GIG Economy – The Future of Employment

We are all familiar with the traditional way of work: staying at one place for more than a year, and predictably, for the most part of our life. However, the trend has been moving the other way rapidly for almost a decade. With the emergence of micro tasking, more and more people pull out of full-time employment, re-establishing the world’s dynamics.

It is important to understand that the other term for the GIG economy is the economy on-demand, meaning if a task needs to be done, you are employed until you have finished the task, then you become unemployed again and take on the next task. A gig worker finds the demand through specialised websites or mobile apps which directly connect them with their one-time employer. Good examples of this are ride-sharing services, food deliveries, writers, and software or graphic designers. The range is vast, going from low-skilled gig workers to skilled freelancers. Accordingly, short-term assignments became pivotal in rethinking the idea of work and whether things will change for the better with short-term contracts being the main source of income or not, with employees being insecure due to ever-changing demands. It is also important to assess the effect expanding the GIG economy will pose for employers and the working terms and conditions, to assess the government's changing role in protecting self-employed individuals, and the effect of changing consumer preferences on the vulnerability of work and future career opportunities for gig-workers.

To better understand the causes for the growth of the GIG economy, we need to acknowledge the changing attitudes and priorities of people today. With digitalisation and wide access to the internet, people are more open to versatile opportunities, ways of thinking, and living. 9-to-5 jobs are increasingly often considered as a main obstacle to having a fulfilling life and rather felt as a chore to financially support basic living, whereas short-term commitments are generally seen as more liberating and autonomous. 49% of gig workers reported taking on small tasks allowed them being able to control their own schedule, and 35% reported wanting to be their own boss. Nevertheless, to this day, 56% of reporters have said that the main reason people take on the gig work is to support their main incomes with extra money. The gig work, although it gets more credible acknowledgement nowadays, is still considered a side-hustle because of the unprotected nature of work and poorly defined relationship between employer and employee.

In the context of businesses, short-term contracts are a great way of dealing with demands on an as-needed basis, enabling them to be more efficient and agile in the competitive market. This is because a gig worker is always ready to take on tasks, is multi-skilled due to the number of versatile jobs they undertake, and is eager to bring fresh ideas into the business. Yet, relationships between businesses and independent contractors are not visibly outlined, which then leads to demotivation and doubt in the gig work. The short-term contracts barely offer any kind of protection for the worker, such as no insurance, no paid sick leave, no parental leave, and no retirement contribution. Additionally, there is always a risk of a sudden contract termination without severance. For instance, 57% of U.S. adults agree that ride-hailing apps like Uber should provide more legal protection for their drivers. Despite the mentioned drawbacks, the gig work also provides advantages over full-time employment. An ability to find work is substantially easier when it is a short commitment. Therefore, market fluctuations and sudden termination of contracts can be seen as less challenging for a gig worker, as they are more likely to find another employer right away. As mentioned before, flexibility is still the main reason for doing gig work, with 78% of skilled remote freelancers citing it as a key reason. The difference between highly skilled and low-skilled gig workers also plays a defining role in the rate of satisfaction with the gig work, where common workers fall slightly behind in the rates of fulfilment with on-demand work compared to independent (skilled) contractors. This potentially can be the reason why post-graduates are the most likely to freelance, with 51% of freelancers having postgraduate degrees. 76% of full-time skilled freelancers reported that they would not have a traditional day job. They prioritise choosing the task they want to take on as they greatly value meaningful work. Overall, businesses’ treatment of high-skilled contractors is more thoughtful than those with no university degrees, which is quite expected from them. Therefore, normally, the government intervenes to protect and equalise the treatment of workers in conventional employment. Unfortunately, this is not totally the case for GIG work.

It is necessary for legal authorities to redefine the relationship between Gig workers and employers. As mentioned earlier, independent contractors are not provided with any insurance, nor health insurance, and they do not get compensated for the termination of their contract. Gig workers are at high risk of facing exploitation, since there is no legally defined minimum wage, and no overtime pay for them. Despite the difficulties gig workers face, they still owe tax to the government. Independent contractors must personally declare their revenue to the government through, for example, 1099-NEC in the United States or Self Assessment Tax return in the United Kingdom. Self-employed workers need to pay both income tax and “self-employed” tax, which can place them at an even greater disadvantage of having lower disposable incomes compared to traditionally employed workers. Yet, in the UK a gig worker can become tax efficient if they correctly manage the tax structure by, for example, claiming tax reliefs or even setting up their own SIPP (Self-Invested Personal Pension) to manage better living standards in the future. Nevertheless, the pension system seems to distance gig workers even further from achieving high living standards in old age. Traditionally employed workers get state pensions and additional private pensions from their employer, whereas gig workers, classified as class 2 or class 4 National Insurance payers, are eligible to get some pension from the government with at least 10 years of NIC’s tax payments, to full state pension of 35 years of NIC’s tax payments. The full state pension is only 11,500 Pounds a year. Traditionally employed workers would get the state pension and a private sector pension on top of that, which is on average around 4,000 – 8,000 Pounds a year. In total, former company employees would be getting around 17,500 Pounds a year. We need to consider that only 20% of self-employed individuals contribute to their pensions and don’t pay it consistently for 35 years, resulting in the majority of retired self-employed workers living on under 11,500 Pounds a year. The reasons for gig workers neglecting pension expenses can be that they are not automatically enrolled in the system, leading to gig workers delaying the payments. This can happen due to volatile incomes resulting from on-demand work. When earnings are uncertain, the pension contribution feels less urgent or risky. If the trend of rapid increase in gig work continues, a big part of the population will be exposed to this unprotected nature of work.

The future of employment seems to expand in the context of independent working conditions more than ever before. The world economies that have already adapted digital technologies in North America and Europe, Australia, and those who are still adapting in Asia and South America, all will face a sharp growth in GIG workers as even further digital technology expansion and smartphone adaptation happen. It is predicted that from USD 556.7 billion in 2024, the GIG economy market will grow to USD 2146.87 billion, expanding at 16.18% each year. Independent contractors continue to be at risk of fast substitution due to changing business demands. Arguably, it is a fair price to pay for time flexibility that comes with being self-employed, hence a big share of the population gets increasingly involved in GIG work, accepting its unprotected nature. The government intervention to improve working conditions for gig workers may result in a loss of the definition of GIG work, potentially meaning that through the development of GIG work, we observe the transition from industrial traditional employment to digital. We are currently in the stage of economic transformation, with the emergence of Artificial Intelligence and robots, digital currency and electronic devices, where the pace of demand change will be progressively abrupt. The future of employment will be defined not by physical presence, but the imitation of it, eventually resulting in distant independent work being the main way of earning income, leading to governments' increased protection of the GIG work and overall transformation of the future economy to meet the rapid demands.

Sources:

https://www.pewresearch.org/internet/2021/12/08/the-state-of-gig-work-in-2021/ https://bunnystudio.com/blog/the-history-of-the-gig-economy/ https://velocityglobal.com/resources/blog/gig-economy-statistics/ https://www.adp.com/-/media/adp/resourcehub/pdf/adpri/illuminating-the-shadow-workforce-by-adp-research-institute.ashx https://www.london.gov.uk/programmes-strategies/communities-and-social-justice/employment-rights-hub-0/rights-gig-economy-workers https://www.gov.uk/government/publications/your-new-state-pension-explained/your-state-pension-explained https://techzone.aberdeenadviser.com/public/pensions/self-employed-basis-periods?utm_source=chatgpt.com https://www.businessresearchinsights.com/market-reports/gig-economy-market-102503