The Gig economy and rise of the new Entrepreneur

July 25, 2017

 

 

 

Actors, musicians, artists — people who have made their living working from one gig to the next — have been around since someone realized it was possible to get paid by entertaining others. While the masses went to work at the same place every day, year after year, for a salary, these “gig economy” founders and entrepreneurs traded job security for a life spent on the road, getting paid randomly. They had found a “niche”, and a way to make their skills and talents appealing enough that others were willing to pay.  Now, they’re no longer the only ones. Currently more than 160 million people are engaged in independent work in both the US and EU, defined as:

 

• Having a high degree of autonomy,

• Paid for by task, assignment or sales,

• One where the relationship between worker and client is short term in nature.

 

 

Today’s dynamic business environment, fueled by globalization and technological innovation, is making it easier to work on a per project, or per contract basis across a widening set of industries. Though it is difficult to estimate exactly how many people are employed by the gig economy as a whole, according to a 2015 U.S. Government Accountability Office report, a full 40 percent of the U.S. workforce are contingent workers or independent contractors,  up from 30 percent just 10 years earlier.  Many work for more than one platform, patching together a living via multiple gigs, and others perform gig work in addition to holding a traditional-economy job.  A recent survey found over 40% of on-demand workers work for two or more companies in a given week, and one in seven work for three or more companies.  Of these people surveyed, 44% described themselves as employed full time, 24% as employed part time, and 32% as being not currently employed at all.

 

 

Amazingly, over the past decade, contingent workers have increased by roughly one-half and now make up 16 percent of the workforce. This rapid increase is in marked contrast to the preceding decade, when contingent workers remained at a relatively stable 10 percent of the workforce, according to the U.S. Bureau of Labor Statistics' (BLS) Contingent Work Survey (CWS).  It concludes that all of the net growth in aggregate employment in the decade leading up to 2015 can be accounted for by contingent work arrangements, which means there has been no net employment growth in traditional work arrangements.  Please reread that last sentence, it is that important.

 

The Federal Reserve Bank’s 2016 EIWA survey suggests that during the  previous six months, roughly 11 percent of adults in the US have engaged in paid services using an online platforms.  Riding in an Uber, arranging work on sites like Care.com, projects through companies such as Fiverr, selling goods and crafts on Etsy, and renting rooms or homes through services like Airbnb, are now commonplace.  Besides the current uncertain economic climate, changes from the perspectives of both workers and the employers are contributing to the rise of this new labor economy. Many workers are looking for greater diversity and flexibility within their roles and the ability to showcase their particular skill sets, while for some organizations there’s a shift in strategy from “I need to hire a person” to “I need to complete a project.”  People are making the leap into freelance, consulting or contract work in part because industry disruptions have changed how one can earn a living and, more importantly, how easily they can do it being their own boss.

 

According to a different report by the BLS,  the most in-demand skills within the freelance economy include graphic design, web developers, IT support, computer programmers, technical writers, marketing and public relations professionals,  and construction contractors.  Job sites like Upwork, Freelancer, and Peopleperhour have made it easier for people to find their next project and have seen an explosion in site traffic. Freelancer, as an example, reports that it has 4 million active users.  These online portals, many which focus on a particular industry or a certain skill set, are further enabling the paradigm shift away from traditional modes of work.  With average hourly rates for freelance or contract workers skyrocketing (often becoming stratospheric when a particularly niche is involved)

 

Clearly innovation has to have its roots somewhere.  The biggest disruptors like Tesla, Nest, Palantir and Slack  – have one thing in common: they are run by entrepreneurs.  For an entrenched Fortune 500 company,  large scale innovation can be exceedingly difficult, and in almost every field they are vulnerable to this issue.  Corporations have been built around a set way of doing things, but now have to navigate through a new world of startups, new technologies, consumer trends and behaviors which can change seemingly overnight. This has forced every business to become a defacto technology business.  So how can a large company become more nimble and competitive?  The answer could be as simple as leveraging the available on-demand workforce.  

 

Driven by talent gaps or a need for certain expertise, companies are indeed finding value in leveraging contingent workers - to augment full-time teams.  Nearly three quarters of firms surveyed say they currently use “gig workers” on an “ad hoc basis”, according to Accenture.  While more and more people make the transition into freelance, consulting or contractor roles, this new pattern won’t soon replace traditional models of work.  Instead, it is likely to see companies increasingly taking advantage of both worlds, to maximize human capital, no matter if they’re full-time salaried employees or not.  Since specialists have a unique skill set that only a select few can bring to the table, their hourly or contract rates are often more than salaried employees, so a company shouldn’t look at increasing the number of contractors as a way to save.  However, for firms with legacy systems and the inability to pivot quickly, these complementary groups of contingent experts can make a drastic difference, regardless of cost.

