The Corner

Economy & Business

The Gig Economy and the Labor Market

The Wall Street Journal had an interesting piece last week looking at the gig economy and its impact on the labor market. It was referencing a piece from a few weeks ago:

The share of Americans earning income from digital platforms such as Uber and Airbnb is growing rapidly, but those gigs typically supplement incomes rather than replace full-time work.

Nearly 1% of U.S. adults earned income in September 2015 via one of the growing number of firms that are part of the sharing or gig economy, according to a study of bank transactions by the JPMorgan Chase Institute, released Thursday. Participation has exploded since October 2012, when just 0.1% of adults were paid by such platforms.

Here is an interesting chart:

One of the very interesting things outlined by the piece is the rise of offline contract work. It claims it has little to do with the rise of apps and Silicon Valley — and it’s right. However, the gig economy may have a lot to do with the growth of the contract workforce. My colleagues Chris Koopman and Eli Dourado looked at this issue last year and found that indeed the gig economy isn’t responsible for the 15 percent growth since 2000. However, the gig economy is a product of more fundamental changes in the labor markets, such as the falling dynamism, weakening of the labor marker, and risk-aversion of traditional employers to hire workers. In that context, the gig economy and its more flexible work arrangements provide a way for those excluded from the traditional employment relationship to make a living and supplement their part-time jobs.

Koopman and and Dourado conclude:

We should view the rise of the sharing economy as a natural consequence of more fundamental changes in the labor market, and should count that as one of the many ways that the sharing economy is creating value. As traditional labor market dynamism wanes, firms and workers have adopted more flexible, nontraditional work arrangements as a response. Insofar as sharing-economy firms provide innovative and efficient ways to implement and manage those nontraditional arrangements, they are promoting economic inclusion for workers who now find fewer opportunities in the traditional labor market.

What the sharing economy also does for workers is to provide them with a supplemental income. It means that unless things change, it could hold the most promises for those workers with irregular incomes. The Journal notes:

JPMorgan found that 70% of Americans ages 18 to 24, and 74% of those earning in the bottom 20% of incomes, experienced an average change in their month-to-month income of more than 30%.

Such large swings can make it difficult to keep up with bills or rent, and can result in expensive borrowing or missed payments.

This is important. While many Democrats, such as the Obama administration or Hillary Clinton, are supporting rules and regulations to try to force everyone into the traditional model of employment that has been changing for decades and probably won’t be the same ever again, they are also being very hostile to the gig economy. In doing so they won’t fix the traditional labor market — they will make it worse — and they risk destroying an important source of income for many people who do not fit into the traditional mold.


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