What is the ‘Gig Economy’ and why has it come about?

Over the last ten years a new concept has emerged in relation to the description of the contemporary labour market. This concept is known as the ‘Gig Economy’. The gig economy has emerged as a core theme to describe modern employment practices which have grown in prominence since the global financial crises in 2007-08.

It is a broad term but, in its essence, it focuses upon work which generates income from the completion of short-term work. The term ‘gig’ is a slang word in which describes a job which is carried over a short period of time. The word gig can be ascribed to the sense of gig traditionally used to describe performances carried out by musicians and also entertainers. Early uses of the term dates back to the 1920s to describe one-night performances by jazz musicians.

The gig economy entails a broad range of people who carry out various services. It encompasses workers who are full time independent contractors and also those who may drive cabs for companies such as Uber or Lyft. The number of people who are described as gig workers has increased significantly from the middle-end of the 2000s. Indeed, the share of the U.S. workforce in the gig economy increased from 10.1 % in 2005 to 15.8% in 2015. In the United Kingdom the gig economy has boomed and as of 2019 4.7 million of the countries labour force are considered gig workers which according to research from the Trades Union Congress (TUC) accounts for 1 in 10 of the working age population.

So why has this phenomenon risen in prominence?

The increase in the number of people selling their labour within this new system can be attributed to the transformation of the economy as a whole. For decades succeeding WWII work, especially in higher incomes countries situated in North America and Western Europe, was characterised by closed employment relations. Within this arrangement, workers were employed on long-term contracts and were closely tied to the company they were hired by.

However, as a result of a shifting emphasis towards a service- based economy employment relations have transformed. An increasing push towards labour market de-regulation has resulted in major changes. These changes have meant there has been a growth in market mediated open employment relations. Market-mediated, open employment relationships are based on free market forces and competition and are associated with relatively weak labour market institutions, standards and regulations. They are in sharp contrast with closed employment relations based on strong institutional protections derived from unions and other firm labour markets. The increased fragmentation and casualization of work characterized by the gig economy has led many to believe that it is to the detriment of workers.

Companies which have come to be synonymous with the gig economy, such as Uber and Just Eat, operate differently to those which employ workers on a long-term basis. These companies act as a medium through which the worker is connected to – and ultimately paid by – the consumer. The main function of these companies is for them to make workers find a quick short-term job (a gig). This could be essentially any type of work to a musical performance to plumbing work. The relationship between the company and the employee is significantly looser. Companies within this setting operate more like middle-men than an employer in a traditional sense. Gerald Friedman, an Economics professor at the University of Massachusetts, states that “there is no more connection between the worker and the employer than there might be between a consumer and a particular brand of soap or potato chips”.

The British economist Guy Standing believes this development has created a new social class named the ‘precariat’ whose lives are made uncertain and precarious by the open employment relationship.

The Gig Economy and the ‘Precariat’

Standings makes the argument that life for those who sell their labour within the gig economy is inherently precarious. For workers the shift towards the gig economy dramatically increases the level of uncertainty and risk economically. What the gig economy does, according to Standing, is remove the safety net which workers traditionally enjoyed from conventional long-term employment contracts.

With an absence of non-wage benefits such as paid sick leave, skills training and health insurance the working arrangement gig employers find themselves in is fragile. Workers are only paid for the job in which they complete (i.e. the gig) every other expense, such as seeking insurance and maintenance of equipment, must be covered by the worker themselves. As a result of this Standing believes that risk is fully transferred onto the employee.

Gig workers are also seldomly unionised as technically they are independent contractors. As such the wages they accumulate for their work is increasingly subject to fluctuations completely outwit of their control. By hiring workers for the gig rather than making them part of the organisation as employees, employers are able to adjust employment and even wages in response to the demand conditions. This makes wages and employment significantly more volatile. In order to get better gigs and build a reputation, employees have to work extremely hard to beat other gig workers vying for the job. Most of the digital platforms which connect gig workers to different jobs use specific algorithms to decide who gets what job. Workers for companies such as Uber are managed via tracking mechanisms and customer ratings. So, drivers who have managed to build a high customer rating through a large number of jobs are the ones who will get given the more lucrative jobs. With this being the case those who are just starting off who wish to build a reputation must work a significant number of hours, often at unsocial times, in order to compete for the better paying gigs.

Within this new structure workers are competing privateers. The financial times journalist Izabella Kaminska stated the environment echoes that of the old feudal system where workers battled it out to fight for whatever work was available in a zero-sum game.

However, are all these claims correct? Have Standings claims got empirical backing?

Interview with Jesper Kuhl of Kraka

To look further into the phenomenon of the precariat DDRN conducted an interview with Jesper Kuhl from the Copenhagen based think tank Kraka which produces and communicates independent and apolitical economic analyses relevant for the socio-economic development of the Danish economy and society.

In December 2018 Kraka published an analysis named the ‘The precariat- what does it look like in Denmark’ as part of the collaboration between Kraka and Deloitte Nordic on the Small Great Nation-project that looks at the long-term prospects for Danish society. The report as the name suggests investigated whether or not the precariat is a concept which is relevant to workers within the Danish labour market. DDRN met with Jesper Kuhl, one of the three authors of the report, to discuss the findings.

