Aaron Parecki

Taxi drivers worldwide are protesting Uber. Entire apartment blocks have been rented out on Airbnb. At what point does renting out a few rooms cross into hotel territory? While those who play the game by traditional rules have to be licensed and comply with regulations, anyone with a smartphone can drive for Uber, or rent out a room on Airbnb. Do these individuals need to comply with the same rules? The growth of such services has become so prevalent in many cities, urban lawmakers have struggled to keep up.

And what about liability issues? For example, this past summer, Uber and fellow ride-sharing services boosted their liability coverage for drivers who are on duty but not carrying a passenger — yet they still do not offer collision insurance for the driver’s vehicle. And while Airbnb has pledged to clamp down on users that are turning their apartments into mini-hotels, the problem has become so endemic in places such as New York City that traditional apartment tenants have complained about the revolving parade of strangers using Airbnb rentals as crash pads. City officials estimate that while 90% of Airbnb users list only one to two rooms each, 6% of the hosts are high-volume users that account for 37% of the site’s revenue. These figures might mean nothing to you. But say you live in a nice, quiet subdivision somewhere, and you suddenly notice one or two cars, different each night, parked in front of your neighbor’s house. Are you OK with the fact your neighbor is essentially running a hotel next door? It’s issues such as these that will keep lawmakers scrambling to balance the needs of these gig economy companies and contractors on the one hand, and the public on the other.

Written by

David Dickinson is a backyard astronomer, science educator and retired military veteran. He lives in Hudson, Fla., with his wife, Myscha, and their dog, Maggie. He blogs about astronomy, science and science fiction at www.astroguyz.com.