The gig economy is a growing part of the labor market that relies on project-based work and other short-term or temporary positions, rather than traditional full-time employment.
It’s become a major force in the US services sector in particular, and many gig workers and companies are connected through online marketplaces to facilitate the work. It’s a setup that may offer gig workers flexible schedules and independence, but the flip side is that they might not have job security or access to benefits like health insurance.
What opportunities are in the gig economy? The gig economy spans many industries, with online marketplaces focused on ride-sharing services, freelance and full-time creative services, virtual assisting, task-based work, childcare services, home repair, and much more.
What are the pros and cons of the gig economy?
The new gig economy has grown rapidly in the US and elsewhere in recent years, in part due to factors like mass layoffs, underemployment, technological advancements, the COVID pandemic, and difficulty finding affordable childcare.
Some people choose gig “employment” as their main job and income source, while others pick up a side hustle to supplement their full-time jobs. But critics have also highlighted the challenges of a gig economy, including lack of job security, income volatility, and fewer protections for gig workers.
What makes the gig economy so effective?
Proponents of the gig economy point to several benefits for workers and companies alike:
Flexibility
Perhaps the biggest draw of the gig economy is that it typically allows workers far more control over their own schedules, as they decide when and how much to work. A freelance web designer, for example, doesn’t need to type away at her desk 9-to-5; instead she can work at home at 3 a.m. if she chooses to. A driver for a ride-sharing service can opt to pick up a dozen customers one day and none the next. Particularly for people with other responsibilities—like attending school, raising children, or caring for ill family members—this flexibility can make all the difference.
This setup also offers flexibility for companies: They can hire a talented designer for a flurry of work for a new marketing campaign, then say goodbye when the project is over—or choose to hire them or someone else for another project, often using an online marketplace to hire and pay the gig worker. e
Variety
A gig worker may choose to pick up projects across different industries, perhaps delivering groceries in the morning and walking dogs that evening. EAnd even those within the same industry may be able to design their careers with an eye for variety: A freelance writer, for example, may write articles, video scripts, televised stories, press releases, and more. Working across project types and with different clients can keep work exciting.
Businesses, too, can choose to select from the many talented contractors with a variety of specialized skills within the gig labor pool.
Financial benefit
Gig workers may have theoretically unlimited earning potential. Depending on the industry, how many hours they work, and whether they can set their own prices, they may earn more than they would in a traditional job. Some companies may also offer them instant payouts on their wages: A 2021 survey shows more than 70% of gig workers want to receive wages the same day they work, and about 94% associate faster pay with greater financial peace of mind.
Businesses also benefit from hiring people for temporary projects, leveraging their talent for a short time without having to pay health insurance or keep them on payroll when there’s no work for them.
What are the disadvantages of the gig economy?
Critics of the gig economy highlight potential downsides, mainly for workers:
Lack of benefits and protections
Gig workers have more flexibility than traditional workers, but the big trade-off is benefits. Most of them don’t receive access to health coverage and other types of insurance, paid time off, or retirement accounts, and they don’t receive protections like laws mandating minimum wage for traditional jobs.
Financial volatility
In the gig economy, there’s typically no biweekly paycheck. Workers may find themselves in a feast-or-famine cycle—with a flood of work one month and little the next—or simply have difficulty managing the uncertainties of variable wages. Businesses also have to balance intermittent payouts to contractors as they plan their budgets, and they also have to keep track of these payouts to issue tax forms to the gig workers they hire.
More complicated labor classification
As the gig economy has grown, so has the scrutiny of companies potentially misclassifying workers as independent contractors when they should be employees. The Department of Labor lays out specific guidelines for each category—for example, a business can decide “when and how” an employee’s work will be performed, but they can’t do so for an independent contractor like a gig worker.
Still, some companies misclassify workers, either due to misunderstanding of the law or because they’re trying to avoid the need to pay expensive benefits like health coverage. Businesses found to be misclassifying workers can be subject to legal and financial penalties.
Gig workers, meanwhile, are generally considered independent contractors and must pay a self-employment tax of 15.3%, the share of Medicare and Social Security paid by employers for traditional employees. And because they don’t usually have tax withheld from their paychecks, they often have to pay quarterly estimated taxes throughout the year if they want to avoid penalties.
Looking to become a gig worker, or to hire one? Questions to ask yourself
Businesses
- Do we need someone with specialized skills for a short-term project, or is this an ongoing need?
- Do we understand the definition of an independent contractor, and are we comfortable with those parameters like the gig worker deciding when and how the work is performed?
- Can we afford the worker’s fees through the duration of the project?
- Does hiring gig workers align with our long-term business strategy and does your company have access to a marketplace or a network to find the gig workers?
Workers
- Do I want my gig income to be my primary source of income, or a side hustle?
- Can I meet my financial needs as a gig worker, including with potential variability in income?
- Am I comfortable with having little or no access to benefits like paid time off and job protection, and obtaining my own health insurance?
- Do I have the skills, equipment, network, and/or other resources to be successful in my industry?
- Do I prefer working independently, or with a team?