In Defense of the Gig Economy

The gig economy is the entrepreneurial direction the labor market is taking. It’s essential for workers to be free to adapt to these market changes.

June 3, 2019

By: Bobby Casey, Managing Director GWP

gig economy

I don’t know what I’m more upset about: the ridiculous escalation of the trade war or this new war on the gig economy. Both are an assault on the free market, with horrible consequences.

I want to back this up a little. In an era not that long ago, there was a thing called “roommates”. I know, I’m dating myself by even mentioning it. It’s when two or more people in the same area would live in the same apartment or house, and split costs.

You might be thinking, “What on earth? Everyone knows that!”

No. No they don’t. The younger generations have discovered this “new phenomenon” called “co-living“. That’s right, they “discovered” this. It’s when you share living space with other people and split the costs. See the difference?

Now there’s this thing called the “gig economy”. Google it, and you get this working definition:

a labor market characterized by the prevalence of short-term contracts or freelance work as opposed to permanent jobs.”

That sounds an AWFUL lot like entrepreneurship to me. It’s what I do for a living and always have. I’ve been encouraging people to do this my entire adult life. I’d like to think I’m special, but really, I’m among millions of people who do this and have for decades.

If we use the definition above, then every contractor that answers the call for a home warranty repair is and has been operating in the “gig economy”. The plumber, the electrician, the appliance repair guy… Believe me when I say, they are NOT suffering economically.

There is something in the advertising industry called “scatter dollars”. These large corporations have their agencies of record (AOR) who execute their annual campaigns. But sometimes clients come into extra money, and the AOR doesn’t have the bandwidth to incorporate those funds. They don’t want to lose the funding or the commissions, so instead they outsource to another agency who can spend it for them.

That outsource agency is operating on gigs. They have no guaranteed renewals like the AOR do. They have to pitch a new contract every time to get the money. They have to turn on a dime, but millions of dollars are made doing this very thing.

There are white and blue collar contractors who ONLY take project gigs. They refuse to be full time employees. It exempts them from a lot of the legal issues and restrictions of being a full time employee, and gives them both flexibility and leverage. It works out for the business or person hiring them because it’s often more economical depending on what they need.

Here are some other gig workers: real estate agents, maids, gardeners, doctors, hair dressers. These people don’t get a retainer. They have to go out and find a constant flow of customer traffic.

When you think about it, large retailers are also dependent on small gigs… they call them customers. Hotels are constantly trying to get people to fill their rooms at 1 and 2 nights at a time. They don’t have this guaranteed contract of people coming in, so they are constantly marketing.

What appears to be daunting is the idea that those accustomed to having steady employment might have to shift to this model of work because the turnover is quicker and the market demand for labor is as temporary as the demand for services.

This isn’t a sign of distress, this is a sign of competition. The skill is the same for something like accounts payable or accounts receivable, but the demand is scattered. There isn’t enough work, or perhaps it’s not as cost-efficient, to take on full-time employees, so companies are hiring contractors.

What this forces workers to do is diversify and multiply their streams of income. This is a GOOD THING! This affords everyone more flexibility, while diversification offers workers greater security.

Losing ONE gig isn’t the same as losing your ONLY gig.

Read it three times out loud in the mirror if you have to, but this is a remarkable way for people to be their own bosses. It will put considerable pressure on the local governments to abandon or at least drastically reform their licensing laws.

The personal service industry is seeing a meteoric rise. Life coaches, fitness coaches, diet coaches, sales coaches, marketing coaches, writing coaches… you name it! There’s a coach for it. These guys are all looking for their next customers or “gigs”.

More people will be able to itemize their taxes and find more exemptions. This is all around a boon for people! It keeps costs low which makes their goods and services more accessible to more people.

Look at the uptick in services like these: ride-sharing (ex. Uber and Lyft), home-sharing (ex. Airbnb), and courier services (ex. Postmates). These are examples of the gig economy’s expansion. Whereas before, there were no platforms for us entrepreneurs, now these and others are coming into the market! You just sign up and start working!

Politicians are stumping on this issue because they see it as a sign of economic distress. Andrew Yang sees it as some desperate act of survival.

Maybe the transition from full time employee to entrepreneur is bumpy. Or the individual circumstances that lead them to make the switch was desperate. But to call entrepreneurship a sign of economic distress is a gross mischaracterization.

Contract workers keep costs low, by the way. They make their money in volume and more flexibility, so they can offer a lower cost to their customers. Likewise, the regulatory overhead is non-existent. While I’m loathed to quote them here, Vox reflects the kind of panic I can’t put into words:

California just took a major step in rewriting the rules of the gig economy.

The state Assembly passed a bill Wednesday that would make it harder for companies to label workers as independent contractors instead of employees, a common practice that has allowed businesses to skirt state and federal labor laws. The bill will now go to the state Senate.

These workers would suddenly get labor protections and benefits that all employees get, such as unemployment insurance, health care subsidies, paid parental leave, overtime pay, workers’ compensation, and a guaranteed $12 minimum hourly wage. It also means companies are fuming about the added cost.

This will drastically change the very model of ride-sharing. The premise is based on people voluntarily signing up and picking people up based on availability for a given price. No one is obligated to do this.

Interesting to note, that the state of California has taken such an interest in this, as this same article points out:

The changes from the bill would also benefit the state of California, which estimates that it loses $7 billion in tax revenue each year from companies that misclassify employees.

First of all, this isn’t a “loss” for California. It’s not their money to have. Second, this all but outs the politicians as money-grubbing control freaks.

This “crackdown” on the gig economy is going to hurt more people than help. In the same way the crackdown on Airbnb is hurting more people than it helps.

Look at what happened when New York City politicians got compassionate about car wash workers, stumping for a hike in minimum wage. Car washes turned to automation, laid off a bunch of employees, and the employees were left to offer their services “illegally” out of vans in alleys and side streets.

What do you think will happen here? Same thing. People will start offering rides independent of Uber or Lyft, and this industry will just move into the grey market like this “notorious” vanpool in Austin, TX.

If you don’t like the ride sharing model, that’s fine. Don’t do it. But to join and then protest is obnoxious. They knew the model going in. Uber and Lyft are transparent about how their businesses work.

It’s as petty as university students calling for professors to get fired over material they consider “offensive”. That’s not their call to decide who is qualified to teach a given class. If you don’t like a university, don’t actively seek to attend it!

This war on the gig economy that makes these workers out to be victims is both wrongheaded and dangerous. Entrepreneurs need to speak out on this, and set the record straight, or people won’t be able to adapt to the changing times.

The REAL solution is to create MORE platforms for people to pick up various gigs! Odesk, Fiverr, and Guru are great ideas, but we need MORE of these for all walks of life! Encourage gig work, and help gig workers get gigs!

Employers want this. Employees want this. Politicians don’t want this. That speaks volumes to the merits of moving toward a gig economy.

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