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What Is the "Gig Economy?"

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By Garrett Spence   |    February 14, 2017   |    3:24 PM


For the better part of a century, Americans made a living working nine to five for a single employer. These days, much has changed, with millions of people assembling various streams of income by working independently. 

Dubbed the "gig economy" this rising employment trend has captured an impressive share of labor-market activity. But, what does this mean for traditional payroll employment, and what is the growth potential for the so-called "rides and rooms" industry?

A Growing Impact

In essence, the gig economy refers to a modern labor market characterized by freelance work and short-term contracts as opposed to permanent jobs. For decades, the average working American acquired the entirety of his or her income by working a full-time job under a single employer. These days, such traditional arrangements fail to capture how a growing share of the workforce makes a living.

While independent work is nothing new, its role in the U.S. economy has become more important. In fact, according to study by the Metropolitan Policy Program at the Brookings Institution, the gig economy is actually growing faster than traditional payroll employment.

Other research supports this assessment. According to research from McKinsey Global Institute, 68 million Americans, or 27 percent of the working-age population, are involved in some form of alternative work arrangement. What's more, between 76 and 129 million express their desire to eventually engage in some type of independent work. These data point toward an apparent shift in the way Americans work. At the same time, the growing gig economy is reflecting a change in the way many companies do business.

After mining Census Bureau data on non-employer firms, the Brookings Institution noted a rapid increase in small businesses in the rides and rooms industry (rides such as Lyft and Uber; rooms such as Airbnb). According to the Brookings report, the majority of gig growth has occurred in the 25 largest U.S. metro areas, with 70 percent of rooms growth and just over 90 percent of rides growth occurring in the top 50 metro areas. This report seems to support the contention that companies such as Airbnb and Uber are using innovative service offerings to satisfy or stimulate unmet consumer demand.

How it's Affecting Traditional Employment

According to the Brookings report, despite its obvious growth, the gig economy doesn't appear to have cut into traditional payroll employment - at least not yet. As for the industry's future, disagreement abounds. Some have likened the industry to bubble ventures which cause rapid interest due to attention and excitement, only to weaken once markets catch up. On the other hand, some experts believe that, as Americans continue to crave shared or on-demand services, a third of the American workforce with be engaged in some kind of freelancing, project-based work by the year 2020. In turn, they are urging colleges to bridge a perceived gap between current school preparation and modern economic realities by creating curriculums that embrace project concepts better, while providing both career and technical education.

Right now, it's hard to predict if the gig economy will continue to grow, level off or ultimately decline. That said, it's easy to see how people benefit from alternative types of job opportunities, regardless of the platform. Despite its advantages, however, independent work does involve some trade-offs, including fewer benefits, less income security and difficulty accessing credit. These negatives may ultimately work to stabilize or even reduce the gig economy's share of labor-market activity.

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