My friends Rania and Emily recently submitted an essay for a competition, and after I first read it, I was sure that this should be read by more and more people! The essay is on the gig economy which is a growing sector which shows the future! - Annika
The gig economy is activity where workers earn income providing on-demand work, services or goods, usually through apps or websites. The rise of the gig economy and a more flexible workforce has coincided with a movement towards neoclassical economic policies, which focuses on demand and supply forces within the free market. In the US, the gig economy has grown from 10.1% of workers to 15.8% between 2005 and 2015, with the gross volume of the gig economy expected to grow more than $450 billion in 2023. The rise of the gig economy has a range of economic implications, from personal effects on employees to wider macroeconomic consequences in the long run. 79% of individuals in the gig economy are more satisfied than when they were in traditional jobs in America. However, 45% of gig workers are worried about their finances, compared to 24% of workers in the traditional economy.
As the gig economy is reliant on temporary work, and is characterised by zero-hour contracts, the flexibility and autonomy of workers increases. This is particularly appealing for workers who would otherwise be economically inactive, a proportion of the population which has grown significantly since the pandemic. This could be particularly valuable for students as they are more able to manage their school-life balance, while also being able to earn income. As a result, higher education becomes more accessible and the skill level of the future workforce rises, potentially contributing to long term economic growth and an increase in the LRAS of the country. Moreover, the flexibility of the gig economy is beneficial in the long run as it can help workers to develop soft skills which improves the quality of the labour market. This is alongside potentially bolstering innovation, as workers have more hours to consider entrepreneurship if not confined by the traditional strict timings of jobs.
On the other hand, the flexibility that is promoted by the gig economy leads to a lack of income or job security for workers. For many workers, after a project is finished, the lack of a working contract means they can easily be laid off by employers, resulting in a rise in frictional unemployment and a consequent fall in consumer confidence. This was particularly exposed in America during the 2008 global financial crisis, leaving a far higher proportion of Amercians unemployed in comparison to European countries whose economies were more rigid. For example, despite European GDP falling more significantly than American GDP, the US labour market suffered a greater rise in unemployment, which has potentially long term implications for the wider economy. Moreover, as the gig economy is not regulated, people who engage with the gig economy do not pay into their pensions during their careers as this is not automatic, unlike regular workers. This can cause a long term issue of a rising number of workers without money in old age, resulting in issues that the government will have to solve.
Adam Smith’s ‘The Wealth of Nations’ opens on the concept that man ‘must be rich or poor depending on the quantity of that labour which he can command’, an idea that directly highlights how the gig economy exacerbates inequality. Because of the short term and expendability of a gig worker’s employment, there is little to no capacity for wage negotiation. This is further impacted by the lack of unions for gig workers, hence gig workers tend to earn 15% below the UK minimum wage. When the lower wage is considered in conjunction with the lack of contractual protections gig workers have, employers have an arguably greater control over their workers and the capacity for more workers, thus the employer’s productivity increases, as does their revenue and profit. However, as the profit accumulates for the employer, gig workers are left with an unstable and low flow of income, creating an income gap that reduces both the standard of living and happiness for the many gig workers, but raises both for the few employers. This also could disproportionately harm women, as maternity leave is not offered, and thus they would have to leave the labour force when pregnant or endure 9 months without pay, and the native labour force, as shown in San Francisco, where 56% of gig workers surveyed were immigrants. Immigrants from less developed countries tend to be more willing to work lower paid jobs, potentially pushing native workers into unemployment or economic inactivity, as Keynes’s theory of sticky wages demonstrates that native workers accustomed to minimum wage will not accept less.
However, as governments and regulatory bodies have begun to scrutinise the gig economy to a larger extent, the benefits for employers are decreasing. In many countries, governments are beginning to force minimum wage structures onto the economy. This minimises the advantage which firms that use large proportions of gig workers, such as Uber, have.
In a macroeconomic sense, this increase in net productivity caused by the employment of gig workers would mean a rise in domestic GDP, could hence lead to a rise in domestic happiness levels due to the positive relationship dictated by the Easterlin Paradox. On the other hand, in the application of the Easterlin paradox, it is vital to consider the development level of the country in question, as GDP growth in more developed countries causes a less significant rise in happiness than growth in less developed countries. If the employer of the gig workers was foreign, however, this would have a less positive impact on the economy of the gig workers they employ, as the scarce resources of the gig worker’s domestic economy are utilised to increase the productivity and GDP of the foreign employer’s domestic economy.
