What is the gig economy?

As Motu has noted, the gig economy is an emerging part of the labour market with the features of independent contracting. In the gig economy world, there is little to no cost of switching the job to another is involved. Examples of the gig economy activities include: Uber drivers, YouTube bloggers/ social influencers, independent consultants and etc. 

So how can we think about the labour market in a world where work switches towards the gig economy?

If we compared an employment contract offered by McDonalds to the casual contract offered to the Uber worker, which option would one choose? If both are offered then this depends on preferences. 

The benefits of being a gig worker is an employee’s freedom, with no manager assessing the performance, no timatables attached to the daily work routine, and no location specific restrictions such as transportation costs are applied. 

The drawbacks of these types of casual contracts are the lack of job security, no employment benefits from your employer (bonuses), bank loans conditioned to the employment contract or any other types of laybys , where the employment contract serves as a collateral, overtime payments on holidays, or sick leaves covered by your employer. 

However, there is a broader point – how does the gig economy influence what jobs are on offer.  Does the existence of Uber mean that people are able to move into new types of work, or do they replace other forms of work that would have been available – does it expand people’s opportunities or restrict them?

Why do we care about a surging importance of the gig economy?

As mentioned above, a rising gig economy leads to different types of jobs being on offer.  These may be jobs people want, that may give them greater opportunities. However, they may also replace other job offers leaving workers more vulnerable.

From a policy lens there are two reasons why we might want to consider a given type of job arrangement as being of interest:

  1. Due to technological change the arrangement may become more important in the labour market going forward, indicating it is important to understand it.
  2. Differential treatment of a given arrangement may give employers or employees the incentive to “reclassify” the work into the new arrangement – which may undermine labour market regulations that protect workers.

Understanding how gig work functions along those two margins allows us to think about the future of the labour market, and also some risks for labour market protections we have in New Zealand.

What are some examples?

Keeping things broad, we can look at specific jobs and just imagine how they may be reclassified.

Examples : 

  1. Someone who works as a taxi driver, with an employment contract, gets reclassified to an uber driver without one. 
  2. Someone who works in a clothing store as an employee instead joins a “temporary job app” where they get called into work in the store when required

For some this has some attractive features. These types of contracts offer: flexible workforce, more appealing work-life balance, as it does not involve a traditional office hours from 9 to 5. 

However, what about people who want the security of an employment contract when they are in a role.  They now face competition from someone who is using this app. As a result, there are fewer jobs available in terms of traditional hiring, and people who we are trying to protect with labour market regulations have lost those opportunities.

Superannuation and social security makes this more fraught.  

In New Zealand such schemes may allow avoidance from Kiwisaver scheme for employers (eg deviation of employers to pay the 3% opt in fee for employee). 

In the US and many European countries employers might prefer hiring casual contractors on the implicit minimum wage instead of offering an employment contract with minimum wage, in order to avoid coverage of  health insurance of the employees – since the minimum wage floor is binding the entire incidence of coverage from employer funded schemes is on the employer!

Summing up

Gig work, and the opportunities it gives people who enjoy that work, is great.  There are also benefits to employers and consumers from that flexibility (which I have put to the side here).

But, part of the reason why the technological change may be successful is if it allows people to undermine the current labour market protections we have in place for vulnerable individuals – and it is worth thinking carefully about how we can ensure those protections stay in place, and take into account that these innovations may reduce opportunity for some potential workers.