Introduction to the Gig Economy

Introduction to the Gig Economy You might have heard the term ‘gig economy’ thrown around a lot in recent years. But do you know what the term entails? © Shutterstock.com | Ditty_about_summerThis guide will explain what the gig economy is and what are the reasons behind it being a buzzword in the business world. We’ll study the size of the current gig economy and the difficulties behind measuring it. Finally, we’ll introduce you to the pros and cons of the sector.WHAT IS A GIG ECONOMY?Although the name might suggest something musical, gig economy doesn’t actually refer to musicians performing at gigs. Nonetheless, the term does build on from the idea of performing a single gig or a job, as the gig economy refers to temporary work positions.A gig economy is an environment where organizations contract with independent workers for short-term engagements and temporary projects.Instead of traditional full-time positions in a specific organization, ‘gig’ workers provide their services for one or more employers with flexible work arrangements. Traditionally, ‘gig’ workers, or ‘giggers’ are known as freelancers. But the w orkers can also include agency temporary workers, on-call workers, and standard part-time workers.The definition is relatively fluid, as different people include different aspects of employment to count as part of ‘gig’ work.The most common characteristics of a gig economy are:Buying and selling services, especially onlineBidding for services, think of services such as Uber and AirbnbPortfolio work provisionThe work arrangements in a gig economy are often found through networking, direct contact with organizations or through advertising.Technology has played a big role in connecting employers with ‘giggers’ through freelancing platforms and online job boards. Before the work commences, the two participants of the contract agree on the schedule and the payment for the job.Gig economy provides workers the option for hyper-flexible way of work. Freelancers can work on multiple projects at once or take on a single project. It’s also possible to work as a freelancer in the gig economy alongside traditional work.Gig economy has been on the increase in many countries in the past few years and we’ll examine the details in the next section. But in essence, gig economy means the overall economy has fewer long-term employees and more people working as freelancers.Read the following pages for deep insights into the gig economy.[slideshare id=59281626doc=beyondthegigeconomy-160308220017type=dw=640h=330]WHY IS THE GIG ECONOMY ON THE RISE?The current trend in the job market is increasingly pointing towards gig economy. According to the American Action Forum, the number of gig economy participants increased from 8.8% in 2002 to 14.4% in 2014.This shows the sector is growing fast, especially as the overall employment over the same period increased only by 7.2%.Although there’s little agreement, whether the gig economy is going to overtake the traditional job market, the indicators show interest and participation have increased, often more rapidly than traditional labor market. In the UK, only 8.7% of the workforce was self-employed in 1975, but by 2008, the number had risen to around 12%. The Telegraph pointed out how the number in 2016 has risen further to 16%.Interested in taking part in the gig economy? Then read the following slides where you can find platforms for becoming or hiring gig workers.[slideshare id=55146304doc=theuberizationofwork-151116063459-lva1-app6892w=640h=330]We’ll look at the size of the gig economy in more detail in the following section, but it’s helpful to understand why the increase in this hyper-flexible work happens. There are two interesting major influences behind the increase in the gig economy: the digital age and the introduction of the Millennials in the workforce.The digital ageDigitization of the workplace has played a major part in increasing interest towards self-employment and work that is more flexible. The technological revolution has had an impact by:Directly replacing specific types of work w ith software and decreasing the time it takes to perform certain tasks. This has reduced the need for permanent positions, as well as given birth the new kind of jobs with different skill requirements.Making certain tasks irrelevant to the location of the employee, allowing employees perform tasks from anywhere in the world. Since the tasks have been digitized, employers can be flexible in terms of where, when and how they perform these tasks.The introduction of Millennials in the workforceInterestingly, the introduction of Millennials has also livened up the gig economy. Millennials â€" the generation with birth years ranging from the early 1980s to 2000 â€" are expected to make up around 75% of the global workforce by 2025 and studies are showing they might be less likely to become the traditional type of employees.Some insights that help you understand Millenials.