In this Q&A, Paul Oyer, the Fred H. Merrill Professor of Economics at Stanford University, discusses the rise of the “gig economy” and the issues that the growth of the independent workforce poses for labor and employment policy and litigation.
Professor Oyer: The “gig economy”
is a modern term for short-term work relationships. In contrast to having a
traditional work arrangement with a single employer (which usually includes employer-sponsored
benefits such as health insurance, contributions to retirement savings, etc.),
“gig” workers are free agents. They take on assignments of varying lengths – from
a quick Uber ride or a DoorDash delivery to a long-term stint as a contract
worker for a single company. Gig workers are self-employed and opt to work
whatever schedule is mutually agreeable for them and the people and the firms
that demand their services.
Technology has made
it easier for workers and firms to find each other for short-term work
arrangements, which has led to a rise in the size of the independent workforce.
Most economists and others who study these types of alternative work
arrangements expect the independent workforce to continue to grow as gig work
becomes even easier to arrange. This likely will mean that employers,
regulators, and litigators alike will need to consider new approaches to such
issues as wage parity, worker exploitation, benefits provision, and worker
Professor Oyer: The use of the
term gig economy is fairly recent, because it is associated with smartphone-
and computer-enabled work arrangements such as Uber, DoorDash, or Upwork.
However, gig work is just a natural extension of the many nontraditional jobs that
Americans have held for decades. The independent workforce, composed of workers
outside the traditional employer-employee relationships like independent
contractors and temporary workers, has been a sizable part of the American
workforce for a long time. Just as Uber now intermediates between riders and drivers,
agencies have intermediated between those who demand certain services for short
periods at a time and independent workers who provide these services. These
workers range from highly paid actors and models to stenographers and
videographers to farm workers.
According to a
study by Katz and Krueger, one in six American workers has a primary job outside
the traditional employment arrangement. In working with a survey conducted by
the Freelancers’ Union and Upwork, I found that about a third of American workers perform some sort of independent
work, many of them in addition to their primary jobs. So the size of the independent
workforce is quite large. Katz and Krueger also find almost all of the net
employment growth in the U.S. economy in the last decade has been in nontraditional
employment. However, only a small part of that increase is accounted for by workers
who are matched to firms or clients through a technology platform. In other
words, Uber drivers and other gig workers receive a lot of attention but are
still a small part of the workforce.
Professor Oyer: From an economic
perspective, there are several major benefits to alternative work arrangements.
Three big categories are flexibility (for both workers and firms), market
“thickness,” and efficient use of time.
for workers and firms is the primary economic benefit of the gig economy and
other alternative work arrangements. Uber drivers, Upwork programmers, and
other self-employed workers can earn significant pay while setting their own
hours. In every survey of the independent workforce I have seen, flexibility
ranks as the number one reason why these people choose nontraditional work. From
the perspective of the firm, the ability to hire someone for a shorter period
of time and at less than full time can be a great benefit, especially for those
small businesses that cannot justify hiring a full-time employee for certain
needs. However, there can often be significant time and resources associated
with finding these short-term and part-time work arrangements for both workers
and firms, which had eroded some of the value of flexibility. Technology has
helped reduce these costs such that the value of flexibility has been unleashed.
especially online platforms like Uber and Upwork, make labor markets “thicker”;
that is, having many more workers and firms who are looking for matches. Technology
reduces search costs and expands the set of choices available to both workers
and firms. The increasing availability of intermediaries expands opportunities
for the independent workforce while providing firms greater chances of finding
the specific set of skills they need. In other words, alternative work
arrangements, especially together with better intermediary platforms, can lead
to better matches between workers and firms.
independent work also generates efficiencies by allowing workers to spread
their time across multiple clients (often worldwide) who can benefit from the
special skillsets that these workers have. Alternative work arrangements enable
businesses, especially small ones, to access specialized skills like software
development, search engine optimization, and translation that they do not need
or cannot afford on an ongoing basis. In the absence of a healthy market for
independent work, these businesses may have to hire full-time employees who may
not be fully utilized or may have to forgo benefitting from these services.
benefits come with one large cost for the independent workforce – potentially unpredictable
and variable swings in income. However, it is often the case that independent
workers have life partners with a steady income or they hold a traditional job
in addition to the temporary work. Moreover, while some independent workers may
prefer a traditional job over gig work, independent work is generally better
than being fully unemployed.
Professor Oyer: The gig economy portion
of the independent workforce is relatively new and has been developing quickly.
As such, new policy issues are presenting themselves, and we don’t really know
which will be the most important and problematic. I can see three key issues,
at a minimum: 1) potential exploitation of workers, 2) benefits (specifically,
the degree to which they should be mandated or be portable), and 3) legal classification
of gig workers may be a potential problem, because, unlike traditional
employees, gig workers don’t have the right to form unions and bargain
collectively under labor laws in most places. If Uber or some intermediary
platform was able to develop “monopsony power” (that is, if it became so dominant
that it was immune to competition in the labor market), this would be a serious
concern. However, I do not see much evidence of imbalance in bargaining power
between the gig platforms like Uber and the independent workforce currently. As
of now, there is vibrant competition for these workers, and many of them are
active on multiple platforms. For example, many Uber drivers also drive for
Lyft, and many people who find work through Upwork also find work on
Second, as the independent
workforce has grown, there has been a push to mandate benefits for these
workers that are comparable to those offered to traditional employees. At the
same time, others have pushed for policies to make benefits more portable,
allowing workers to take their benefits with them as they move and to use these
benefits when workers participate in independent work, which may enhance labor
contentious policy issue for gig workers has been the topic of worker
classification – whether these workers are employees or independent contractors.
Litigation involving worker misclassification allegations are complicated and
require careful analysis, as the distinction between different classifications
matters more for some types of workers than others. What concerns me most about
this issue is the possibility that firms, in response to well-intentioned but
imperfect policies or laws, will change their business strategies to avoid the
possibility that independent workers could be classified as employees. For
example, I could imagine Uber or Lyft limiting the number of rides drivers can take
in a week to limit the possibility that they could be classified as employees.
If these labor
markets remain vibrant, competitive forces should adjust compensation so that gig
workers are paid the same amount no matter how they are classified. However,
regulators, legislators, and employers will all need to take a thoughtful
approach to managing these and other issues that will arise as the gig economy
continues to grow in importance. ■
This feature was published in April 2017.