Problems Within the Gig Economy

These days our lives are constantly entwined with service applications. We take Ubers and Lyfts to get to work, to visit restaurants or friends, and to get to the airport. People rent Airbnbs while on vacation instead of hotels. Food delivery services make it easier to eat in at home, and Amazon Prime is becoming the most convenient way to get groceries and common household objects instead of going to the store. The people that work for these companies are part of the gig economy - an expanding portion of all employed workers within the global workforce.

Nowadays we see the widespread use of service applications such as Airbnb- Pixabay

Nowadays we see the widespread use of service applications such as Airbnb- Pixabay

Growth has been seen in the industry mainly because gig jobs allow workers flexibility by creating their own hours. Additionally, many make the switch from formal employment into the gig economy because they believe that their wages will be higher. However, research has shown that these two factors that influence many to make the transition are misguided beliefs about the industry. Multiple reports have revealed that workers in low skill jobs, like Uber drivers, take home considerably less per hour than the minimum wage. Due to a myriad of factors the high wages Uber promised at its inception have been found false or inaccurate, especially as the company has grown. In 2017, Uber gave each New York City driver around $900 as compensation after they took a larger portion of a driver's commision than they publicly stated.

It’s difficult to know how much contracted workers make per hour due to the many variables at play. The number of employees doing the same job and the level of demand for a person’s skill set are just a few factors that influence the amount one makes. While independent contractors have the freedom to choose who they would like to work for, they also heavily rely on others to have a demand for their skills. In the case of Uber drivers, a lack of people needing a ride one night directly influences the amount one would make in a day. The variable rates of pay for Uber drivers are telling of the main theme of the gig economy: unpredictability.

Over the past several years, reports from a variety of sources have published conflicting information on the industry. In 2018, the United States Bureau of Labor Statistics wrote how gig workers are only 6.9% of the entire economy. On the other hand, some organizations predict that by 2020, 40 percent of American workers will be classified as independent contractors. These contradictions likely stem from who is considered part of the gig economy. Is it any worker who is an independent contractor, including high-paid business consultants and lawyers? Or only those working low wage jobs that can be contracted out, like Uber?

What common ground scholars seem to agree on is that the definition of employment is changing, and regulations are needed to fix some major problems within this section of the economy.

The basic definition of the gig economy is one that causes a problem - independent contractors are not treated like employees for any given company. They must pay their own taxes, find and pay for health insurance, and save for retirement on their own. The combination of all these factors adds an extra burden to workers who would otherwise not have to worry with a job in the traditional economy. Most importantly, due to the individualistic nature of the gig industry, unions don’t exist. Attempts made by drivers who work for Uber, Lyft, and SideCar to unionize have led to “App-Based Drivers Associations” in California. Under the United States National Labor Relations Act, independent contractors are not given traditional union protections. Thus, there is nothing stopping Uber or other ride sharing companies to fire anyone who participates in these groups. The lack of job security and workers rights are the most severe problems that could arise from participating in the gig economy.

Another problem with the expanding gig economy is that it distorts the true unemployment rate. An unemployed person is someone actively seeking a traditional job within the past 2-3 months. It does not include those who are working part time or are underemployed. Therefore, the government is not getting an accurate picture of the state of the economy. This makes it difficult from a policy standpoint to know to what extent the government must intervene. Should unemployment benefits be extended to more people, the amount within each benefit raised, or job training be increased? The flexible nature of the gig economy makes these questions difficult for legislators to answer.

Increasingly, more high-skilled workers are leaving formal employment to become independent contractors, raising the average wage of a independent US worker to $65,300 in 2017. This is much higher than the $44,564 average wage of all US workers in 2017. The larger this industry grows, the more policies that will be needed to protect vulnerable workers. One thing is clear: as more workers are transitioning into the gig economy, governments must react soon to ensure vulnerable workers are protected.