Dispelling the Myths of the Gig Economy
(A response to an article published in The New Yorker magazine March 23, 2021)
Recently The New Yorker magazine published an article titled “Should Gig Work be Government-Run?” The article focused on, and endorsed, propositions put forth by Wingham Rowan, a self-described “British Policy Entrepreneur.”
Rowan’s idea is to create markets for gig work that are run as public utilities, by non-profits and governments. Instead of obtaining work through a private company, such as Uber, a job seeker in Rowan’s system would use a web site or app overseen by the government and regulated to promote the public interest. Many kinds of work could be offered through such public platforms, not just driving. The platforms could be run on open-source software, such as the system that has been built by his nonprofit, Modern Markets for All. Private companies might bid to operate these systems, following the concession model currently used in national lotteries and parks. Such an approach wouldn’t use regulation to hobble what he terms the gig-work goliaths. Rather, it would compete with them, combining many gig-work options into a broader labor market designed to benefit workers and the public.
Three take-aways are clear from the article. First, it is obvious that Rowan is espousing a socialistic system, one that may that may be viable in the UK but is contrary to the entrepreneurial system and spirit that, for the most part, currently exists in the United States. Second, Rowan, and the article in general, is opposed to the gig economy as it exists in the United States. The article repeatedly refers to gig workers in pejorative terms such as “precarious workers” and views gig-producing companies as “predatory companies.” Third, it is apparent that Rowan, and the article generally, does not understand the composition of the gig economy and the motivations of the workers who populate it. In the following paragraphs we offer a different perspective on the gig economy and illustrate why unbiased thinking and research is so imperative to properly understand the gig economy and its implications. As such, we hope to contribute to resolving misunderstanding and perceptions of the gig economy that have led to urban myths.
Any discussion of the gig economy, analogous to any potentially ambiguous topic, should begin with a definition so that meaningful communication can occur. Let’s start with gig workers. Gig workers are by definition independent contractors who, for the most part, are engaged in online platform-enabled, short-term tasks and activities for which they are compensated on a performance basis. Hence, they are not part-time employees (unlike the part-time (employee) nurse cited in the The New Yorker article). Moreover, for the most part, they are not paid on an hourly, weekly, or monthly basis. Rather, they are paid for specific services rendered. Think about delivery drivers, people who rent a room in their home to tourists, adjunct college instructors paid on a per-course basis, or people who mow lawns. Finally, whereas gig workers and gig-providing companies have formally been in existence for more than a century (e.g., direct selling company Southwestern Advantage has a documented creation date of 1868), the introduction of online digital platforms connecting gig workers and their gig customers distinguishes the gig economy from what is often called the “informal economy.”
Two Very Different Outcomes
In November 2020, voters in California approved Proposition 22, which supports the independent contractor status of gig workers. Voters did not want to reclassify gig workers as employees. In contrast to what happened in California, a 12-person panel of the British Supreme Court declared in March 2021 that transportation gig workers in the UK are employees. Three companies (Uber, Lyft, and DoorDash) were involved in and impacted by both decisions. In the state of California, gig-providing companies came together to fund one of the largest educational/promotional efforts in history to help voters understand the desires of gig workers to maintain their independent contractor status.
Two very different forms of government and two distinct outcomes. In both California and the United Kingdom, workers’ rights became a very significant component of the debate as to who is responsible for providing worker benefits, as if this is a major issue in determining whether the gig economy is good or bad for workers therein. Given the disparate outcomes, there is an obvious need for greater understanding on all sides of the debate as well as all concerned stakeholders. The gig economy is a hot topic in mature markets throughout the world and there are reasons for its appeal and the growth of those working as independent contractors. Understanding what motivates and attracts those who participate in gig work is critical to understanding how to add value to the discussions, points of view, business management, and creation of new public policy.
The Gig Economy
The gig economy has become a force within the labor market in the United States, where an estimated 57 million Americans, some 40 percent of the workforce, are adding an estimated $1.4 trillion to the economy and growing at a pre-pandemic rate more than three times greater than the traditional 9-to-5 workforce. Some sources predict that by the end of the decade more than half of all workers in the United States will be gig workers, and especially those dwelling in urban areas. We are living and working differently. Because we live differently and because we are motivated and enabled to be more in control of the work-life balance, the gig economy simultaneously represents both an evolution due to the impact of technology on how we work and a revolution regarding who owns the work. Gig workers who realize they actually own their work, and simply not provide the work, can lead to increases in overall work quality, reduce costs, and create unique opportunities to share rewards with more of the crowd versus the select few who participate in traditional forms of enterprise where investment and risk may be significant. The appeal and growth of the gig economy represents the beginning of a new trend toward the importance of flexibility and freedom in how and where work can be accomplished and rewarded.