[slideshare id=33007501doc=millennialgeneration-140401170638-phpapp01w=640h=330]First, Millennials are already showcas ing much higher turnover rates than other generations. Millennial Branding report from 2013 highlighted how Millennials rarely stay in the same job for more than three years. They’ve also shown a higher preference for working for themselves.But what is driving this trend? Jean Twenge, a professor of psychology at San Diego State University, studied over million Millennials about their personal traits. The study found self-importance and self-esteem have increased in the past five decades, which directly reflects on how Millennials view work.Their value of freedom and work-life balance, as well as being their own boss, means they could be more driven to self-employment. Furthermore, a study conducted by Elance (the freelancing platform now known as Upwork) showed over 80% of Millennials viewing self-employment or freelancing as a cornerstone of their career strategy.Finally, it must be said that both trends have also somewhat impacted the third factor behind the growing trend of gi g work: financial necessity.Both digitalization and the increasing cost of hiring Millenials have partly increased the financial pressure organizations are feeling. Organizations have faced staff reductions and temporary work has been part of cost reduction strategies.Since certain jobs take less time, it’s often financially more viable to hire contractors rather than fill the position with a full-time staff member. For organizations, it might be easier to attract Millennials with contract work rather than full-time positions. It would also make sense financially, as the churn rate is high among the generation, as we saw above.Watch this panel discussion on the future of work in a sharing economy. WHAT IS THE CURRENT SIZE OF THE GIG ECONOMY?As mentioned in the previous section, the increasing trend towards gig work tends to lead to the assumption the gig economy is growing rapidly as well. But the real figures highlighting the size of the sector are relatively hard to come by.Ther e tend to be two camps when it comes to the estimates of the current size of the gig economy:Those who believe it is already a big marketThose who believe it’s potentially smaller than thoughtBefore we look at the arguments and supporting data behind these two ideas, it’s important to note two things.The data on the size of the gig economy is conflicting and similar studies can often be understood differently.Furthermore, there tends to be an issue of transparency behind the gig economy. The real figures are hard to come by, as freelancers might occasionally hide their freelancing work from the authorities in the hope of avoiding tax. This is especially the case with ‘occasional’ freelancing, which, if reported, would change the figures, even if the person were also participating in a full-time employment.In addition, the semantics around what constitutes as freelance work are changing. Occasional employment, such as babysitting, might not have been considered as ‘self-emp loyment’ or freelance work in the past, but could technically count as freelancing today.Gig economy is already a big marketMajority of the stories on the gig economy imply the size of the sector is growing rapidly and could be overtaking traditional employment any time now, if it hasn’t done so already. EconomicModeling.com, a data research group, conducted a study, which showed the share of traditional 9-to-5 workforce has declined to its lowest point in a decade in the US.Furthermore, the same study revealed the amount of independent contractors has risen to represent nearly 18% of the US workforce.In addition, Fusion’s Kevin Roose reported on a 2015 survey, which interviewed around 1,000 on-demand workers. 60% of the respondents said they receive 25% or more of their income from freelance work. With over 40% reporting that half of their income is from such work. This could indicate there’s been a clear rise in self-employment and self-employment income.Intuit, a manageme nt software company, conducted a survey into the gig economy and found it to be rising in the US. Buzzfeed reported on the findings, which showed there are currently 3.2 million Americans working in the sector. This is expected to grow to 7.6 million by 2020. According to the article, this is four times the amount of workers who work for Walmart.If you add part-time workers together with freelancers, the numbers tend to increase even more.According the Freelancers Union, one in three workers (53 million Americans) are ‘freelancing’. That’s around 34% of the US workforce. MBO Partners found similar estimates and predicted that in a decade, nearly half of the US labor market is made of ‘independent workers’.Similar figures aren’t just found in the US. In the UK, the Office for National Statistics found the number of self-employed to be on the rise, while the public sector workforce is diminishing.Gig economy is potentially smaller than thoughtBut there are skeptics who arg ue the above figures are inflated and the gig economy is not as big, as it’s made out to be.The Wall Street Journal wrote an article in 2015, refuting the idea the gig economy is creating a revolution in the workplace. The article looked at statistics in the US and claimed that instead of turning into a nation of freelancers, “Americans are becoming slightly less likely to be self-employed, and less prone to hold multiple jobs”.According to its research, self-employment has dropped in the US from 8.5% in the mid-1990s to 6.5% in 2015, citing data from the Labor Department. Furthermore, the data highlighted a decline in workers holding multiple jobs.In 1995, 6.3% of Americans held more than one job, but in 2015, the proportion had dropped to 4.8%.Other research also suggests the gig economy is still in the early days of its life cycle and far from being a dominant sector in the economy.Research by PwC shows the sector only accounts for 2% of the total recruitment market.  