Non-traditional and freelance work is rising exponentially. Between 25-35% of American workers participate in the gig economy. What factors are leading to this free-market system's explosive growth? In part 1 of our gig economy series, Zachary Pyers and Kenton Steele will define the gig economy and analyze its rapid growth.
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Non-traditional and freelance work is rising exponentially. Between 25-35% of American workers participate in the gig economy. What factors are leading to this free-market system's explosive growth? In part 1 of our gig economy series, Zachary Pyers and Kenton Steele will define the gig economy and analyze its rapid growth.
Visit our website for information about our legal services related to emerging technologies.
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KHS Kenton H. Steele, Esq.
ZBP Zachary B. Pyers, Esq.
KHS
Thank you for joining us again on the Reminger Report Podcast. Today Zach and I are going to be beginning a multi-part discussion on the gig economy. We will be talking about what the gig economy is, what companies are involved in the gig economy and we’ll also be exploring how the legal world is responding to the challenges that are presented by the new work relationships that are present in the gig economy. But, as we dive into this discussion, Zach, a good place to start is with defining what we’re talking about. So, can you tell us what we mean when we use the term gig economy.
ZBP
Absolutely. So, this is one of the topics that I love talking about and I love focusing on for a couple of reasons. One is that, you know, as we started looking into the legal implications in a lot of the, the tech fields, the gig economy was a reoccurring theme because a lot of these new technologies and new industries, especially some of the names we’ll talk about, you know, throughout this gig economy focused series are names that people are going to associate. And so, you know, from a legal implication, we start looking at what, you know, the gig economy comprises itself of. And, you know, before we even get to that stage, we kind of take a step back in the process and think about how it’s defined from the average person. And so, when the average person thinks about gig economy work, what are they talking about, right. And one of the things I’ll say is that I think this has been highlighted especially over the last year and a half, right. Since the start of the pandemic, there’s been a lot of focus on the gig economy for a variety of reasons. From whether or not they are able to obtain unemployed compensation benefits or you know how they’re treated for tax purposes, and, you know, a lot of the fact that they’re a thriving backbone of our economy in many ways. And so, when we start to think about it and start to define it, it’s generally a flexible temporary or freelance type work. Now, when we think of freelance work, you know there’s key differences between a freelancer who may be a consultant with one company and a gig economy worker who may be bouncing between a lot of different employers. The work is often short term or based on individual tasks rather than long term, i.e., like consulting projects. It usually involves connecting with a client or customers through some sort of online platform, which as I alluded to before, kind of hits on the area of technology that we’ve seen. And then we kind of think about it at least in the most positive light is that it represents a free market system in which organizations and independent workers engage in short term work arrangements, right, which is beneficial in the free market to everybody. Now, the gig economy, though, includes more than just individual labor or work. Some of the platforms that we’ve seen developed can also rent property, right. Whether it’s real or personal and they rent it directly to consumers which maybe would have traditionally been offered through some sort of commercial intermediary. And so, all of this kind of in a more nebulous 10,000 foot overview, helps to comprise and make up the gig economy.
KHS
So Zach, from what you’re saying, it sounds like there are a lot of different components of what makes a business arrangement or work agreement part of the gig economy. To help kind of put a finer point on that, could you give us some examples of the companies that we typically associate with the gig economy.
ZBP
Yeah, absolutely. And so, one of the things that I think I was kind of hinting at in the last answer was that we saw a lot of these companies kind of highlighted during the pandemic, right. Especially, when people were being urged to stay at home. So for example, we had a lot of food delivery companies like Door Dash who were delivering from restaurants to the customer, right. And so, we were doing our part, we were still keeping the restaurant economy alive but we were staying home and staying safe and we were using these gig economy workers to deliver our food to us. There’s a lot of other, you know, restaurant delivery companies besides Door Dash but it’s at least an example of one. We also saw Instacart and other, you know, shopping service deliveries where you could have your products, your groceries, your Target, your Walmart, you know, items picked up from the store and delivered to your house, or home, or apartment, or condo. And this type of shopping kind of facilitated or made it so that you were staying home. Now, some of these things have just stuck, right. I mean, they existed before the pandemic, they were highlighted during the pandemic, and now people have gotten in the habit or the custom of using them. But there’s also, you know, other companies, when we talked about the rental of property, both real and person. So, there’s vacation rentals like Airbnb or VRBO. Both of those are very popular vacation or temporary rentals. There’s automobile rental service. So, instead of renting a car from one of the traditional rent-a-car companies, you can rent a car from an individual, Turo. You know, this is a very popular platform that started to be utilized especially what we saw is that a lot of rental car companies couldn’t meet the demand of the rental car market at the tale end, the lighter stages of the pandemic because a lot of the companies had sold off their fleets earlier in the pandemic to financially right themselves and then had a shortage of cars in their fleet when the demand picked back up in the later stages of the pandemic. And so, what we’ve seen is we’ve seen a large amount of these individual car owners, you know, renting their own cars and some of them even making their own rental car fleets and then renting them through Turo. But there’s a whole host of other ones. TaskRabbit is a very popular service. Care.com. We have Fiverr, Amazon Flex, Shipped It, Handy. These are all examples of kind of household names that you probably have heard or seen that all help to comprise or make-up the gig economy.
KHS
So, turning back to how we define the gig economy and whether or not a worker is engaged in gig economy work, are there classifications that we can point to as a bright line to differentiate gig economy work from a more traditional employment arrangement.
