Is the Gig Economy's Rise Greatly Exaggerated?

Based on the way we travel, eat, and get odd jobs done, most of us assume that the gig economy is booming. However, despite the pervasiveness of companies like Uber, Postmates, and TaskRabbit, a survey published by the Bureau of Labor Statistics (BLS) on June 7, 2018, reports that the percentage of Americans working in the gig economy has dropped since 2005.

The survey shows that the number of Americans in gig work dropped from 10.9% in 2005 to 10.1% in 2017. If you’re surprised because you thought the gig economy was on the rise, you aren’t alone. Lawrence Katz of Harvard and Alan Krueger of Princeton estimated in December 2016 that alternative work accounted for 15.8% of all workers, which would mean that it was responsible for almost all of US job creation since 2005.

How Do We Define Gig Work?

The BLS study doesn’t actually use the term “gig work.” The study focuses on people classified as contingent workers and/ or alternative workers. According to the BLS, contingent workers are “people who do not expect their jobs to last or who report that their jobs are temporary. They do not have an implicit or explicit contract for ongoing employment.” Alternative employment arrangements involve “independent contractors, on-call workers, temporary help agency workers, and workers provided by contract firms.” The BLS notes that in this survey, someone’s job can be defined as both contingent and an alternative employment arrangement; however, that is not automatically the case.

Part of the reason so much discrepancy exists among statistics measuring the gig economy is that we can’t seem to agree on how to define it. The BLS statistic only includes people who consider their work in the gig economy primary employment and who had done this work in the past week at the time the survey was taken. PYMENTS.com (a site operated by What's Next Media and Analytics, LLC., which is owned by Market Platform Dynamics and Business Wire, a wholly owned subsidiary of Berkshire Hathaway) predicts in the Gig Economy Index that 55% of gig workers also maintain full-time or regular jobs, so only counting people who consider their work in the gig economy their main job might not be painting a full picture.

Exclusively asking people about work they’ve done in the past week also complicates comparing statistics – the survey in 2005 was conducted in February while this recent survey was conducted in May. Because of this difference, comparing the results of these two surveys ignores the existence of seasonal gig work.

Many workers are drawn to opportunities in the gig economy because of the option for it to be their “side hustle.” Consequently, industry studies, unlike the BLS, typically include people who work in the gig economy part-time. Upwork, a global freelancing platform, along with Freelancers Union, annually publishes the results of “Freelancing in America” (FIA). In this study, freelancers are defined as “individuals who have engaged in supplemental, temporary, project or contract based work, within the past 12 months.”

Related: 3 Side Hustles for Millennial Entrepreneurs

Including part-time work and asking about the past 12 months instead of the last week yielded results more in line with general perception of the gig economy. Published in October 2017, the annual study estimated that 57.3 million Americans were freelancing, making up 36% of the country’s workforce. Based on the growth rate at the time of publication, the study predicted that the majority of the U.S. workforce will be freelancing by 2027.

Supervisory Research Economist for the BLS’ Employment Research Staff Anne Polivka noted the role differing definitions have in yielding different results, saying “If you do an analysis using a definition closer to what is used in the CWS, then the number drops by 8.5% from 2014 to 2015, and that’s using what’s published by the Freelancers Union.” Polivka cited Lawrence Mishel, who shared this analysis in a press release published in December 2015.

Following publication of the BLS survey, Mishel tweeted, “The term ‘gig economy’ is almost useless now, stretched beyond belief to include all self-employed, anyone using an app to sell things or labor, small business owners, BnB renters, and much more. I use the term following Krueger/Katz/Harris. I may stop using term at all.”

Explaining the Decline

One possible explanation for the decline in people comprising the gig economy is that the quick increase in gig-style jobs was mostly a response to a weak labor market. As the economy has improved, more people would have found traditional work. Part-time work surged in the recession and has decreased during the economic recovery, so employment by temporary-help services has decreased. However, this explanation falls short in accounting for the increasing number of freelancers and workers in the gig economy who say they are alternative workers by choice.

According to FIA, when asked whether they started freelancing more by choice or necessity, 63% of freelancers answered that they do so by choice – a 10-point increase since 2014. Some perks of freelance and gig work include scheduling flexibility and the potential for creative fulfillment.

Related: Top Paying Freelance Jobs

The Freelancers Union explains this increase as due to stability being redefined. More freelancers are starting to think of having more clients as more secure than having one employer. In fact, 63% of freelancers surveyed agreed, which is 10 points more than in 2016. However, income predictability remains a concern of freelancers. The 2017 study found that full-time freelancers dip into their savings significantly more often than others: 63% at least once per month compared to 20% of full-time non-freelancers.

Gerald Friedman, a professor and undergraduate program director of economics at University of Massachusetts Amherst, says, “There are definitely people who like the gig jobs, and people who don’t like the gig jobs… [With FIA,] they’re casting a wide net – they’re catching anybody who does any gig work, a lot of people who do marginal gig work, picking up a little extra work on the side, they’re the ones who like it. If you get people who are trying to live full time, some of them like it, but others might want something else.” He also pointed out the role affirmation bias potentially plays in FIA results. “People don’t like to say that they don’t like what they do. So you have to take that number with a grain of salt,” he says.