We postulate that the federal government will not make any serious attempt to manage gig workers in the United States. Doing so would circumvent the entrepreneurial component of free enterprise and bring into play responsibilities that government is not designed for. The very emergence and existence of the gig economy is the result of innovative and effective use of technology by the private sector, not government. Many components of work can now be accomplished without physical presence as digital platforms become the link between providers of products and services and customers that seek the products and services. Intermediaries can implement digital platforms to create income opportunities based upon gig workers’ desire to employ underutilized time and assets more effectively in searching for income opportunities. An automobile can be an underutilized asset making transportation gigs appealing. A room within a home, a tool, even an underutilized talent or skill can lead to work in the gig economy where traditional employee expectations yield to flexibility and freedom in how and where the work can be accomplished. Work from home—accelerated by the pandemic—is now a reality for those who seek such opportunities. In fact, some work can be accomplished from anyplace and executed when individuals want to work, not when they are required to work.
History often repeats itself
The quest to better understand a new phenomenon is not new. Thirty-five years ago one of the authors engaged in research regarding the public’s understanding of capitalism and entrepreneurship. Selected excerpts from that research are even more relevant today than then as firms (e.g., those utilizing gig workers/independent contractors in a channel of distribution), public policy makers, and gig workers (independent contractors/micro entrepreneurs), strive to better understand the gig economy phenomena. To wit:
Capitalism has long been a troubling and polemical word, in part because of the emotion-laden images it conjures up. The meaning of capitalism has been controversial and at times even contradictory. Consequently, the term is frequently applied indiscriminately—usually in a pejorative fashion to support or refute a particular political position….
Capitalism is more than an economic construct with sociological ramifications. Perhaps it is time for a more appropriate definition of capitalism, one that more closely approximates reality and specifics its cultural associations and implications. One possible definition is this: Capitalism is a dynamic ideology that allows individuals to create and retain wealth through creative endeavors. The point of this definition is that current definitions of capitalism are inadequate, outmoded, and too narrow. They no longer reflect the American economic system as it currently exists or as the public wants it to be. Instead, they serve merely to stimulate controversy. Consequently, they should be replaced with a more appropriate definition. Extensive educational programs should inform the public about what capitalism really means. Only then will people be able to participate effectively in discussions that can lead to a coherent national economic policy.
Capitalism is a complex and perhaps more abstract concept than private enterprise. Further, the [research] specifically confirm that dictionary definitions of capitalism are more narrow than public perceptions, reinforcing our call for a broader definition of the term…. [Also] the research documents the perceptual linkage between capitalism and big business. While the phrase “private-enterprise system” evokes a picture of small business, “capitalism” elicits images of big business. The results also confirm earlier research findings of the perceived differences between big business and small business. However, the stereotypic views of business and capitalism promulgated by the media are not confirmed. The public tends to be sensitive and selective in its perceptions of big and small business.
This [research] presents only an initial overview of the complexity of public perceptions about capitalism and the institution of business. Through an increased awareness of this complexity, it will be possible to grasp more completely the meaning of “business” and “capitalism” in our society.
Fast forward to today. Entrepreneurship and private enterprise are still viewed positively, especially in the context of small business, and capitalism is still viewed with skepticism and in the context of big business. However, the attention given the gig economy is leading to new versions of capitalism and private enterprise. Gig workers are, for the most part, micro entrepreneurs, and this will increasingly shape an economy that will erode aspects of the traditional industrial economy model with which we are more familiar. Indeed, the rigidity of the industrial economy model has been yielding to a more flexible labor model for at least two decades. Human resource professionals have been experimenting with a balance of work from home and work from the office or a specific location, and the results of the experiments have proven to be positive. Such “alternative work arrangements” exist in approximately 50% of all companies in the United States.
