What it means to work in today’s gig economy
December 16, 2019
A couple of decades ago, the bulk of the workforce had some form of a traditional, full-time job.
Whether working the 9-5 cycle or shift work, the common denominator among most jobs was stability.
Fast forward to the present, and the workforce is looking vastly different. Millennials aren’t seeking employment the same way that their parents did, while baby boomers who aren’t ready for retirement are turning to alternative options to stay in the workforce.
Rather than stability, many are pursuing jobs that offer flexibility. That change has given rise to the gig economy.
While the gig economy has grown exponentially each year, there has been much discussion on what it means to work in today’s gig economy market. How can we define the gig economy and what it means for the future workforce?
Defining the gig economy
If the term “gig economy” has you thinking about a rock concert, you’re not far off.
As Wired explains: “The gig economy gets its name from each piece of work being akin to an individual ‘gig’ – although, such work can fall under multiple names.” But the gig economy isn’t just some niche market. It encompasses a broad collection of workers, including independent contractors, part-time staff, and freelancers. And its popularity has exploded since the 2008 financial crisis.
What does that mean?
Platforms like Uber and Lyft are often the first that come to mind when referencing gig work, but they are far from the only ones. Gig workers are increasingly doing work for companies who employ traditionally, using these workers to complete short-term contracts that are often project-based. Workers are varied: from food delivery to website design, gig economy workers make up a growing portion of the global economy.
Here are some statistics that may surprise you. According to the State of Independence in America 2018 report:
The number of independent gig workers in the US rose to 41.8 million last year, up 2.2% from 2017. And that figure is only expected to keep growing. And you’re apart of it. Do you do freelance work on the side? Have you ever been paid to do a project for a friend? That is gig work.
By 2023, 52% of the private workforce is projected to have spent time as independent or gig workers at some point in their lives. Those numbers certainly help indicate why so many believe that the gig economy will completely reshape the workforce of the future.
“The new norm is now more likely to be a mix of traditional and independent experience throughout one’s lifespan,” reads the report from Wired. “It’s not necessarily an either-or choice.” In other words, it’s becoming increasingly common to switch from traditional to gig based work, and back again.
The gig economy is also a significant contributor to the American economy. Independent workers generated about $1.3 trillion in revenue for the US economy in 2017, representing about 6.7% of the country’s gross domestic product.
Labor Department weighs in on defining gig economy
With the rise of the gig economy, there has been a lot of debate about the rights of these workers, namely those who find work via online platforms.
While many gig workers can earn a decent income – the Freelancing in America report found that 73% of full-time freelancers make more than they did at their previous traditional job – the same can’t be said for all independent contractors.
For example, some rideshare drivers net around $12 to $15 an hour after expenses, according to one firm’s calculations. A study done by Cornell University found that among those surveyed who find work via apps, only 13% said they could fully support themselves that way, and many said they had to use public assistance. While gig economy workers gain independence and flexibility surrounding their work, they sacrifice the stability a full time job provides, including health care, paid vacations and sick leave, and other benefits.
The means of production
For a while now, certain groups of gig workers have been fighting to be considered employees, and many labor experts and economists have agreed that more needs to be done to support these workers.
Similar to direct-to-consumer consumption, gig workers are actively selling the services they offer. This is a huge, if subtle, difference from traditional service-offering business models. It’s also a partial benefit to the gig worker: they control the means of production, meaning that they know how the service is offered, what they’re paid, and how they’re compensated. This is true for the person paying for the service too. In many ways, removing a middleman from the equation increases transparency.
But the US Department of Labor (DOL) recently weighed in on the issue with an opinion that could have far-reaching implications for future definition of the gig economy, which may have negative effects on the seemingly transparent gig worker-to-consumer relationship.
The Labor Department provided the opinion after a lawyer working for an unnamed cleaning company reached out to clarify how gig workers should be classified. The department responded with a letter saying it classified the company’s gig workers as independent contractors, not employees. That distinction means the company in question doesn’t have to offer overtime pay, the federal minimum wage, or pay a portion of Social Security taxes.
The problem with definitions
The department reasoned that because the company in question doesn’t have mandatory training, licensing, or permit workers to file expenses, they are contractors. It also said the workers aren’t integral to the company’s business structure because they “do not develop, maintain, or otherwise operate” the platform. Therefore, this definition classifies them as gig workers, not full time employees who are entitled to benefits.
The department’s opinion marks a shift from the position it took under the Obama administration. In 2015, the Labor Department issued an interpretation of the definition of “employ,” suggesting that under the Fair Labor Standards Act “most workers are employees.”
What are the implications for future gig workers?
Though the Labor Department’s opinion only applies to the company that requested it, many are anticipating it will have substantial and far reaching implications for the gig economy as a whole.
According to the New York Times, in recent years, various gig-based companies have sought “legislation and regulatory rulings to ensure that their workers are classified as contractors.”
In its filing for a public offering, Uber claimed that having to classify drivers as employees would cause the company to “incur significant additional expenses” and that “any such reclassification would require us to fundamentally change our business model.” Uber drivers went on strike right before the company’s Wall Street debut to protest for better employment conditions. As one of the leading employers in the gig economy, Uber and other rideshare platforms are heavily invested in maintaining their employee’s status of gig workers or independent contractors.
