Gig Economy: Definition, Factors Behind It, and Criticism

What Is a Gig Economy?

A gig economy is a labor market that relies heavily on temporary and part-time positions filled by independent contractors and freelancers rather than full-time permanent employees. Gig workers gain flexibility and independence but have little or no job security.

Many employers save money by avoiding paying benefits such as health coverage and paid vacation time. Others pay for some benefits to gig workers but outsource the benefits programs and other management tasks to external agencies.

Understanding a Gig Economy

The gig economy is a labor market characterized by temporary, contract, and freelance jobs rather than permanent positions. In this economy, people earn money from providing on-demand work, services, or goods. In other words, people get paid when their services are required.

The term ”gig economy” is often associated with taxi and delivery drivers. However, it actually stretches way beyond driving for Uber or Lyft or delivering food for DoorDash.

A wide variety of positions fall into the category of a gig. The work can range from renting out rooms on a short-term basis or tutoring to writing code or freelance articles. Adjunct and part-time professors, for example, are contracted employees as opposed to tenure-track or tenured professors. Colleges and universities can cut costs and match professors to their academic needs by hiring more adjunct and part-time professors.

The gig economy can help companies and institutions save money and some of these savings may be passed on to consumers, resulting in lower prices. However, it can also leave workers worse off financially.

The Gig Economy Is Growing

The gig economy experienced significant increases in 2020. COVID-19 lockdowns forced people to work from home and rely more on purchasing goods and services online, and these trends continued when restrictions were lifted. The pandemic taught businesses that having staff work from home can be fruitful for all parties, and it taught consumers about the convenience of getting things delivered.

Today, gig workers make up a significant portion of the employment pool in the United States. As many as 64 million Americans are freelancers or gig workers, according to a 2023 Upwork report. This represents 38% of the U.S. workforce. These workers contributed as much as $1.27 trillion to the U.S. economy. This figure could rise, as these positions facilitate independent contracting work, with many of them not requiring a freelancer to come into an office.

The Factors Behind a Gig Economy

Employers have a wider range of applicants to choose from within the gig economy because they don’t have to hire someone based on their proximity. Technology has developed to the point that it can either take the place of the jobs people previously had or allow people to work just as efficiently from home as they could in person.

Economic reasons also factor into the development of a gig economy. Employers who cannot afford to hire full-time employees to do all the work that needs to be done will often hire part-time or temporary employees to take care of busier times or specific projects. Employing people in this way can also mean not having to pay benefits, such as vacation or sick pay.

There are also benefits for employees. The gig economy offers greater flexibility in terms of working hours and, in some cases, location. Work done over the internet can be executed from anywhere in the world. It's no longer necessary to live in or nearby big cities to do certain jobs. These days, it's possible to work, for example, for a New York company while living in the mountains or on the other side of the world.

Working in the gig economy also offers the opportunity to earn an additional income. You could have a 9-5 job and then during the evenings do something else as a side hustle.

Criticisms of Gig Economies

Despite its benefits, there are some downsides to the gig economy. The gig economy trend can make it harder for full-time employees to develop their careers since temporary employees are often cheaper to hire and more flexible. Workers who prefer a stable, secure, and traditional career path are being crowded out in some industries.

The gig economy is often associated with eroding worker rights. The benefits that come with permanent positions, such as health insurance and sick and vacation pay, are often nonexistent. And having a bigger supply of workers to choose from means employers are under little pressure to change that or pay higher wages.

A byproduct of opening up positions to people living anywhere in the world, including places where the cost of living is much cheaper, is lower wages. And when governments intervene and enforce higher remuneration, consumers risk being punished through higher prices.

There's also the mental health aspect. The flexibility of working gigs can disrupt the work-life balance, sleep patterns, and activities of daily life. Flexibility often means that workers have to make themselves available whenever gigs come up, regardless of their other needs. Taking an evening or day off can be hard. Loneliness is another issue.

Moreover, long-term relationships between workers, employers, clients, and vendors can erode. This can eliminate the benefits that flow from building long-term trust, customary practice, and familiarity with clients and employers. The gig economy may also discourage investment in relationship-specific assets that would otherwise be profitable to pursue since no party has the incentive to invest significantly in a relationship that only lasts until the next gig comes along.

The Bottom Line

The employment and labor pool has shifted. Temporary, freelance, and part-time work, collectively known informally as the gig economy, is now much more common. The gig economy offers many benefits, including providing workers with more flexibility and allowing companies to cut down on certain costs. However, it is also sometimes a source of controversy, with some pundits associating it with eroding workers' rights.