ZBP
So I think the, kind of the three areas that we see often times helping to draw this bright line, the first of which would be the work arrangement. So, generally a contractor with a relationship between the hiring party and the worker is something other than a long-term contract. The employer and the employee are not expecting this relationship to necessarily extend on a long term or ongoing basis. Now, there are often to that. So, for example, there are some of these services that may match you, for example, Care.com that I had just mentioned previously where you may be actually employed as a nanny on a more long-term basis. But generally, by and large, if you’re not looking at something that is going to be repeated week after week, month after month, year after year, right. So, I’ve been employed with Reminger since January of 2007. I’m not a gig economy worker, right. I mean I’ve been here for a long time. So, that type of work arrangement doesn’t exist. The legal classification and tax treatment, right. That’s another thing that people look at. And so they’re generally not a W-2 employee meaning they’re generally not having their taxes withheld and paid by the employer. Generally, they’re 1099 employees. They’re not having their taxes withheld and so they are treated more as independent contractors. The last one is really when they look at the nature of the work. So, often times people look and they look at the characteristics and it’s usually done on a flexible schedule. There’s no lack of direct over – or there’s a lack of direct oversight and generally these are the type of things that we look to, from at least a legal perspective, as how we treat independent contractors. And so, when we think about these terms, people are looking more like independent contractors than employees.
KHS
So, now that we’ve got kind of a grasp on what the gig economy is, what companies are involved and what gig work looks like, can you tell us a little bit about the size of the gig economy. What is the economic impact of this type of work arrangement?
ZBP
So, I’ll tell you, there is a lot of staggering statistics when we talk about the size of the gig economy and I am a little bit of a statistics nerd so I really enjoy this stuff but I know others out there may not enjoy it as much as myself. So, I’ll try to kind of hit the highlights here. So, there’s a survey recently, a couple of years ago, that was done by a large major university that highlighted that somewhere between 25% and 35% of workers are involved in non-traditional or gig economy work. So, you think about that, right, that’s somewhere between a quarter and a third of workers are involved in non-traditional work. Now, that doesn’t necessarily mean exclusively. They could be, for example, working as a bus driver during the day and driving for Uber at night. Totally, that’s totally normal. Or they could be working as a teacher and they could be babysitting on Care.com on the weekends. Also, part of the gig economy. Now we see that, you know, in the same survey one in ten workers use independent or gig economy work as their sole source of income so that’s roughly 10%. Now the numbers become a little confusing because often times we look to see whether or not somebody’s classified in the gig economy or whether somebody’s classified as a freelancer. And, depending upon how you define those terms, it becomes a little confusing as to what people think that they may be. So, you may have somebody who identifies as a consultant who really qualifies as a freelancer but wouldn’t qualify themselves as a gig economy worker because their freelancer consulting work has a contract. Right, it has a definite term. So, they may pull themselves out of the definition of gig economy worker. Whereas other surveys or other studies may include that. Now, one out of six workers in the traditional labor market would like to transition to being a freelancer or a gig economy worker as their primary source of income. So that’s kind of a staggering number. So, you think of people who are currently in the traditional labor market, especially now if you’ve read any reports about the great resignation and the number of people we’ve seen in this tight labor market who are leaving their employment. Where are they going? Some of them, not all, are going to become freelancers or gig economy workers. Now we see there’s another statistic that says 40% of the American workforce now makes up at least 40% of their income via gig economy work. And so that’s another statistics that helps to highlight, you know, how this is affecting actual individuals. Now let’s talk about, real quick at least, about the growth in the overall gig economy by size. And so in 2018, they calculated that the gig economy in the United States accounted for $204 billion. They’re estimating by 2021, i.e., this year, that number will have grown to $350 billion and as quickly as 2023, or two years from now, they’re estimating that number will reach $500 billion or half a trillion dollars. And so they are seeing the size of this gig economy growing very, very quickly.
KHS
That’s certainly very interesting to hear of that rapid growth in this area of work. Zach, can you tell us a little bit about what it is that’s driving that growth in the gig economy?
ZBP
Absolutely. And, so, you know, we think about a lot of these things from an economic standpoint from supply and from demand. And so on the supply side, there’s an increase of workers looking for freelance flexibility to help address the rising costs of living and a shrinking middle class. Now I’m not trying to stand on my soap box or make any sort of political statements here, but what we have seen and what some of the statistics show that we discussed before is that there’s a real drive by people to engage in the gig economy work for whatever their motivation and sometimes even to have it be their primary source of income. And so it’s clearly a very attractive option for individuals because the numbers keep going up and the statistics show that more people want these arrangements. Now, on the demand side, we see businesses and consumers are more likely to seek on demand goods or services, right. They want their stuff now. So, we talk about the restaurant delivery services, right. They want their food now. They don’t want to have to wait to go to the restaurant. They don’t want to take the time to drive there, wait at the restaurant, pick the food up, drive it home and then eat it. They’re happy with somebody else doing it. And so that kind of rise of the services has created this demand. But there’s also been a significant influx of venture capital for gig economy platforms and the businesses are looking at ways to reduce their costs. So one of those things is to outsource some of the short term tasks to help drive the costs down.
KHS
That concludes our discussion for today on the gig economy. Please be sure to show us next time on the Reminger Report Podcast where we’ll begin exploring some of the legal ramifications of the growth of the gig economy and how they law is responding to these changes in the nature of work relationships.