As Reuters noted, the Department of Labor’s opinion isn’t “legally binding, but can be presented in court to boost claims by plaintiffs or defendants in cases involving similar issues.” In other words, the precise definition of what the gig economy means is yet to be determined.
EU’s ruling on gig workers’ rights under the gig economy
While the debate continues in the US over the rights of gig workers, lawmakers in the EU have taken a different approach towards defining the gig economy.
Shortly before the Labor Department issued its opinion letter, the European Parliament passed a law establishing basic rights for gig workers. The legislation includes compensation for canceled work and mandatory training. It also increases transparency and puts an end to “abusive practices” around casual contracts.
“All workers who have been in limbo will now be granted minimum rights thanks to this directive … from now on, no employer will be able to abuse the flexibility in the labour market,” said Enrique Calvet Chambon, Member of European Parliament, in a press release.
The protections apply to casual or short-term workers, those who work on-demand, and paid trainees and apprentices who work at least three hours a week averaged over four weeks. The new law doesn’t extend to “genuinely self-employed workers.” Member states now have three years to put the new rules into force.
A solution to definitions?
So can we expect the US to follow suit and introduce legislation defining the gig economy, and its workers? And should it? There’s been speculation that some states may work to pass legislation with similar protections for gig workers, but as for a new federal law, best not to go placing any bets for the time being.
One thing you can count on: the matter will draw more attention and debate as the gig economy continues to grow. As freelancers grow more numerous throughout the global gig economy, they have some opinions themselves on the reality of working – and living – in the gig economy.
Some gig workers, such as Uber drivers, have attempted to organize themselves and demand increased protections and rights. Other professional freelancers have formed groups around their shared skillset, including copywriters, graphic designers, SEO specialists, translators, accountants, bookkeepers, and virtual assistants. These industry groups provide the support and community that many gig workers miss when they leave the full time workforce. Some of these groups even provide services like health insurance, training, legal assistance, and other benefits that workers lack in the gig economy.
Other gig workers aren’t so excited about organizing. Many freelancers and independent contractors joined the gig economy to escape the rules and regulations associated with worker’s groups. These gig workers became freelancers for the independence and autonomy enjoyed by contractors. They see government attempts to regulate the gig economy as overbearing and unnecessary.
Whether you believe gig economy regulations are intrusive or desperately needed probably depends on the type of gig work you do. The gig economy is often defined as if it were made up of a homogenous group of individuals with similar goals, skills, and needs. However, the gig economy is composed of a huge spectrum of talent, individuals, and requirements.
Defining ‘gig workers’ – who makes up the gig economy?
Who makes up the gig economy
Accountants, developers, translators, graphic designers, and other trained freelancers enjoy much higher demand for their skills, which translates into the ability to command a higher wage. These types of gig economy professionals rarely join the chorus calling for greater government protections, likely because they have the social and financial capital to find the necessary support.
Conversely, there are many gig workers using low skill freelance jobs to make ends meet. Rideshare drivers, food delivery workers, brand ambassadors, retail workers, transcribers, data entry, and other low-skill gig workers are more likely to work in the gig economy out of necessity rather than choice. They are also more likely to work multiple gigs at the same time; for example a gig worker might begin their day transcribing online and then head out to drive for a rideshare company. This sector of the gig economy is especially vulnerable to changing macroeconomic conditions, including governmental regulations surrounding what exactly the gig economy means.
The workers of the gig economy are highly varied depending on industry, location, and experience. Globally, the majority of freelancers are found in Europe, Asia, and Latin America, however the majority (68%) of clients utilizing the gig economy are found in North America.
Gig economy workers are not spared from the pay gender gap: the average rate for male gig workers is $20.00 USD, while women earn on average $16.00 USD per hour. Over three quarters of global freelancers are men; however, in the United States the gig economy is equally split between men and women. This trends and statistics point to a shifting and heterogenous group of workers loosely grouped together as ‘gig workers’.
Love it or hate it, the gig economy will only continue to grow. Over half of the global gig economy is composed of workers younger than 30, and one quarter is made up of gig workers under age 25. Gig workers, with all of their troubles, are here to stay.
Wages in the gig economy
The average gig worker in the United States makes $19.00 USD/hour. While this is significantly more than the federal minimum wage, it isn’t exactly the get-rich-quick method touted by some, especially when you factor in the cost of paying appropriate taxes, sourcing your own health insurance, and the lack of sick or vacation pay. Furthermore, wages in the gig economy can vary wildly. While some highly specialized freelancers regularly charge $90.00 USD for an hour of their time, some less skilled workers make under $5.00 USD in an hour. This disparity seems shocking, until we consider the wide range experiences in today’s gig economy.
Getting paid in the gig economy
As gig work grows and traditional businesses expand, payments will continue to be an issue for this employment model. For the businesses that pay and the people getting paid, whether internationally or domestically, moving money is complicated. One wrong number on an invoice can mean you aren’t getting paid this week. Or, it can mean you aren’t getting the services you thought you paid for.
At Veem, we’re making payments simple for both sides of the transaction. No more stress, headaches, waiting, or worrying. Businesses and gig workers can use Veem to pay and get paid just by sending an email. Don’t believe us? Check out how we compare to some of the most-used payments methods by businesses and gig workers.
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