The Dark Side of the Gig Economy

8 Ways the Gig Economy can sink you

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Image: Photo by Ian on Unsplash

“At least I have a job.”

That’s what a lot of workers tell themselves when they take on part-time, temporary employment. Better to stay on with a company as an on-call worker than risk not finding another contract, better to be furloughed than fired. These are decisions many have had to make since the beginning of the Covid-19 pandemic. But while part-time gig work is a life-line, it can also be a liability, as more and more of us accept job insecurity and poor labor standards as just another fact of life.

How did we get here?

The term “gig”, initially used by jazz musicians to refer to performance work, started to be used in reference to the job market after the 2008 financial crisis, when young graduates entering the workforce could only find temporary “gig work”, as opposed to traditional fixed-term employment.

Since 2009, the on-demand labor market has only grown, with an estimated 35% of the U.S. workforce engaged in the gig economy in 2016.

The International Labor Organization reports that part-time “un-standard” employment is a growing trend worldwide that many accept because they have no other viable options. In 2016 61% of men and 63% of women in the E.U. admitted they were working on a part-time basis because they could not find full-time employment. While The Brookings Institute estimates that informal labor arrangements are already the de facto model in many developing countries.

Digital platforms make cross-border employment easier than ever before. You can just as easily hire a web designer from Cambodia as Canada. While U.S. based digital platforms such as Upwork and Freelancer were the first to facilitate cross-border on-demand hiring, developing countries are not far behind, with the appearance of regional platforms such as Zhubajie in China and eRezeki in Malaysia. Some countries have even gone as far as creating their own digital platforms to help people find gig work, such as The Malaysia Digital Economy Corporation (MDEC). While crowd-sourcing platforms like Amazon Mechanical Turk also make it easier for companies to outsource a growing array of technical work.

In developed countries, it is estimated that half of all new jobs created are in the gig economy. In the US, an estimated one in every three workers is a gig worker, a workforce collectively generating an estimated $1 trillion in revenues, or 5% of GDP every year.

In her 2016 book, The Gig Economy, Diane Mulcahy writes that the gig economy allows workers to “arc (their) own journey and create (their) own path” whereas “(f)ull time employees are the most expensive and least flexible source of labor for companies”.

Every day articles appear online detailing the ongoing “revolution to the workforce”, telling us how “flexible work” is changing how we all live and work for the better, allowing us to earn more while enjoying more free time. In 2019, CNBC reported that, on average, skilled freelancers make 70% more than their traditionally employed counterparts, while countless surveys conducted by freelancer platforms extol the benefits of the gig economy.

So, isn’t it all good news?

Unfortunately not. If you scratch the surface of the gig economy, you find things aren’t as rosy as they seem. There are several pitfalls for gig workers that much of the literature glosses over.

8 Ways the Gig Economy can sink you

The pandemic has drawn attention to the fragility of an economic system that chooses on-demand labor over long-term economic structural reform.

In the U.K., the Association of Independent Professionals and Self-Employed (IPSE) and PeoplePerHour estimate that self-employed workers have seen their income fall by at least 25% across all sectors since the beginning of the pandemic.

In the US over 22 million workers have lost their jobs, bringing the unemployment rate to close to 15%. However, while traditionally employed workers who are laid off receive unemployment benefits, many gig and self-employed workers receive no such indemnities for cancelled contracts and lost work opportunities. Even after the Pandemic Unemployment Assistance Program passed in the US, only half of US states chose to pay unemployment assistance to gig and self-employed workers.

Knowing your labor rights and what costs to expect while working in the gig economy is complicated by the fact that gig workers may be classified in several different ways. While some may have “contingent” contractual arrangements — meaning they do not have an implicit or explicit contract for long-term employment, others may have “alternative employment contracts — such as independent contractors, consultants, and freelancers.

Others still may be classified as self-employed, including so-called “nonemployers” -entrepreneurs who are self-employed and operate very small unincorporated businesses with no employees. According to the Bureau of Labor Statistics, the number of nonemployers rose by nearly 1 million in the U.S. between 2003 and 2013.

There are costs involved in all forms of gig work, from self-employment tax to health care expenses, vehicle insurance to savings, and pension schemes; gig and self-employed workers are at a disadvantage when it comes to the scope and scale of costs they have to cover out of pocket. For this reason, many put their savings into their businesses, leaving them vulnerable later in life. In the U.K., estimates suggest that over 55% of self-employed people do not have pensions and that in the coming ten years; over 3.3 million more won’t have retirement savings.

Login to any freelancer platform and you’ll find prices and time frames continually being slashed. A White Paper in 24 hours for under $50? Sure, no problem. A 1,000-word article for under $15? Okeydokey.

In an environment where more and more gig workers compete for fewer jobs, how can you avoid a race to the bottom?

With a surplus labor force competing globally for jobs, basing your services on price alone can get you into trouble, leading to a downward spiral of cutting corners, selecting the cheapest production options only to generate more of the same generic content already out there in the market.

Instead of focusing on price, Seth Godin argues you should concentrate on a critical service or product currently unavailable in the market that will allow you to build a ‘minimum viable audience to sustain your business.

Gig workers are often treated like employees without receiving any of the benefits.

The number of gig workers continues to grow in large part due to the increasing number of employers choosing to convert traditionally employed workers to contract workers. This trend is rising amidst the pandemic, and some sources estimate that over 50% of the U.S. workforce will be freelance by 2027.

