The Rise of the Gig Economy

There are several different terms referencing this one phenomenon. By now most people familiar with the happenings in the technology world would have certainly heard of one of the several different names, all of which defining the same concept, flying around fairly frequently. Since its birth emerged in 2009, following the financial crash, the freelance economy is quickly establishing itself as the new norm in the way we think about employment and work.

The gig economy, or the freelance economy or on-demand economy, in the context of the modern digital age, is a term referring to how people are able to become freelance service providers utilising the digital online platforms which act as the medium between a person’s spare capacity and the consumer using it. Uber, a car-hailing app, for example, allows people to use their own cars as a make-shift taxi, providing their services through the Uber app, which allows others to see nearby cars available to transport them to their desired locations specified when requesting one of the cars available. Airbnb, another popular example, is an online service connecting people who are seeking to rent a space with people who are able to provide that space. Overall it allows people to generate an income by leasing or using any spare capacity, property and resources they may have at their disposal.

This new kind of working economy has increased in popularity in recent years. Research by PwC, a professional services firm, predicts the gig economy in the UK to be worth £2 billion by 2020. From this lucrative opportunity, according to a survey conducted in 2015 by Fusion, a news and media company, 60% of freelancers can expect their work as an independent contractor to provide 25% of their total income, with 40% earning half their income. All evidence to suggest that the gig economy is on the rise, for now acting as an additional way to make a bit of money on the side, though it may have the potential to transform into something much more.

Whether it will completely replace traditional jobs is a difficult question to answer at this point, but it is popular enough to have an impact. The negative side of its impact though is troublesome; just as it is quite difficult to accurately define exactly what the gig economy is, regulating the companies which make up this market has also proven problematic. Since workers in this industry are classed as ‘independent contractors’, they are entitlements are somewhat limited. As such they may be able to obtain payroll taxes and health-care cost contributions, yet miss out on other important benefits such as being able to earn at least the minimum wage. A solution to this problem, proposed by Seth Harris, the former United States Deputy Secretary of Labour, and Alan Krueger, a former consultant for Uber, could be to create a third category of worker, specially designed for those in the on-demand economy. The push towards a fairer system for such workers has also been encouraged by Uber drivers, who objected to having to buy their own health insurance and save for their own pensions. It even boiled into a class-action lawsuit from Californian drivers against the tech company, claiming that they should be treated as employees rather than independent contractors, and is set to go to trial this year. Some companies have made their own changes instead of waiting for the law to adjust to the rising problems. Lyft, a transportation network company, for example, now offers its drivers programmes for retirement savings. Others have gone ahead and upgraded their contractors into full-time employees. Yet by doing so, distinguishing between so-called gigs and work becomes tricky.

Thus, the result of this court case against Uber may define the future of the gig economy. Drivers use their own cars, essentially set their own schedule and as opposed to being paid by the hour, which would have supported the case for minimum wage entitlements, they are being paid by the job. Upon signing up for the service as a driver, these are the terms that are agreed on, consequently making them independent contractors. But the suit requires the company to change its relationship with its drivers and provide back pay and reimbursements for expenses.

Despite this, the shifts may not be entirely significant, as the impact on employment laws would only account for a small section of the population. A survey in the UK found that just a mere 6% of UK workers were creating or earning money in the gig economy. However, it is still only early days, and so it is lawsuits like this and regulatory changes, like creating a third category of worker, which provide the foundations for greater change.   

Realising Smith’s Economy

The potential revelations of the gig economy reflect the vision of economist Adam Smith. He described an economy in which individuals engaged in commerce with one another. The modern digital age has allowed this interaction to replace the traditional collection of the mass production and distribution which modern businesses promote. The cluster of small-scale firms which encourage a peer-to-peer system of economic activity very much reflects the Smith’s interpretation of the 18th-century economy. Furthermore, the digital age allows barriers to entrepreneurship and innovation to come down and allow a flourish of new ideas and creative platforms to come to the fore. The gig economy provides these merits, yet it is difficult to portray its emergence as an overall truly rewarding and universal benefit to the world due to the complicatedness of measuring the emerging industry. For example, people often leave out information about the leasing of their car or the renting out of their house in surveys thinking that such acts are not classed as work. If further data can paint a clearer picture of its merits, and if the regulatory and legal issues can be resolved, the gig economy may take us back to the future, which will hopefully be for the better.

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