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The Rise (and Fall?) of the Gig Economy

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Photo: TNS, YP
The gig economy has attained rockstar  status among academic circles. Ever larger numbers of people are pursuing work with companies like Uber, Lyft, and Airbnb—it is forecasted that in America, currently at the forefront of the gig economy, some 40% of workers will be involved in freelance work instead of, or in addition to, formal, contractual employment. 

This non-contractual work is the essence of the gig economy. A traditional job comes with a suite of benefits, generally including health insurance, pensions plans, and paid holiday. Gig economy jobs typically lack any such benefits. 

The term was coined during the financial crisis of 2009 to describe the phenomenon of the unemployed working several part-time jobs, but it were Silicon Valley companies that thrust the term back into popular usage. The gig economy has been bolstered by the ease of participation—anyone with a spare room can earn money through Airbnb, and anyone with a car can become a taxi driver for Uber—and the breadth of work available. 

A transition away from formal employment will have profound implications. Proponents herald in an age of liberation for workers, who will become free to work on their own terms and their own hours, while consumers reap the rewards of a more dynamic economy. Concerns, however, are plentiful, and come from all quarters. 

Many of the most prominent companies in this new economy depend on scale for their success—what economists refer to as the “network effect”—the more people who use the service, the more useful it becomes, thus leading to more users and a virtuous cycle. This results in a tendency toward monopoly, which is harmful for consumers. Admittedly, these concerns are still nascent, and it remains to be seen whether companies like Airbnb and Uber will ever be capable of exerting true monopoly power.

More saliently, trade groups have led vigorous efforts to prevent gig economy companies from eating into their business. This has been particularly the case with ride-hailing companies such as Uber and Lyft, which have seriously threatened taxi drivers.

Calls for regulation have not come only from trade lobby groups like those of taxi drivers. Those employed in the gig economy have themselves expressed concerns and frustrations. Recently, Uber agreed to a significant settlement with drivers for unlawfully deducting taxes from their income, instead of Uber’s. Additionally, the New York Times has alleged that Uber’s algorithms subtly manipulate drivers in a way that boosts Uber’s profits while depressing driver’s earnings. 

Critically, even those who have found gainful employment as Uber or Lyft drivers may find their jobs disappear once self-driving cars become commonplace—something that may only be a few years away. In a continuation of trends that have been observed over the past decades, the share of income in the economy accruing to owners of “capital”—in the near future, likely robots and the technology guiding them—will continue to increase at the expense of “labor”—workers, both in formal and informal employment. 

And this realisation is key. Rapidly developing technology could make Uber drivers a thing of the past nearly as quickly as the company burst onto the scene. Ultimately, a patchwork of regulatory measures to protect varied interest groups would be a misguided approach. There has been a tendency for governments around the world to bow to pressure and slap onerous regulations on corporations like Uber. Typically, these regulations are written in the name of protecting consumers, but in reality benefit entrenched interests, while preventing consumers from accessing desired services.  

It is undeniable that the changing economy is harming some workers and industries, but these changes will only accelerate, and increasingly complex regulation is unlikely to succeed in its aims. As suitably remunerated work becomes more difficult to obtain, governments will have to shoulder the responsibility to ensure that those without control of capital are still able to share in the gains created by technical progress. The gig economy is not itself the problem, and the breakneck pace of technological development certainly is not. The problem is ensuring a decent standard of living for all those affected, and that this is something governments must tackle more directly. 

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