Consulting firms like McKenzie and Deloitte have been predicting for many years that the future of work will be redefined. Technology, artificial intelligence, and the use of robots have changed the nature of work. Changing the work process has resulted in innovative ways to work very different from the traditional work formats of the past 100 years. The gig economy is demonstrably redefining work by increasing the number and variety of work choices available and attracting those who seek work flexibility and the opportunity to work limited hours.
A few months ago we conducted a comprehensive survey of 1,001 self-identified gig workers in the United States, where a gig was described as a “flexible work arrangement that allows people to work how, when, and where they want to work. Even full-time and part-time employees may sometimes work gigs in their free time.” Findings from the survey both confirm and contradict what we thought we knew about gig workers. For example, as expected, the most common reason individuals entered the gig economy was that “I wanted to make a little extra money.” To accomplish this relatively modest goal, nearly two-thirds work less than one day per week on their gig(s). Those gig workers who want to earn more money work more than one gig. Indeed, a majority of the gig workers surveyed, 55%, work more than one gig. Only a minority of gig workers consider their gigs to be full-time work. However, several of the results were unexpected and a bit contrary to what we initially anticipated. Indeed, some of the survey findings refute what we like to call urban myths about the gig economy and gig workers: perceptions that are not accurate but tend to be promulgated in the major media and online social media. Here are three such common myths.
Myth #1. Gig Workers Need Benefits from their Firms (Gig Providing Companies)
Part-time work opportunities are not new, and companies have seldom if ever paid employees who worked less than 40 hours per week any form of benefit such as insurance or vacation. Our survey revealed that some90% of gig workers have access to health insurance, considered the most essential of safety-net products. This percentage is similar to the national average of 92% and dispels a major criticism levied against companies that honor the status of gig workers and do not provide the same types of benefits offered employees. Gig workers deliberately choose the benefits of flexibility and freedom in how and where they work can be done, and nearly all have access to safety-net health benefits. Of those gig workers with health insurance, 33% access it through a non-gig employer, 22% access it through a partner or spouse, 22% have a private health plan, and 26% obtain healthcare through Medicare or Medicaid (some gig workers have multiple sources). Similarly, the survey revealed that 57 percent of gig workers report having life insurance and 71 percent report saving for retirement, percentages that again approximate those found for the general public.
Thus, in general Gig workers report having access to essential benefits such as health insurance and life insurance at the level of the general public, mitigating criticisms that gig workers do not have access to essential safety net products/services. Critics of the trend toward a more entrepreneurial economy such as Rowan often cite “absence of benefits” when describing the gig economy as a “precarious” form of work. This is not true.
Myth #2. Gig Providing Companies Are Abusing Gig Workers.
When entrepreneurial opportunities are made available to the public, individuals are empowered because they have more income-producing alternatives and can better balance work and non-work activities. They are naturally motivated to provide good quality products and improve the quality of service rendered because pay is typically only received when performance of the work is complete. Traditional industrial economy thinking, and the subsequent business models and controls created, have celebrated 100+ year anniversaries. The future will not be exactly like the past, and understanding the meaning and relevance of work is critical to preparing for the future.
The general notion, indeed myth, that gig workers are abused by gig-producing companies seems misplaced. Our survey demonstrates that typically gig workers actually earn what they expect to earn when they entered the gig economy. The vast majority of gig workers, 87%, rate their overall experience working their gig as positive, and 86% are likely to recommend gig work to a friend or colleague. When asked whether they would choose working a gig or being a W-2 employee in the future, a plurality of gig workers prefer gig work to being an employee, and working a gig is not simply marking time between W-2 employee positions.
Relatedly, limiting the definition of gig work to driving for Uber or Lyft or delivering for DoorDash overlooks what really transpires in the gig economy. Even though they are highly visible and often serve as exemplars of gig work, transportation-related activities in fact only constitute a small segment of gig work. The survey documents that gig workers tend to be well-educated; nearly three-quarters indicate they have a college degree. A relatively large proportion of gig workers, men and women alike, are “professional gigers” who are lawyers, accountants, web-designers and coders, freelance writers, and others who prefer flexibility to employment status and whose customers or clients are firms and organizations, not individual consumers. Partially as a consequence of such characteristics, gig workers do not appear to be unequivocally taken advantage of as some writers and public policy officials have expressed in their opinions. Such opinions, and an underlying lack of understanding, deter the creation of mutually beneficial relationships that can serve as the basis of innovation and societal prosperity.