 

The benefits of this work model are clear – independent workers provide flexibility and easy scalability, the use of digital delivery platforms can mean reduced costs and the availability of experts can result in much better quality.  For individuals, the model lets them do what they do best, when and how they want  – the very definition of the work/life balance.  

 

There is no doubt that the number of “gig” workers across the globe is on the rise, and according to McKinsey, 14% of surveyed individuals either not working or employed in traditional jobs would like to become independent earners. The world is changing, corporations and individuals are changing and traditional workplace norms are being challenged.  Will we move with the times and embrace independent working or will we fight the change in favor of protecting age-old employment rights which are rooted in an economy which no longer exists?

 

There has been much public debate of late around the use of independent workers. The work model has created negative headlines for Uber drivers and Deliveroo couriers and, in particular, their fight for union recognition and workers’ rights. The debate and indeed the general concern, tends to relate to lower quality work, the lack of job security, the lack of any form of guaranteed wage and indeed the lack of the most basic employment-related protections.

 

The majority of analysts are predicting on demand businesses will continue growing rapidly and workers will increasingly find their niche in these types of jobs.  However, it is important take a look at the other side of the equation, since everything cannot be rainbows and unicorns.  Disruptions are occurring with less frequency and technologies which used to be  considered cutting edge have become standard.   Of course, on the surface,  the gig economy seems a great way for individuals with an entrepreneurial spirit to improve themselves and the world. The stark reality for many, unfortunately, is it’s all they have...Stringing together a number of insecure, low paying, temporary jobs to try to keep the creditors at bay.  With full-time positions eroding, mortgage companies are reluctant to lend to those without secure employment, gig workers have trouble saving for retirement, have no sick or maternity leave, and no health care plans.  

 

What about the billions pouring in from private equity and venture capitalists?  As you can see from the charts below, 75% of investment capital has gone into just 5 “start ups”, which are far from being typical start ups, with most capital pouring into just a few sectors.  Clearly money follows money, but being well funded isn’t enough.  Keep in mind that just because some large companies have found success doesn’t mean that structural bottlenecks in other areas have been figured out.  Other a few sectors, widespread adoption of on-demand services is just not happening.  Instead, private capital is causing valuation bubbles and is essentially subsidising services, and causing valuation bubbles.  VC money does not make companies immortal, and one can only finance growth through investment capital for so long without turning a profit—and most are burning a ton of cash.  Uber is running operating losses averaging $2 billion a year, more than any “startup” in history.  

 

 

The technology-fueled rise of the "gig" economy may even require the Federal Reserve to reassess how it interprets basic economic data and how it judges how close the economy is to maximum employment. Fed Governor Lael Brainard, in remarks given to a Federal Reserve Bank of New York conference on the evolution of work in November, spoke of the "sharp increase" in contingent work arrangements over the last decade and the Fed's thinking about potentially large changes in the U.S. labor market.

 

"For monetary policy, the growth of contingent work affects the way we assess maximum employment and the way we interpret important labor market outcomes, such as the level of part-time employment and aggregate hours worked," said Brainard. "The effects on the labor market could be long lasting and significant."

“Companies like Uber Technologies and Taskrabbit, which allow workers to easily book jobs by the hour or project, may boost employment and labor force participation”, Brainard continued. “But they also have uncertain effects on job loss, stability, productivity and the behavior of consumers and savers that require further study.”

 

"Taking into account the potentially varied effects of the rising prevalence of gig work on household welfare, public policy should strive to maximize the benefits of the greater flexibility and lower entry barriers provided by advances in technology, while addressing the risks that currently accompany many forms of gig employment," she concluded.

 

If you look at the economy now, and you look at some of the uncertainty in the job marketplace coupled with the millennial workforce mindset, you have to acknowledge that change is coming. There is a generation of graduates who were raised from the bottle on a smartphone or a computer. They live their lives now with 24/7 access to any information they need, and the constant churn of social media. It shouldn’t be a surprise that lots of these candidates are picking up their phones and looking for the next great opportunity.