Overall, there are a range of economic impacts of the growing gig economy which are likely to grow in significance as it expands further. While many of these can have positive impacts, the economy relies on inherent inequality, consequently impacting lower income workers more, resulting in many practical drawbacks of its utility.
By Rania Singh and Emily Courtney
Bibliography
Online Articles:
Broda, Kris. “Gig Economy- The Economic Backbone of the Future?”. Broadmin on February 6, 2022. Accessed April 26, 2024. https://brodmin.com/case-studies/gig-economy-case-study/
Gore-Randall, William. “Understanding the Investment Implications of the Gig Economy”. Lazard on March 27, 2020. Accessed April 27, 2024. https://www.lazardassetmanagement.com/docs/-m0-/92068/understandingtheinvestmentimplicationsof_lazardresearch_en.pdf
Killingsworth, Matthew A.. “Experienced Well-Being Rises with Income, Even Above $75,000 per Year”. PNAS 118, 4 (2021). Accessed April 27, 2024. https://www.pnas.org/doi/pdf/10.1073/pnas.201697611
O’Connor, Sarah. “How to Manage the Gig Economy’s growing global jobs market”. Financial Times on October 30, 2018. Accessed April 26, 2024. https://www.ft.com/content/5fe8991e-dc2a-11e8-8f50-cbae5495d92b
Schor, Juliet. “How the Gig Economy Promotes Inequality”. Milken Institute Review on September 18, 2020. Accessed April 26, 2024. https://www.milkenreview.org/articles/how-the-gig-economy-promotes-inequality
Towers-Clark, Charles. “The Uberization of Work: Pros and Cons of the Gig Economy”. Forbes on July 8, 2019. Accessed April 27, 2024. https://www.forbes.com/sites/charlestowersclark/2019/07/08/the-uberization-of-work-pros-and-cons-of-the-gig-economy/?sh=392ec5a61cc7
Websites:
“Gig Economy: Definition, Factors Behind It, Critique & Gig Work”. Investopedia. March 27, 2024. Accessed April 26, 2024. https://www.investopedia.com/terms/g/gig-economy.asp#:~:text=Competition%20has%20increased%20and%20the,crowded%20out%20in%20some%20industries.
“Gig Economy Tax Centre”. Internal Revenue Service. April 2024. Accessed May 16, 2024.
Reports:
Benner, Chris, and Johansson, Erin, and Feng, Kung, and Witt, Hays. “On-Demand and On-The-Edge: Ride-Hailing and Delivery Workers in San Francisco”. UC Santa Cruz Institute for Social Transformation on May 5, 2020. Accessed April 28, 2024.
Department for Business, Energy & Industrial Strategy. The Characteristics of Those in the Gig Economy. February 2018. Accessed April 26, 2024.
Wood AJ, Martindale N and Burchell BJ (2023) ‘Gig Rights & Gig Wrongs.’. Initial Findings from the Gig Rights Project: Labour Rights, Co-Determination, Collectivism and Job Quality in the UK Gig Economy. Accessed April 28, 2024
Journal articles:
Katál, R. and Pires Nunes, Guilherme. “Uberization of Labour and Marx’s Capital”. Florianópolis, 24, 1, January 2021, 228-234. Accessed April 27, 2024. https://www.scielo.br/j/rk/a/fpsw66xmmHwvTYV7PWJnprt/?lang=en&format=pdf
Markovic-Blagojevic, Marija, and Nikitovic, Zorana, and Radic, Nikola, and Radic, Vlado, and Radović-Markovic, Mirjana, and Stevanovic, Mirjana. “Challenges and Limitations of Gig Economy and Possible Implications for Education”. International Journal of Entrepreneurship 26, 2 (2022), 1-8, Accessed April 27, 2024.
Peetz, David. “Flexibility, the ‘Gig Economy’ and the Employment Relationship”. The Realities and Futures of Work”. 2019. 141-178. Accessed April 26, 2024.
Comments