The ‘gig economy’ is one of the more popular catchphrases for anyone discussing the labour market in recent years. But what exactly is the gig economy, and what kind of workers is it attracting?
Let’s start with some background. In essence, the gig economy refers to the trend of hiring contractors, freelancers, contingent workers, and similar roles instead of traditional full-time workers. It’s happening in Australia, but is a worldwide trend, with observers in many Western economies noting that traditional employment is down, while contracting is up.
There are competing explanations for how this came to be. First of all, there is the appearance of new types of jobs that work on a contract basis and emphasise phone apps to create business. The most well-known example is Uber, who operate worldwide as an on-demand driving service. Another example is AirTasker, an all-purpose outlet for one-off gigs like running errands and assembling furniture.
These platforms hire their workforce as contractors, who do not have the same set of benefits and requirements about work hours that traditional employees do. On the one hand, this saves the companies money, and on the other hand the contractor status better fits the self-employed and freedom-oriented nature of such workers. If many workers are leaving traditional jobs to join companies like these, it might explain the shift to contracting.
However, there is a flaw in this theory. A pair of American economists, Katz and Krueger, found that when they examined the US economy, very few people actually work at these Uber-like companies. In fact, Uber itself accounts for the vast majority of all such positions, and other examples are so small that they add little to the total. Other researchers have found similar findings. So if the explanation is not a change in working habits to Uber-style employment, then what is it?
Another explanation might be the rise of the professional independent contractor. These workers commonly work on their clients’ site for a fixed period of time, for an hourly or daily rate to fulfill a particular project. Independent contractors often have their own Limited Company or work through a Contractor Management company.
Unlike many of the task orientated gig workers, Professional Independent Contractors are typically University educated and begin contracting as a conscious decision to bolster their career. Benefits such as better control over their career path, higher rates of pay, opportunity for varied experience, a better sense of identity and improved work/life balance are attracting droves of workers to this type of professional arrangement all over the world.
Whatever the reason for so many workers opting to joining the Gig Economy there’s no denying the fact there is a demand for these types of workers.
In Australia, like many other countries around the world, freelancers or contractors can be less expensive to hire than traditional employees. This is usually for two reasons: statutory obligations and benefits. Labour regulations governing contractors place more of the statutory requirements such as taxes and superannuation on them than their employer, as opposed to a full-time hire. The same thing goes for benefits: a fulltime employee gets access to insurance such as Workers Compensation and other related benefits, while contractors generally need to take on that cost themselves. Engaging contractors also keeps head-count costs down.
While cost control is high on most organisations’ strategic business plan, it may not be the pivotal reason for engaging contractors and is definitely not the only benefit to be gained. Organisations engage contingent workers to access their high-end and hard-to-find skills to fulfill fixed term projects, to have the ability to scale up and down with ease and flexibility and in many cases to ‘try before they buy’. That is they hire a contractor on a fixed term contract with the prospect of bringing them on permanently once they are satisfied that they are the right fit for the position and their company.
These explanations offer varying views of what this trend means for the economy. It is either driven by the preferences of workers or the choices of employers. In either case, the Gig Economy is strengthening and the prediction is that it’s here to stay. Whether you are an employee or an employer be ready to take advantage of any opportunities that arise as this new economy matures over the next few years.