Jesper explained that the first thing they did was to conceptually define the precariat in more concrete terms. The term the precariat as discussed above is generally understood as someone who is loosely connected to the labour market. However, in order for there to be more thorough research into whether life for loosely connected workers is more precarious Jesper and his colleagues created some indicators. In order for someone to be deemed within the precariat classification a crucial criterion is that the loose employment status is involuntary. This is important because according to different people the loose employment relationship may be to the employees’ preference e.g. parents who like to spend more time with their kids or persons who value spare time higher. Involuntary temporary employment means that you are either on probation for a job or that you have not been able to find permanent employment.

Also, the time in which a worker was loosely employed was deemed important. Workers who found themselves in loose employment for over three years were deemed to be members of the precariat. With these variables in mind Kraka tracked the amount of people in Denmark who matched the criteria set above from the early 00s to the mid 10s to see if it is an increasingly salient phenomenon.

Kraka found that around 2-3% of people, based upon data from the Labour Force Survey (LFS), in Denmark are considered to meet the criteria for the classification of the precariat. There were many people during the time period analyzed which found themselves involuntary temporary employment, but their research showed that this was not over a prolonged period of 3 years as relatively quickly most of these people leave the status of the precariat. The level of people who are classified as the precariat in the country has increased since the early 2000s, though from a low base compared to other EU countries.

Is the Gig economy only a phenomenon for developed countries?

Much of the focus on the gig economy has centered around how it has affected workers within developed nations. There is this perception that gig workers are mainly taxi drivers and food couriers who are place bound within North America and Western Europe, but the influence of the gig economy has reach far beyond these boundaries. Indeed, alongside local gig work there has also been a dramatic increase in the level of remote gig work. This consists of the provision of a wide variety of digital services ranging from data entry to software programming via platforms such as Amazon Mechanical Turk (MTurk), Fiverr, Freelancer.com and Upwork. The use of these online platforms has increased significantly. In 2018 there was estimated 70 million people worldwide registered to online platforms and an index measuring the usage of online platforms suggests their use is increasing at a rate of 26% annually.

The increasing pool of global remote gig workers has meant that companies can easily outsource short term jobs. With the increased connectivity provided by the internet workers from Southeast Asia or Sub-Saharan Africa can complete tasks such as translations, transcriptions, marketing and web design for a business operating in North America. Research from the Oxford Internet Institute states that the vast bulk of demand for these services comes from high income countries but the majority of work is carried out in lower income countries. India and the Philippines are two countries in particular which perform much of the work on online platforms.

The increased number of jobs in which online platforms can provide has led many to believe that this can be an opportunity for many developing nations in the global south. As the number of job posts on online platforms has increased it is believed that workers can transcend some of constraints, they are confronted within their local labour markets. Some states believe that an increase in the level of digital jobs can lead to regional development. Malaysia for example has begun to pursue this as a development strategy. The idea of encouraging this type of work emerged in 2012 when the Malaysian government launched its ‘Digital Malaysia’ strategic program. ‘The Digital Malaysia’ program articulated the nations vision to ‘forge ahead in embracing the global digital revolution [ . . . ] that will propel the nation into high-income status with digital technology as its critical enabler’. One of the key tenants of “Digital Malaysia’ is the program ‘Micro sourcing for the B40’s’ which intends to enable the bottom 40% income earners in the country to leverage microwork and online freelancing for a sustained living. By 2020 the programme aims to enable 340,000 micro workers (those working on online platforms) to create an annual contribution of MYR 2.23bn (about 0.5bn) to the Malaysian Economy.

While it is true to an extent that online gig work does offer some opportunities insofar as labour force participation and improved productivity is concerned. However as is the case in developed countries participation within the gig economy has its downsides. In many developing nations the market for digital labour exists within an imbalance between the supply and demand of digital work. As the market is this way there emerges a downward pressure on wages for people seeking work on online platforms which in turn further exacerbates inequalities. In order to land gig work and compete with workers from North America and Europe many digital workers in places like Southeast Asia look at bids for work by other freelancers and lower their prices accordingly to attract the work. Such a situation suggests a digital race to the bottom. In many cases workers in developing countries lower their rate far below what their qualification level is. The imbalance between supply and demand thus seems to adversely affect those living in the global south.

So, is the gig economy a positive development?

Through researching the modalities of the gig economy, it is clear that certain issues arise. Unlike work based upon closed employment relations gig work operates within an open employment relationship which presents problems to the worker. Under this arrangement workers enjoy far less security. Risk within this framework is almost fully transferred to the employee and for those who find themselves involuntarily having to sell their labour in the gig economy long term, life is significantly more precarious. Even though the number of people employed within this structure is generally lower than 15% there is evidence that in both the Global North and South its prominence is growing and it is fair assume that the digitalisation of the economy will only progress into the future. The gig economy is still a relatively recent phenomenon and research on it is just beginning to emerge so time will tell if it is a positive development or not, but certainly early signs show that clear issues arise with regards to human security.

Jack Reid is a Master student of International Studies, Faculty of Arts, Aarhus University; he was a DDRN University student intern during Autumn 2019