The gig economy: what is it, why is it in the headlines and what does the future hold?

Emma Charlton, Senior Writer, Formative Content

global debate is raging about independent workers or the so-called gig economy. But what is it? And how important is what’s happening?

For millions of people, working nine-to-five for a single employer or being on the payroll is no longer a reality. Instead, they balance various income streams and work independently, job-by-job.

If you’ve ever used an app to call a freelance taxi driver, book a holiday rental, order food or buy a homemade craft then you’ve probably participated in this segment of the economy.

The “gig economy involves the exchange of labour for money between individuals or companies via digital platforms that actively facilitate matching between providers and customers, on a short-term and payment-by-task basis,” according to the UK government.

a chart showing the four segments that independent workers generally fit into

Choice or necessity?   Image: The McKinsey Global Institute

It’s in focus not just because it’s growing, bringing economic benefits in terms of productivity and employment, but also because it raises questions about levels of consumer and worker protection and labour-market policies.

While gig-economy workers often eschew the rights offered to employees on the payroll, in February in the UK a court found that drivers for a car ride-hailing app are entitled to benefits including paid holidays, a minimum wage and a pension.

a chart explaining different gig economy sectors

Different gigs.
Image: Mastercard Gig Economy IndustryOutlook and Needs Assessment
Similar themes are found in other countries, with Spain set to approve a new law that categorizes gig-economy riders as wage labourers. In the US, a comment from the labour secretary suggesting that some workers should be classified as employees wiped billions of dollars off the value of some of America’s largest gig-economy companies, according to a report in the Financial Times.

The future of work beyond the COVID-19 pandemic will be the focus of the World Economic Forum’s Jobs Reset Summit on 1-2 June 2021, which will look at mobilizing a jobs recovery plan.

So far, gig-economy platforms’ share of total employment is modest – ranging between 1% and 3% of total employment, according to the OECD, which also says the share is growing fast.

Global gig-economy transactions are forecast to grow by 17% a year to around $455 billion by 2023, according to a report from Mastercard.

a chart showing the projected gross volume of the gig economy, which is projected to grow to $455 billion by the end of the year 2023 in Gross Volume transactions

A growing gig. Image: Mastercard Gig Economy Industry Outlook and Needs Assessment

And as the market grows, and the companies at the top of the chain get larger, the challenge for policy-makers and officials is to balance the innovation that creates jobs against the need to ensure the companies are offering workers a fair deal. Gig-economy companies present complications for product-market regulation, competition policy, tax and labour-market policies.

Independence and flexibility were cited as the main aspect that people working in the gig economy were often satisfied with, according to a UK government survey. Respondents were less satisfied with work-related benefits and the level of income, with one in four saying they were very or fairly dissatisfied with those aspects of their work.

For students who want to earn an income while studying, or primary carers who want to fit work around school or daycare hours, these companies can offer flexible working patterns.

Flexible working

Generating additional income and having work flexibility are the most common motives to work for gig economy platforms, according to the OECD paper.

“Overall, most gig workers are satisfied with their job and working for gig economy platforms appears to reflect mainly voluntary choices rather than the lack of other options,” that paper says. “However, a significant minority of platform workers – around 20% – uses platforms because they are not able to find work as dependent employees.”

A McKinsey study categorized independent workers into four segments.

  1. Free agents, who choose independent work and derive their primary income from it.
  2. Casual earners, who use independent work by choice for supplemental income.
  3. Reluctants, who make their primary living from independent work but would prefer traditional jobs.
  4. Financially strapped, who do supplemental independent work out of necessity.

Public policy-makers face the task of keeping all four of these groups happy, which may require adapting policy settings so that they are ready for the digital age. Challenges exist but are not insurmountable, the McKinsey Global Institute report said.

“Issues such as benefits, income-security measures, and training and credentials offer room for policy-makers, as well as innovators and new intermediaries, to provide solutions”, the authors wrote. “Independent workers and traditional jobholders alike will have to become more proactive about managing their careers as digital technologies continue to reshape the world of work.”

This article is part of the The Jobs Reset Summit

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