The Downsides of the Gig Economy and Portfolio Careers

Posted on August 8, 2017
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There is no doubt that the gig economy is growing phenomenally, with some projecting that by the year 2020, close to 40% of America’s work force will be self-employed in some form. The growth of this labour market, where freelance work prevails over permanent jobs, has been largely driven by the availability of the internet everywhere, giving many a flexibility they could only have dreamed of a couple of decades or so ago. In spite of its allurements and phenomenal growth, however, the gig economy has its downsides.


Effects on Companies

Any company that relies heavily on freelance workers or independent contractors may suffer in the long term. It’s not difficult to see why. Independent contractors do not have any vested interested in the long term success of the companies they have contracts with, and will not necessarily identify with those companies’ goals and objectives. As their attachment is only transitory, lasting only for the short period of the contract, a company leaving its critical growth factors in the hands of freelance workers may well regret that decision. This is not an issue of disloyalty. It has more to do with the nature of the gig economy – a worker in that economy knows that his or her financial viability lies firmly in their own hands, and to the extent that they can find gigs. This does not leave any room for undue attachment to a single client, as that would have negative repercussions for them.

Another downside for companies is that, unlike permanent staff, who companies often train to be able to keep pace with the ever changing demands at the work place, independent contractors may not have the motivation to learn the new skills that the company needs. This is especially true for specialists who prefer to focus on one area alone. A company’s desire to have them do other things will quickly result in a lack of fit between both parties.

Effect on governments and the economy

Until very recently, governments were ambivalent about the rise in the gig economy. However, it seems the realization has hit that the government's interests are better served when its citizens work in permanent employment. This is primarily due to the fact that permanent workers are usually taxed at a much higher rate, with fewer tax breaks that the self-employed can claim. In Britain for instance, self-employed people pay a much lower national insurance, leading to a growing discontent in various sectors about the perceived unjust tax benefits enjoyed by self-employed workers. This is seen as the system incentivizing self-employment and, in effect, punishing permanent employees. From a fiscal perspective, the Office for Budget Responsibility (OBR) forecasts a £6 billion drop in revenue to the government due to losses from national insurance contribution and drop in income tax.

These effects are significant, but are by no means an indication that the negative impacts only affect companies and governments. There are downsides for those who work in the gig economy too.

Effects of workers

Many people do not become freelance workers out of choice. If enough permanent jobs were available, the number of people opting for gigs would be significantly down. A recent survey of 2,000 adults by Glassdoor showed that less than eight of them would consider working gigs in the future, in spite of its allurements. The majority of the people, as the survey indicated, preferred permanent employment. Working gigs offers lots of freedom, independence and flexibility, but at a cost. Permanent jobs come with benefits and other trappings. The majority of those who were interviewed in the survey cited pay and benefits as the most important factors which endeared them to permanent jobs.

The Pay Factor

The pay factor is very crucial. As a permanent employee you are certain of the date and the amount you will earn. A gig, on the other hand, lives in the world of uncertainty. In the first place, there is the uncertainty of the availability of the contracts. This uncertainty breeds worry which results in stress. The ability to overcome this stress is limited by an independent’s working environment which is lonely, detached and isolated. In most cases, their only companion is the computer.

Worrying over the inability to earn enough, or not being able to get a contract is a perennial problem afflicting gig workers. Interestingly, worrying and working irregularly have been found to affect a person’s cognitive abilities negatively. Some studies show that a person whose hours of work are irregular, such as shift work, may suffer cognitive decline of 6.5 years as compared with someone who works regularly. Research examines the negative effects of irregular working habits on families. The findings of a research indicate that the children of parents whose work schedule is unpredictable tended to have low cognitive skills and more pronounced behavioral problems.

The Issue of Benefits

Apart from a fixed and predictable pay, permanent employees enjoy many benefits which a gig may not afford to pay for himself. People with permanent jobs have medical insurance which is paid for by the employer. The health insurance covers both the employee and immediate family members. In addition, a sick worker is entitled to paid medical leave. Apart from medical insurance, permanently employed people have workers’ compensation insurance which covers and compensates them in case of injuries at the work place. A gig does not enjoy these benefits. In countries like the United States, medical care is very expensive, with some estimates showing that it may cost up to $10,345 to treat one individual annually. The list of benefits which gigs miss out on include dental insurance, auto allowance, leave allowance and life insurance.

There are also non-pecuniary benefits which those in the gig economy do not enjoy. Being in the work place is, on its own, a benefit. Interacting with others and working with them to achieve the same goals fosters a healthy team spirit. A gig operates independently, and most of the time he works in a lonely environment without the opportunity to mingle and, so miss the chance of learning some things from others.

The Future

The extent of the growth of the gig economy cannot be predicted with any accurate certainty. It may stagnate in some countries while in others it may grow significantly. What is certain is that, while it exists, all stakeholders have to find ways of addressing the downsides of the gig economy, so that it does not become a millstone around the neck of prosperity rather than the stepping stone it is meant to be.

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