WHAT IS Freelance Economy
The freelance economy, also known as the gig economy, revolves around hiring self-employed workers to undertake specific jobs in return for an agreed upon payment. Freelancers are the individuals who make themselves available to be hired for such temporary work. They may find jobs through classified ads or through temporary staffing agencies. But the internet has created the current boom in freelance work, in fields as varied as commercial design, hotel management (through Airbnb) and taxi driving (through ridesharing apps like Lyft and Uber).
BREAKING DOWN Freelance Economy
The freelance economy has given many individuals the opportunity to pursue livelihoods that were formerly difficult to enter. For example, previously a taxi driver in many cities had to purchase or lease an expensive medallion, in effect a restricted license to operate a cab. Today drivers need only a car and a smartphone. It has also provided flexible hours and often the chance to work from home. It is estimated that more than 50 million Americans partake in freelance work either full-time or part-time, which is about one third of the entire workforce.
Problems and Challenges of the Freelance Economy
But the freelance economy has also been blamed for a host of new societal problems. Freelance workers in the U.S. do not receive company health insurance, forcing them to buy expensive individual policies. Nor do they get vacation benefits or sick leave; an illness that prevents work can cause severe financial strain. They don’t get matching retirement savings benefits offered by many employers, and they pay hefty self-employment taxes. As a result, many financial planners worry that today’s freelance workers will not have enough retirement savings to even approximate their current standard of living in old age.
Beyond the personal financial implications of freelance employment, the freelance economy has contributed to a host of larger issues. Housing shortages in many cities around the world may be exacerbated by the rise of Airbnb, which has prompted many property owners to let out their spaces to short-term visitors. They have in effect switched from being landlords to freelance hotel operators. That in turn has prompted nuisance complaints from neighbors and concerns about criminal activity. Likewise, the widespread popularity of ridesharing has been dampened by reports of unregulated drivers assaulting passengers. Where previously some industries were seen as being over-regulated, a concern with the freelance economy is a lack of oversight. Society will continue to grapple with the right balance between these factors.
Meanwhile, the rise of the freelance economy has taken a toll on American wages, which have been stagnant for years, and the overall full-time job market as more employers shift jobs to either domestic freelancers or overseas. However, the federal government and many states have severe penalties for re-classifying full-time employees as freelance “consultants” in order to avoid benefit costs. Generally, legitimate freelancers must work from an off-site location, have multiple clients, and not be a recent employee of the firm.