A report by the Institute for New Economic Thinking investigates companies’ double standards when down-grading employees to independent contractors. The INET study, focuses on the courier-service Dynamex and highlights the deteriorating working conditions for couriers after being converted from employees to contractors. Under the new contractual arrangement, couriers were expected to wear the company uniform and respond to delivery dispatches within 24-hours or risk being liable for losses to the company while having to cover their own vehicle and insurance costs and receiving none of the pension and healthcare benefits of regular employees.

Some lawmakers have recently cottoned on to these employment double-standards and tried to pass legislation to protect contract workers. However, attempts to strengthen employment laws to protect gig-workers often backfires, as recently happened when California legislators passed a law to protect gig workers that ended up costing two hundred freelance writers their contracts with Vox Media.

A 2018 Paypal survey reported that 51% of freelancers have experienced not getting paid for their work, while a survey conducted by the IPSE in the U.K. found that, on average, freelancers lost an estimated £5,934 a year by working for free.

Companies often hire contractors to solve particular problems or work on short-term projects to enhance a specific business segment. But these projects can often prove to be a massive loss of time and investment all around, with gig workers compensated on a part-time or hourly basis while working on a project that requires a much larger real-time investment to complete.

These kinds of projects can often degenerate into a vicious cycle of unrealistic expectations and poor remuneration prospects. Worse still, a company may often dangle a contract extension as an incentive, or threaten termination, to keep a gig worker trapped into delivering more work faster.

Pitching for work, providing free content, getting your name out, there are standard things you hear when you’re starting out in the gig economy. Those starting out will spend a lot of time pitching for work, with some estimates suggesting as much as 70% of a gig worker’s time is spent on marketing in the early stages of business, which leaves them little time to focus on responding to their existing clients and developing new products and services.

Constantly having to pitch for work can feel like speed dating and gives both the gig worker and the prospective client minimal incentive to invest in a long term working relationship, with the feeling there is always a better client or gig-worker out there, if you just keep looking.

While companies continue to cut costs by outsourcing ‘non-core’ business segments, from I.T. to Human Resources, many restructuring plans involve projects, that while being meticulously planned, are often unsuccessful in achieving their objectives. The on-demand labor market leads to contract speed-dating that often translates into a lot of wasted time and energy, with evidence suggesting many projects are never completed.

A study carried out by PricewaterhouseCoopers of 10,000 projects conducted by 200 companies in thirty countries across various industries found that only 2.5% of companies completed all of their projects. Similarly, Harvard Business Review found that 70% of I.T. projects run over schedule, with 27% going 200% over budget.

In his book The Fissured Workplace, David Weil argues that the process of outsourcing jobs leads to more outsourcing, creating a fissure in the workplace, leaving “many without fair and decent wages, a career path, and a safe work environment.”

Weil argues that a worker’s earning-potential falls dramatically when he or she is converted from a regular employee to a contract worker. In particular, low-income contract workers work under increasingly difficult labor and safety conditions and no longer have the prospect of working their way up in a company over the long run.

The most insidious aspect of outsourcing jobs is that those who are earning the least are affected the most. As profit margins decrease the further down the chain you go, it’s common for companies to cut corners on labor and safety standards for those who are already in a precarious economic situation.

In the U.S., the minimum wage has stagnated at $7.25 since 2009 despite inflation and a continued recession. According to data from the Bureau of Labor Statistics, adjusted for inflation, the minimum wage in 1968 was $10.90, nearly $4 more than the current rate. As a result, some of those most affected by companies’ growing propensity to hire temporary contractors over full-time employees have been those doing “unskilled” labor-intensive work.

Financial insecurity among gig and self-employed workers is a significant source of stress, anxiety and depression. Research indicates there is a strong correlation between job loss and the inability to find work or return to the labor market and mental health issues. A recent survey of music industry workers recently found that financial instability was a significant cause of mental health issues among artists and industry professionals with close to 70% reporting high levels of depression and anxiety. While a Canadian study reported that nearly three out of ten millennials are depressed or anxious as a result of their employment situation.

Recently there has been more discussion about improved labor standards and safeguards for workers within the gig economy, but it’s still early days. In April 2020, the International Labor Organization (ILO) published a paper suggesting ways to protect gig and self-employed workers.

The report highlights the need for more precise employment definitions to avoid workers being falsely categorized and excluded from benefit schemes. It goes on to suggest some protection safe-guards, such as allowing for the portability of social protection rights and entitlements, which would allow gig and self-employed workers to contribute towards pension plans and receive adequate social security payments later on.

(1) Avoid delivering a final product / service before you’ve been paid.

(2) Always use a contract, specifying the scope, time frame, and payment schedule. You can find many free contract templates online, including this one.

(3) Avoid difficult clients, a.k.a clients with unrealistic expectations, clients who are unwilling to pay standard rates for your services, and clients who consistently require you provide them with free work (or samples).

(4) Avoid discounting. Contrary to popular belief, it undermines your work and the value of your services.

(5) Focus on finding a few quality clients and stick with them.

(6) Join associations in your area of business; they can provide a wealth of information and support and can, in some cases, help you with collective insurance and savings plans.

Value your time, value your work. Don’t let the gig economy sink you before you can swim.

Written by

Financial & Business writer passionate about economic and business reform for a more just and equitable society.

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