David Knight, an associate partner at KPMG, told Personnel Today that, “The gig economy and portfolio working is still in its infancy and is quite immature as many organizations have yet to see the value of employing people in this way.”Perhaps the difficulty of defining what constitutes as gig work is behind the problems in understanding the size of the sector. It’s easy to see, even from the data above, that by including certain definitions and excluding others, the data can tell a largely different story.WHAT ARE THE PROS AND CONS OF GIG ECONOMY?Whether or not the gig economy is as big as some suggest, it’s clearly part of the future labor market. Even if it doesn’t overtake the traditional job sector, it’ll nonetheless continue to have an influence on the global job market and the economy.But what impact does the gig economy have, both in terms of businesses and the workers? In this section, we’ll examine the pros and cons of a gig economy to organizations and gig worke rs.You should also watch the below Financial Times discussion on the gig economy and its implications for the future workforce: The benefits of a gig economyGig economy can have a huge positive impact on the labor market. Participating in the gig economy is not only beneficial for the worker, but it can also bring benefits to a business.To businessesFirst, organizations can benefit financially from hiring gig workers. Instead of having to hire a full-time employee for a position that is temporary in nature, organizations can contract the tasks and save resources.Hiring gig workers also reduces the need to spend resources on things such as training and office space. If work can be done digitally, companies don’t need the space for accommodating the worker. Furthermore, they can look to hire people who have the exact talents for the specific job and aren’t therefore, required to provide training beyond the initial introduction to the task.Businesses further benefit from the abilit y to find the best talent for specific programs. It’s not necessary to train in-house staff for a new project, as the organization can simply contract the job to a freelancer. This can ensure the most talented and skilled people are always in charge of specific tasks.Overall, organizations enjoy more flexibility. Workload within a company hardly remains static and adjusting to increasing or decreasing workload can be difficult with full-time staff. But if the organization relies largely on contract work, they can better adjust to the changing situation without having to fire long-term staff or finding a quick hire.To gig workersThe benefits to gig workers are rather evident in the reasoning behind Millennials preferring these roles. First, gig work can provide the worker more flexibility and therefore, create a better work-life balance. As the worker is in control of accepting or rejecting the work, it’s possible to schedule according to one’s personal preferences or needs.Fur thermore, gig work often means flexibility in terms of working from home, on the go, or a beach resort in the Bahamas. If the job is digitalized, the organizations don’t often care whether you do the work in your sweatpants or a suit, as long as it is done. Just look at how digital nomads use the gig economy to build online businesses.This also means the gig worker is more able to pick the jobs that seem the most interesting. In a full-time position, there isn’t much flexibility in accepting the work given to your desk each morning. But as a gig worker, you have a little more freedom to find the jobs you are passionate about and which are interesting to you.The downside of a gig economyWhilst there are a number of attractive sides to the gig economy, both businesses and workers should also prepare for the potential drawbacks.To businessesIntroduction of a gig economy means an organization must prepare for certain structural changes. These are mainly present in the company’s HR culture.Organizations must be able to solve issues such as:How to integrate different contract terms and conditions into a cohesive format?How offer pertinent benefits and rewards to gig workers?How to reduce HR admin burden in the face of increasing employee turnover?How to manage quality control? I.e. avoiding a situation where the contracts are just given to the cheapest bidder, rather than the best or the most reliable worker.Companies should also consider how they could protect the company’s knowledge advantage. If the organization is hiring a lot of outside workforce, the same workers might also work for direct competitors.The loyalty of temporary workforce is not necessarily the same as permanent employees, who have formed lasting relations inside the organization.To gig workersThe most obvious problem for gig workers is the loss in job protection and security. Temporary work, so far at least, doesn’t often provide the same benefits and protection as a permanent job. Ben efits such as maternity pay, healthcare and pension funds can reduce the attractiveness of gig work.Furthermore, the lack of job security can be stressful. If you work on a temporary basis, you need to constantly be looking for the next job. Not having a guarantee you’ll find more work can be emotionally and financially draining.A good perspective on the gig economy with Steven Hill. THE BOTTOM LINEWhile the current size of the gig economy can be difficult to measure, it is clear different types of contingent employment types are increasing. Freelancing, part-time work and self-employment have been pushed forward by the preferences of the new generation and the digitalization of the workplace. Part of the economy is also being driven by the economic necessities of the modern world.Gig economy could provide benefits to organizations and workers alike, but there are also negative aspects that need to be dealt with. The structural change of the workplace is likely going to be an impo rtant part of the conversation around labor in the coming years.