The American workforce has undergone a radical transformation in the past decade. It is a transformation that will likely continue for at least another decade or longer. The Gig Economy is the commonly accepted term for this workforce revolution, but it is really an invisible economy which has wide ranging consequences for society.
Gig work is short term, freelance work generally but not exclusively arranged through website apps which match jobs with desired skills. We customarily think of this work as involving transportation (i.e., Uber or Lyft) or asset sharing (i.e., AirBnB or VRBO). While 88% of gig revenue is generated by transportation apps and asset sharing platforms, anything can be gig work. For example, finding a dog sitter on Craig’s List or using Task Rabbit for odd jobs. The gig workforce includes consultants, professionals, freelancers, independent contractors and temporary workers.
More than 58 million Americans engaged in gig work in 2021. This is a 31% increase from 2016. This economy was strong and growing before the pandemic. It is projected that it has grown at least 12% since the pandemic. Experts estimate that the gig economy will generate $455.5 billion in 2023.
This economy is an “on demand” economy. Participants in this economy work when, where, and how frequently they choose to work. This flexibility and the freedom it offers workers makes it appealing to young people. More than 30% of those aged 18-29 are engage in gig work. Surprisingly, 13% of those 50-64 also engage in this economy. The vast majority of gig workers have jobs – whether part time or full time. The vast majority (81%) of workers engage in the gig economy less than 30 hours/week.
Not surprisingly, the majority of this workforce (25%) is low income and looking for extra income (52%). It is noteworthy that 13% of the middle class and 9% of the upper class also engage in gig work. The average income in 2022 generated by this work was $69,000. Almost 20% of these workers earned six (6) figure incomes.
The allure is not only the additional income but the flexibility to engage with work when they desire. Independence is the second most cited reason to engage in this economy. Those engaged in this work prize independence both in structure and scheduling. You are truly your own boss. It is entrepreneurship in its purest form.
The demographics of this workforce are another startling element. While there is no significant difference in the workforce by gender, the racial differences are stark. Hispanics represent 30% of the gig economy. African Americans and Asians constitute 20% each while whites are only 12% of the gig workforce. Participation and income distribution in the traditional economy is the inverse of this data with Asians and whites standing at the top of the income pyramid earning the most and Hispanics earning the least and being the least represented.
While additional income, flexibility and independence are the factors which drive the growth of this economy there is a downside that has larger societal consequences. People who engage in this invisible economy do not have the benefits normally associated with traditional employment. Gig workers do not have health insurance, paid leave, or retirement plans. This may be the price of independence and the risk these invisible workers accept but the costs for society are staggering. For example, uncompensated health care for the uninsured averaged $42.4 billion/year in the period 2015-2017. The Affordable Care Act (ACA) reduced this number from $62.8 billion annually in the period before the ACA was implemented. The ACA is not a panacea as workers are not required to have health care coverage. There are still 30 million Americans without health insurance and this number will grow as Medicaid coverage is dismantled by the states.
These workers do not contribute to Social Security and rarely have retirement accounts. Likewise, there is no paid leave to cover absences from work to care for ill children or elderly parents.
Workers in the invisible economy do not have the customary protections associated with traditional employment. Gig workers complain about healthcare, retirement unemployment benefits, harassment and personal safety. More than 1/3 have been treated rudely; more than half have felt unsafe and have faced unwanted sexual advances.
Finally, there are tax implications as many of these workers neither report nor pay taxes. The consequences to the worker of underreporting or failure to pay taxes may not be as impactful as the Internal Revenue Service (IRS) continues to be dramatically underfunded. The cost, however, to society is uncollected taxes. Treasury Secretary Janet Yellen estimates uncollected taxes at more than $1.7 trillion. These are the funds which advance the common good.
Despite these challenges, this economy is projected to continue to grow. Economists believe it will grow from 73.3 million workers in 2023 to more than 90 million workers in 2028. This figure may underestimate the growing impact of this workforce when coupled with the continuing change to the nature of work due to pandemic. Workers are demanding hybrid work. A hybrid workforce is fuel for the invisible economy as workers have more free time and can engage in this unstructured, independent world of work.
The challenge for all of us is how we respond to this amorphous, rapidly growing economy. It is unlikely to end in the foreseeable future. Consequently, we need personnel systems that address the threats posed by an economy which does not contribute financially to society and does not offer worker’s protections. It is a challenge to which we must rise as the spirit of entrepreneurship and the invisible economy will continue to grow!
1 McKinsey’s American Opportunity Survey 2021
2 Id. Citing the Motley Fool
4 Statista Research Department, 09/30/2022
5 The State of the Gig Worker, 2021, The Pew Research Center
7 McKinsey, supra.
8 Pew Research Center, supra
10 Pew Research Center, supra.
11 U.S. Department of Labor, Earnings Disparities by Race and Ethnicity (2017-2019)
12 HRForecast, Future of Work Report, Oksana Lavri, 3/10/2023
13 KFF, The independent source for health policy research, polling and news
16 Pew Research Center, supra.
17 www.businessinsider.com, 4/2021
18 Pew Research Center, supra.