Getting an accurate reading on how rapidly the gig economy is evolving in the U.S. is difficult, but essential. The size of the gig economy reveals a lot about the forces affecting the welfare of American workers. In particular, understanding the difference between who chooses to be a gig worker and who is forced to work multiple jobs with no benefits out of necessity will help labor market experts (and employers) design policies for improving job quality and job security while maintaining flexibility.
Former Brookings Expert
Assistant Administrator, Latin America and the Caribbean - U.S Agency for International Development
Senior Director of the Mastercard Center for Inclusive Growth
A recent Bureau of Labor Statistics (BLS) survey showed that, as of 2017, 10.1 percent of American workers (including independent contractors, on-call, temp, and contractors) have alternative work arrangements—a decline from 10.7 percent in 2005, the last time the survey was conducted—a surprise, since many expected the share to expand.
Meanwhile, the Federal Reserve’s May 2018 report on the economic well-being of U.S. households, found that 31 percent of adults are engaged in independent work—up 3 percentage points from the 2016 report. Other studies by McKinsey and Upwork show that 36 percent of the American working age population engages in independent work. More conservative estimates, such as the widely cited study by Lawrence Katz and Alan Krueger, used the same definitions as the BLS data and found that, between 2005 and 2015, independent workers rose from 10.7 percent to 15.8 percent.
What accounts for the disparity between these surveys, and why does it matter?
There are important differences in how independent workers are defined. While the BLS is a definitive authority on the size of the workforce and has the largest survey, it may only reflect a portion of the true size of the gig economy. The BLS only counts workers whose gig job is their main source of income, missing workers who supplement their income with jobs in the gig economy or those who occasionally engage in paid tasks or jobs via online web platforms (though the latter will be addressed by the BLS in the fall of 2018).
Alternative work arrangements provide coveted flexibility and independence for many workers, which has been made increasingly feasible through better matching and technological platforms (e.g., the parent who can engage in graphic design and pick up their kids from day care, or a retiree who saves for a vacation by moonlighting as a Lyft driver).
Alternative work arrangements also can represent a more sobering reality. For many workers, the alternative work arrangement is not their first choice, but an outcome of lower wages, particularly at the bottom of the economic ladder. Many turn to gig work in the face of fewer opportunities for career advancement as the job market bifurcates between low skill and high skill jobs.
Wages have decreased in the past 40 years, with the most dramatic effect on prime aged males, whose median annual earnings declined by 28 percent in real terms between 1969 and 2009. This is happening while costs for the items that contribute to social mobility—college, healthcare, childcare—continue to rise. Consider, for example, a single parent who supplements their $9/hour fast food job with cleaning other people’s homes on the weekend, and by working a night shift at Target. Even with this income, the family is just barely getting by and lacks access to healthcare or advanced education. This scenario leads to financial insecurity, hopelessness, and a loss of dignity.
While both realities exist, each may pull us in conflicting directions, and stymy our response to changes affecting the workforce.
On the one hand, online platforms that allow for flexible movement of labor, and better matching of skills with tasks have already shown a positive impact on productivity. On the other, the realities of the “necessity entrepreneur” will require the provision of a minimum level of social protections—a living wage, health insurance, affordable childcare, and so on—that allow for the sort of social mobility that eludes poor Americans. Both employers and policy makers need to work together to ensure all workers have both financial security and opportunities for advancement.
Some challenges are shared: for both categories of workers outside the formal labor force, we need to understand not only their prospects for social mobility, but how they will continue to build the skills that technological advances demand. The responsibility to continuously upgrade their skills falls on the independent worker who has less access to training, and imperfect knowledge of the specific skills that are required for advancement. At a time where digital skills are becoming an increasing source of wage divergence, independent workers may be at a higher risk of getting stuck.
The number of job categories is multiplying—gig, contract, temp, permatemp, and so on. Some have sprung up to provide flexibility and cost savings to employers and others to individuals. What is important for us to measure, along with absolute numbers, is how each is affecting livelihoods—how they affect workers’ ability to improve their lives and move up the proverbial social ladder.
We also need to measure whether these arrangements provide the resilience, lifelong learning trajectories, and skills needed to thrive in today’s fast-evolving job market.
If we can only act on what we can measure, let’s make sure we are measuring what matters.
Marcela Escobari is leading a project on the workforce of the future at the Brookings Institution, with support from the Mastercard Center for Inclusive Growth. Sandy Fernandez leads the North America region for the Mastercard Center for Inclusive Growth, a non-commercial entity inside the company focused on promoting inclusive growth. The views expressed in this article are those of its authors and do not represent the views of the Mastercard Center for Inclusive Growth, its officers, or employees.