The Inconvenient Truth Behind Convenience: How the “Gig Economy” may have adverse consequences on the future of employment by Yifan Feng

Want to get somewhere? Call an Uber or Lyft. Sick of dining hall food? Order via Caviar. College students are increasingly turning to these new online to offline business in which the touch of a button becomes goods and services right on their doorstep. Consumers have enthusiastically embraced the benefits of these touch-and-go services, but have not fully comprehended what this new development entails for the people who are employed under such systems.

The rise of such on-demand services and goods provision facilitated by the Internet has created what many people call the “gig economy.” Your Uber driver and the Caviar deliverer owe their occupations to this gig economy. As unorthodox as the gig economy goes, the type of employment also deviates from our traditional conception of a job involving a fixed monthly salary in exchange for consistent work hours. In contrast, at Uber, drivers essentially form an individual contract with the company every time they ride-share. Certainly, contract workers have existed for as long as there have been companies, mostly as a temporary fix to boost output temporarily within limited budgets that precludes making full-time hires. What has changed, however, is the shifting of temporary employees from auxiliary roles to central ones.

Under the new gig economy, the flexibility of business models meant that the lower costs associated with contract workers created improved accessibility. A company like Uber, for example, could operate more drivers than a taxi firm can at the same cost. What are “lower costs” for companies for, however, effectively translate to “lower wages” for the employed. Herein lies the hidden effect of wage suppression due to extensive contract work. How does the gig economy suppress wages if it provides more jobs to the labor market?

According to recent research from the Brookings Institute, low unemployment in recent years, which would typically lead to wage increases and competition for labor increases, has not resulted in wage raises. The key to explain tepid wage growth lies in a lack of productivity growth. Deficient productivity growth has thus lead to increasing rates of informal work. Basically, incomes are supplemented not because wages in the formal sector grow (as would generally occur if productivity rose), but because people taking on informal gigs in addition to their primary job. This helps explain why the proportion of employed who rely solely on contract work has not increased substantively.

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Through these lenses, the gig economy is nothing short of exploitative of workers whose incomes in “normal” jobs have barely kept up with inflation in the past two decades. However, the proliferation of contract work is only symptomatic of broader economic dilemmas underlying the lack of productivity growth and socio-political issues in countries, the US in particular, that do not exactly have a decorated history of protecting labor. Maybe next time you open that ridesharing or food delivery app, you might want to think a bit more about what comes at the cost of your convenience.

Sources:

Bracha, Anat, and Mary A. Burke. “Wage Inflation and Informal Work.” Federal Reserve Bank of Boston Research Department Current Policy Perspectives 18, no. 2 (2018). PDF. Nunn, Ryan, and Jay Shambaugh. “The labor market is booming, why aren’t your wages?” Brookings Institute. Last modified October 26, 2018. Accessed April 20, 2019. https://www.brookings.edu/blog/up-front/2018/10/26/ the-labor-market-is-booming-why-arent-your-wages/.

Shambaugh, Jay, Ryan Nunn, and Lauren Bauer. “Independent workers and the modern labor market.” Brookings Institute. Last modified June 7, 2018. Accessed April 20, 2019. https://www.brookings.edu/blog/up-front/2018/06/07/ independent-workers-and-the-modern-labor-market/.

Sheng, Ellen. “Silicon Valley’s dirty secret: Using a shadow workforce of contract employees to drive profits.” CNBC. Last modified October 22, 2018. Accessed April 20, 2019. https://www.cnbc.com/2018/10/22/ silicon-valley-using-contract-employees-to-drive-profits.html.

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