Gig Economy

In this article, Anant JAIN (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) talks about Gig Economy.

Introduction

The gig economy is defined by a setup where businesses offer freelancers and independent contractors temporary, flexible work in place of typical, full-time employees. In a gig economy, businesses or employers can increase the cost savings on hiring, benefits and payroll costs while a person working in the gig economy benefits from the possibility to earn income from several different sources and complete projects and tasks on a flexible schedule.

In the general setting of a gig economy, freelancers and independent contractors typically find their own jobs by connecting with businesses and clients using an internet platform or smartphone app. With the help of businesses like Airbnb, TaskRabbit, Uber, Lyft, PostMates, DoorDash, and Instacart, the gig economy has grown significantly during the past ten years. In fact, a 2020 report from the ADP Research Institute indicated that from 2010 to 2019, gig employment increased by 15% in the United States. According to a survey by MasterCard and Kaiser Associates, the gross volume of transactions in the gig economy is expected to reach $455 billion by 2023.

The possible benefits of the gig economy may not be reaped by people who don’t use modern technology and services like Internet. Additionally, a person’s geographical location also impacts the possibility of being a part of the gig economy since most cities have more advanced technology and hence having the deepest roots in the gig economy.

Although the gig economy spans a wide range of sectors, the basic idea is the same: gig workers will take on tiny, ad hoc tasks for payment. These tasks can involve creating a website, making food deliveries, walking dogs, or picking up a family and taking them to the airport. The gig worker moves on to the following task after the job is finished.

Although it is typical for businesses to keep working with the same gig worker, neither the business nor the worker are required to make a long-term commitment.

Workers that are interested in engaging in the gig economy often need to join up by submitting an application to their preferred platforms. Once accepted, individuals can select which projects or work shifts to finish. For instance, in order to keep her nights and weekends open, a woman who works for DoorDash can choose to work for two to three hours when her kids are in school. A virtual assistant, on the other hand, could decide to work a standard 9 to 5 job for a business to finish a particular assignment.

While people may question the worth of a gig economy, it is worthwhile to those who operate in the gig economy. According to studies, 79% of people who work in the gig economy are happier than they were when they had regular employment.

Pros Of The Gig Economy

Flexibility

With gig employment, you are effectively your own employer and may decide how, where, and for how long you work. In certain cases, you can even select your clientele and pricing.

Independence

Since gig workers are not directly supervised and are not required to work in an office, they are allowed to do tasks independently, according to their preferences, and on their own schedule.

Scope Of work

The gig economy offers the chance to take on a variety of jobs and projects that may keep you on your toes and exercise your creative and problem-solving abilities in the process, as opposed to working in one 9–5 job for one boss.

Cost Efficient For Businesses

Freelancers can be a less expensive option for firms than hiring full-time workers. They also provide owners the chance to locate new talent and set different charges for different skill levels.

Cons Of The Gig Economy

Income Instability

Having a flexible work schedule has the consequence of bringing with it an unstable source of income. The quantity of labour available determines your revenue from gigs, and you only get paid when you do jobs.

Lack Of Benefits

Gig workers are often ineligible for health insurance, retirement programs, and workers’ compensation or disability insurance if they are injured on the job.

Stress And Burnout

Having a range of jobs might be monetarily advantageous, but it can also cause stress and fatigue. For a delivery driver, for instance, doing numerous jobs might drain your energy, change your way of life, and even damage your car.

Taxes And Expenses

Independent contractors who get payment for gig work may be required to make quarterly anticipated tax payments in addition to being responsible for paying self-employment taxes. By making timely and enough tax payments, you can avoid a fine. Additionally, gig workers are in charge of getting and keeping their work-related gear and supplies, such as smartphones, phone plans, laptops, and automobiles.

Uber’s Business Model: Example For One Of The Leading Company In The Gig Economy

Business Model

Uber operates on a platform-based business model that connects drivers (independent contractors) with riders through a mobile app. The key components of its business model:

Ride-Hailing Services: Uber’s core service allows users to request rides via the app, connecting them with nearby drivers. The app calculates fares based on distance, demand, and time.
Driver Independence: Drivers are classified as independent contractors, not employees, which means they have the flexibility to choose when and how much they work. Uber retains a percentage of each fare as a commission, typically around 20-30%.
Dynamic Pricing: Uber employs a dynamic pricing model (also known as surge pricing) that adjusts fares based on real-time demand and supply. This model incentivizes drivers to work during peak times when prices increase.
Expansion of Services: Beyond ride-hailing, Uber has expanded into food delivery (Uber Eats), freight transport (Uber Freight), and even micro-mobility options like scooters and bikes, diversifying its revenue streams.
Technology and Data Utilization: The company leverages data analytics and algorithms to optimize routes, enhance user experience, and manage driver-partner supply.

Uber’s Green Initiatives

Uber has made commitments towards sustainability and aims to position itself as a green company through several initiatives:

Electric Vehicle (EV) Transition: Uber has pledged to transition to an all-electric fleet by 2030 in major cities and by 2040 globally. This involves encouraging drivers to switch to electric vehicles and providing incentives for doing so.
Partnerships: The company collaborates with manufacturers and governments to promote the adoption of EVs and invest in charging infrastructure.
Carbon Offset Programs: Uber offers options for riders to contribute to carbon offset projects, aiming to neutralize the emissions generated from their rides.

Pollution and Environmental Concerns

Despite these initiatives, Uber faces critique regarding its environmental impact due to multiple factors:

Independent Contractors: Since drivers are independent contractors, Uber does not directly control the vehicles they use or their maintenance. Many drivers still use older, less fuel-efficient vehicles, contributing to greenhouse gas emissions.
Increased Vehicle Miles Travelled (VMT): Research indicates that ride-hailing services can lead to increased vehicle miles travelled, as rides may include more deadheading (drivers traveling without passengers) and inefficient routing. This can negate some of the benefits of switching to electric vehicles.
Urban Congestion: The rise of ride-hailing has been associated with increased traffic congestion in cities, leading to more emissions and pollution. This situation raises concerns about the overall sustainability of the business model.

Conclusion

Despite its cons, both employees and employers may gain greatly from the gig economy. A employer has access to a diverse pool of talent without out any commitment to permanently hire the person or any repercussions to fire them if their skill set does not match with the required level. An employer may also utilise gig economy during phases when it is difficult to hire full-time employees. Additionally, an employer does not usually incur any costs to cover benefits provided to employees like health insurance, etc. On the contrary, the gig economy provides employees the freedom and ability to undertake multiple jobs, the freedom to choose the place to work depending on the employment and flexibility in their work timings.

Useful Resources

HBS – The Gig Economy Is Here to Stay

McKinsey – Gig Economy: The Future of Work

Business Cases

Uber’s Commitment to Sustainability

Understanding the Uber Business Model

About The Author

The article was written in October 2024 by Anant JAIN ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).