 

However, The Gig Economy shows no signs of slowing down.  Research done by PwC on five key sectors of the sharing economy, showed accelerated growth since 2013, predicting  that the sector could be worth as much as $335bn globally by 2025.  So clearly there has been a seismic shift in the worker/employer paradigm. People no longer need (or increasingly don’t want) to have a typical 9-to-5 job in order to enjoy a secure financial future. As data has shown, people are turning to alternative solutions that offer more freedom, a comfortable income, and better quality of life. Many experts believe that the gig economy has evolved into becoming the launchpad for the modern day entrepreneurship.  The job market is highly competitive, and for some it’s just not worth the struggle to join the daily grind. Dealing with long work hours, few vacation days, lack of time for socializing, intracompany politics, etc., can be tedious. In return, you get some benefits like insurance and a regular salary, but is that really enough?

 

People today value experiences and freedom more than they value financial security and that has led to the rise of entrepreneurship. All of us should want to use our skills, to create something great, and strive to reach our full potential. Few believe that this can happen through a normal job, or at a big corporation. Also many prefer freelancing, consultation, and local gigs because increasingly, jobs are no longer secure. Companies can downsize, people can get fired, and promotions or personal growth are hard to come by.  Gigs, freelancing, and entrepreneurship do have their own challenges, and clearly not everyone can succeed, or should.  But with the lowered barriers of entry simply because of the “talent on demand” model, It’s easier today than it has ever been to take the risk.

 

A few major factors have broken down those barriers. First, the new gig economy driven by cloud platforms and niche sites are providing opportunity, as well as the ability for small-time entrepreneurs to dip a toe in the water before going all-in.  Secondly, competition has caused the biggest rethinking of the corporate model since the Great Recession, leading to a more agile and lean way of doing business which has abandoned the outdated “corporate monolith” idea.  As increased government regulations, burdensome tax codes and centralized planning have the unintended effect of stifling SME growth, it is the “gig workplace” which begins to put this in balance.  Small-time entrepreneurship is now a realistic alternative to the basically obsolete ideal of getting a job at a big company, staying for 30 years to retire with a pension and gold watch. Those types of jobs are increasingly unavailable, but many small businesses, entrepreneurs and companies in someone’s garage which are filling the gap.

 

It’s not that firms will no longer hire full-time, long-term employees, that isn’t going away.  But an increasing number of people will choose the ability to go from assignment to assignment, project to project, firm to firm, and not be encumbered by having to stay in one place – while not being stigmatized by jumping from one job to another.  But as we said earlier, it is also raising hard questions about workplace protections and what a good job will look like in the future.   

 

This on-demand world is creating exciting economies and unleashing innovation.  Gig economy platforms have marked the first step towards entrepreneurship for a new class of workers eager for an alternative to the inflexibility of paycheck-driven employment. These platforms, along with the increasing sophistication of mobile apps and the quality of cloud-driven communications, are rapidly breaking down barriers and allowing us to think beyond conventional employment options. Added together, these technologies created an entirely new class of entrepreneur, who certainly has the skills, and now has access to the tools and infrastructure that are redefining the word “job”.

 

Change is good..Embrace it!!!





 

Sources:

 

Lael Brainard, “The “Gig” Economy: Implications of the Growth of Contingent Work”,  November 17, 2016 https://www.federalreserve.gov/newsevents/speech/files/brainard20161117a.pdf

 

PwC, Shared benefits: How the sharing economy is reshaping business across Europe, 2016 http://ec.europa.eu/DocsRoom/documents/16952/attachments/1/translations/en/renditions/native

 

U.S. Government Accountability Office “Contingent Workforce: Size, Characteristics, Earnings, and Benefits” April 2015, http://www.gao.gov/assets/670/669766.pdf

 

Thomas Perez, "Rising to the challenge of a 21st century workforce," Monthly Labor Review, U.S. Bureau of Labor Statistics, July 2015, https://doi.org/10.21916/mlr.2015.22.

 

Lawrence Katz and Alan B. Krueger,  "The Rise and Nature of Alternative Work Arrangements in the United States, 1995-2015, March, 2016 https://krueger.princeton.edu/sites/default/files/akrueger/files/katz_krueger_cws_- _march_29_20165.pdf

 

Report on the Economic Well-Being of U.S. Households in 2015, May 2016

https://www.federalreserve.gov/2015-report-economic-well-being-us-households-201605.pdf




 

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