Why the Gig Economy will not Take Over the Future?

The rise of firms like Uber, Lyft, TaskRabbit, and Airbnb have startled many economists. The number of people working for these firms has risen drastically. This is the reason that many economists have gone overboard. Many of them claim that the gig economy is the way workforce will be employed in the future. They are of the opinion that the gig economy will replace the existing employment contracts that are currently used all over the world.

It may be tempting to think that the gig economy will grow so big that it will consume the actual economy. However, the numbers suggest otherwise. For instance, even after all these unicorns, the gig economy currently employs close to 1% of the total workforce in America. That is still a minuscule number given the fact that over 85% of Americans are still employed with traditional contracts.

In this article, we will argue that the gig economy will continue to remain a side gig and will not take over the future.

History of “The Firm”

During the 20th century, almost everyone in America and the entire world was self-employed. The 9 to 5 job is a pretty recent invention. However, it has rapidly taken over most of the workforce in America. Proponents of the gig economy believe that gigs are just an efficient way to take us back into the past. If the workforce all over the world was self-employed for most historical periods, why should the future be any different?

Advantages Provided by “The Firm”

Workforce all over the world has evolved from subcontracting to permanent employment. This is because of the many advantages that working for a firm offers. From an individual standpoint, the wages are fixed, and the benefits are good. Therefore, workers do not have to suffer the uncertainty that self-employment entails. From the firm’s point of view, if they employ sub-contractors for everything, they might perform well as individuals. However, subcontractors will be competitors and therefore will not have any incentive to co-operate with other subcontractors. This will create a lot of friction within the firm itself. This friction will impede decision making and day to day operations. Therefore, sub-contracting will turn out to be much more expensive as compared to direct employment.

However, if the gig economy is so inconvenient and uneconomical, then why are so many people working in it!

Housing and Transportation Sectors

The answer to the above question lies in the fact that Uber and Airbnb are the most successful gig economy companies. It is no surprise that these companies deal in real estate and transportation. Most people tend to buy a bigger home and more expensive car than they can afford. Also, when people are laid off, home and car is the only capital that they have. This is the reason why they try to use that capital to make a living. It would, therefore, be appropriate to say that only because housing and transportation require no special skill or capital that they have become the most popular sectors in the gig economy.

Temporary Work

Studies conducted into the nature of the gig economy have made another interesting revelation. Most people that work in the gig economy view it as temporary work. More than 50% of the workers in the gig economy only work less than three months in the year! Therefore the gig economy does not comprise of jobs which employees want to take on for the long term. These are jobs which people take when they want immediate cash. For instance, these jobs are taken by people who are currently between jobs or want to work part-time since they are still in college. Hence, the gig economy will always only be a small subsection of the total economy.

Complex Tasks

Robotic process automation is an important part of the future of jobs. In the future, there will be very few menial jobs which will be performed by humans. The majority of the menial jobs will be automated. This can be seen from the rise of robots which are being used in warehouses as well as self-driving cars.

Since there will be so much automation, there will be an increased requirement for people who work in technology. Technological jobs will require people to perform complex tasks which require a lot of training and education. It wouldn’t be possible to execute such tasks via the gig economy. This is because the gig economy typically does not include tasks where workers are expected to take a lot of responsibility.

The bottom line is that the uberization of tasks can only happen to a certain extent and for certain jobs. It is unlikely that the entire economy will start following the principles of the gig economy. The reality is that the gig economy is not really beneficial to the worker or the employer. Both parties have to live with uncertainty. This reduces the service level, which negates any price advantage, which this model may have to offer.