Without a stable employer, people whose primary occupation remains within the gig economy face quite a bit of uncertainty. From having no benefits to having no traditional employment protections like a guaranteed minimum wage, gig workers live a professional life clouded in unpredictability. Some statistics, though, suggest that alternative work is becoming increasingly reliable. According to the BLS survey, last year, 73% of contingent workers had health insurance coverage, which is up from 59% in 2005. (Note, though, that the Affordable Care Act's requirement to be insured and its marketplace exchanges, may be one reason for that.)

Because no federal action has been taken, many online platforms have pressed states to allow them to offer benefits without making their workers into employees. Worker advocates have typically opposed these efforts.

Despite these challenges, the increasing percentage of freelancers who started freelancing by choice – paired with the statistic provided in last month’s Gig Economy Index that no fewer than 75% of gig workers would not switch back to a full-time job – suggests that the gig economy boom is more than temporary.

The data published by BLS might also not account for structural changes in the way people work. The government’s standard tools for monitoring employment have difficulty measuring a changing employment landscape, as evidenced by the discrepancy between the Current Population Survey showing that self-employment is falling and tax data from the Internal Revenue Service revealing the opposite.

A Look at the Questions Asked

Speaking to the New York Times, University of Maryland economist Katharine G. Abraham said, “The questions on our standard surveys don’t probe into the nature of these arrangements.” Abraham, who served as commissioner of the Bureau of Labor Statistics under President Bill Clinton, continued, “We’re not asking the right questions, and they’re hard to answer anyway.”

An expert on labor economics, Friedman similarly said, “To some degree, the BLS is not asking the right questions. They might be doing a good job of asking the questions they’re asking, but the real question for me is not about the nature of the job, but about the nature of income security for people. And we have, in this country, for about a century, relied on private welfare states.” Friedman continued, “Job security is not what it used to be. The real issue that the BLS doesn’t get at is the variation that people can expect: variation in their income over several years, and that number has gone up a lot. That’s the real issue with gig work.” Friedman claims that because most people rely on their employers for things like healthcare and income security, most people remain tied to their regular jobs for a sense of stability.

Effects of Self-Reporting

The survey might not present a comprehensive view of all contingent and alternative workers because not all workers self-identify as such. For example, 57% of the workers who earn almost all of their income from online platforms consider themselves employees rather than independent contractors, according to a poll conducted for the U.S. Chamber of Commerce.

Friedman commented on this potential discrepancy, saying “Even the question about who your employer is: are you employed by a contractor? That’s confusing to some people… You’d think everybody would know who they’re working for, but they may not… And I can imagine some people would not think of themselves as independent contractors. They’re going to one place, getting paid on a regular basis, for years and years.”

Is the Gig Economy Growing or Not?

The answer depends on whom you ask. Although workers are not looking at their roles in the gig economy the same way they would think about a 9–5 job, the gig economy does seem to be taking on a growing role. According to the Gig Economy Index, nearly 40% of the American workforce makes at least 40% of their income through gig work, as of May 2018.

Independent contracting has declined overall in the United States, though it has grown significantly in specific industries like business and transportation. According to BLS surveys, 7.4% of all workers in 2005 were independent contractors, while that number dropped to 6.9% in 2017. But there was a 50% jump in independent contractors in the transportation sector, which experts agree is almost definitely due to Uber, Lyft, and similar companies.

Paul Oyer, professor of economics at Stanford University’s Graduate School of Business and senior fellow at the Stanford Institute for Economic Policy Research, says “Maybe the landscape isn’t changing quite as much as we think it is; that’s what I take away from the BLS results. Certainly, it’s changing, we know that from our daily lives. But, the fact of the matter is, most people still go to a job that pays through a W-2, and that will continue to be true for a while.” Looking forward, Oyer predicts that the gig economy will continue to grow. He also predicts that income inequality will continue to increase, and says “I don’t think the gig economy is making that worse. People sort of think Uber is making this so much worse, and I just don’t think that’s true of Uber or any of these sites. These sites are giving workers another option.”

What it Means That we Can’t Agree on How Big the Gig Economy is

Speaking to the Washington Post, Heidi Shierholz, a former chief economist at the Labor Department, said, “What this says to me is the vast majority of workers in the United States still have traditional jobs as their main source of income,” responding to the study released by BLS. “We should be spending most of our time thinking about boosting wages in traditional jobs so people don't need a side hustle,” she added.

Friedman similarly said, “I think the gig economy is significant, and it’s growing, but it’s still, as this BLS survey shows...not huge in terms of the whole U.S. economy." He maintains that unless gig work introduces some sort of income stability and process to ensure welfare benefits, the stability of regular jobs will remain more desirable.

Shierholz’s analysis clearly conflicts with the results of FIA 2017. The Freelancers Union and PYMNTS.com both have statistics to support their narratives of a booming gig economy primarily comprised of freelancers who choose to be freelancers. But the BLS has statistics that paint a different narrative, which means that defining gig work, including different people in surveys, and asking even just slightly different questions is keeping measuring the shifting economy a challenge.