Myth #3. Utilizing Gig-based Models in Channels of Distribution Will Not Be Good for Workers.
The gig economy constitutes an expression of free enterprise. Free enterprise is guided by local and national government regulations to ensure compliance with quality and safety standards, ethics guidelines, tax codes, and assurance of customer/client satisfaction. In the United States, the free enterprise approach has proven over and over again that when embraced, and allowed to thrive, it produces efficiencies and benefits that extend to all stakeholders as well as society in general.
Free enterprise in its many forms is often restricted to the few who can afford the risk and the high costs associated with engagement. The gig economy offers affordable engagement and minimal to manageable risk. The gig economy is not a new career path. The gig economy is not designed to replace full-time jobs, although gig work can be an effective bridge between full time jobs or collectively multiple gigs can provide sustainable benefits. Unfounded concerns and myths regarding gig work and the gig economy distract from a more significant conversation focusing on how and why utilization of gig workers as intermediaries to connect brands, products and services with customers and clients is a part of the evolution, transformation, and redefinition of how work can be accomplished and rewarded. Gig work opportunities empower individuals who desire and need flexibility, and a pay-for-performance philosophy provides fair rewards for effort invested and can motivate greater efficiency and higher quality products and services. New forms of organization combining a minimal or skeleton employee staff with a gig workforce will lead to innovative channels of distribution providing broad societal benefits, including benefits for the gig workers themselves.
Major shifts in the way an economy works, transforms, or evolves requires new understanding and new agreements as to definitions and often new public policies. The speed at which stakeholders move toward new understanding is often hampered by unsubstantiated concerns (myths) versus facts. The gig economy is like the “genie out of the bottle” and it is not going to go back. Flexibility and freedom in how work can be done is the new norm more than the exception. Men and women are attracted in almost identical proportions. Public policy will gain from collaborations involving firms utilizing gig workers as intermediaries to connect products and services with customers who need those products and services, the customers themselves, and gig workers themselves. Research is imperative for understanding the gig economy and creating meaningful and beneficial collaborations therein.
Providing gig workers with affordable and easily assessible safety net products such as liability, cyber security, investment encouragement, and income protection against “acts of god” will help alleviate concerns of public policy makers, resulting in realistic and supportive legislation for all of those involved in a new form of work. Public policy makers who are responsible for ensuring compliance with local and federal laws inclusive of tax compliance can be expected to continuously share concerns for how the growing number of gig workers will impact the financial needs of communities, cities, states, and the nation. Gig-providing firms cannot deflect, entirely, the compliance responsibilities of gig worker by simply aligning with laws that do not require direct accountability. Gig workers have a responsibly to be compliant with applicable laws, regulations, fees, and tax codes. Firms facilitating gig work as well as firms using gig workers should inform, educate, and motivate these workers to be ethical and compliant with all local and federal laws and codes, and prudent financial management should also be encouraged by both types of firms.
Gig workers and the gig economy have disrupted traditional work models, even industries, and more disruption can be expected. The taxicab business model is mostly obsolete, no different from a roll of photography film that is now obsolete, yielding to the effectiveness and efficiency of a small chip in a cellphone that can capture 1,000 photographs compared to the 12 or 36 that were customary on a roll of film.
In sum, the term “gig economy” is often misunderstood to be solely about those who work transportation-related or sharing gigs. This is a very problematic misunderstanding. Public policy makers can easily be influenced by perceptions and even myths distracting from the real issues relative to innovation and transformation in how people can now work from anyplace and at any time, based upon the decision of the worker, not an employer.
As firms, public policy makers, and gig workers collaborate to discover, create, and provide solutions to the concerns expressed by each stakeholder group, the gig economy will continue to grow and thrive, attracting a growing number of people seeking work in accordance with the schedule they design for themselves. The rigidity of the traditional industrial economy model of work is yielding to an entrepreneurial form of work, available to the masses, that has never before been experienced. Men and women from all walks of life are benefitting, including their families, from the choices and flexibility offered by intermediary firms equipped with state-of-art technology that focus on connecting gig workers with customers.
The genie is out of the bottle. Free enterprise is alive and well.
John T. Fleming is author and Project Lead – Ultimate Gig, Founder and Principal of Ideas & Design Group, LLC
Robert A. Peterson holds the John T. Stuart III Centennial Chair in Business at The University of Texas at Austin.