Gig Economy: Definition and Pros and Cons (2022)

The term “gig economy” refers to a free market system in which traditional businesses hire independent contractors, freelancers, and short-term workers to perform individual tasks, assignments, or jobs. The term comes from the world of the performing arts in which musicians, comedians, etc. are paid for their individual appearances, called “gigs.”

Key Takeaways: Gig Economies

  • In the gig economy, businesses hire independent contractors to perform individual jobs, called “gigs.”
  • Hired and assigned via internet and smartphone applications, gig employees work remotely.
  • While contract gig workers enjoy great scheduling flexibility and extra income, they suffer from relatively low pay, lack of benefits, and increased stress.
  • In 2018, about 57 million Americans—nearly 36% of the total U.S. workforce—were full or part-time gig workers.

While such temporary arrangements offer tremendous advantages, like freedom and flexibility, workers in the rapidly-evolving gig economy are finding they face an increased risk of financial hardship from being totally responsible for their own income and benefits. Much like traditional jobs, gig economy jobs are great—until they’re not.

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How the Gig Economy Works

In the “gig economy” or “freelance economy,” gig workers earn all or part of their incomes from short-term contracts under which they are paid for individual tasks, assignments, or jobs. Typified by globally-recognized companies like Uber, and Lyft—which hire people to use their personal vehicles to provide taxi-like, on-demand ride services—gig economy companies use internet and smartphone-based applications to both hire and assign workers.

Each individual gig or assignment usually accounts for only a part of gig worker’s total income. By combining several tasks for different companies, gig workers can realize cumulative earnings equal to those of conventional full-time jobs. For example, some gig workers drive their cars for both Uber and Lyft, along with renting out rooms in their homes through Airbnb. Other people simply use gig jobs to supplement their regular income.

Another aspect of the gig economy involves so-called “digital earning platforms,” like eBay and Etsy, which allow people to earn money by selling their used items or personal creations, and online handyman services, like TaskRabbit.

In many ways, the gig economy reflects and facilitates the desire of millennial generation workers for greater flexibility in balancing their work-life demands, often changing jobs several times during their lifetimes. No matter what motives drive gig workers, the popularity of the internet, with its capability for remote work, has caused the gig economy to thrive.

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How Big is the Gig Economy?

Gig Economy: Definition and Pros and Cons (1)

According to a Gallup Workplace report, 36% of all U.S. workers were gig workers during 2018. “Gallup estimates that 29% of all workers in the U.S. have an alternative work arrangement as their primary job. This includes a quarter of all full-time workers (24%) and half of all part-time workers (49%). Including multiple job holders, 36% have a gig work arrangement in some capacity,” states the report.

Those percentages mean that about 57 million Americans had one or more gig jobs.

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The U.S. Bureau of Economic Analysis (BEA) estimates that combined digital economy grew by an average of 5.6% per year from 2006 to 2016 compared to 1.5% growth in the overall economy. Perhaps even more eye-opening, the BEA reported that the digital economy supports about 6 million jobs, or 4% of total US employment, “similar to industries like finance and insurance, wholesale trade, and transportation and warehousing.”

And as big as the gig economy is now, the Pew Research Center predicts it will growth even faster as more people become familiar with using mobile devices to arrange for personal services and to buy and sell products. According to online technology magazine Digital Trends, at least 6.1 billion people (70% of the world’s population) will have a smartphone by the end of 2020, a drastic increase from, 2.6 billion smartphone users in 2014.

Pros and Cons for Gig Workers

For employers, the gig economy is mostly a win-win proposition. Businesses are able to quickly contract with experts for individual projects without the overhead costs like office space, training, and benefits. For freelancing gig workers, however, it can be a mixed bag of pros and cons.

Advantages of Gig Work

  • Flexibility: Unlike traditional employees, gig workers are free to choose what types of jobs they do and when and where they do them. The ability to work from home helps in balancing work and family schedules and demands.
  • Independence: For people who like to be left alone while they complete an assignment, gig work is ideal. Not hindered by traditional office interruptions like staff meetings, progress reviews, and water cooler gossip sessions, gig economy workers are typically given almost unlimited independence to do their work when and how they think it should be done.
  • Variety: The old office bug-a-boo of monotony is rare in gig work. A wide variety of tasks and clients every day keeps the work interesting, helping gig workers be more enthusiastic and creative in their work. Never a dull day in gig work—unless you want one.

Disadvantages of Gig Work

  • Modest Pay: While they can make as much as $15,000 a year, a study by online lender Earnest found that about 85% of gig workers make less than $500 a month from a single side-job. The solution, of course, is to take on multiple gigs.
  • No Benefits: Very few gig jobs come with any sort of health or retirement benefits. While some long-term contracts may come with limited benefit packages, even this is rare.
  • Taxes and Expenses: Since contract gig workers are not legally classified as “employees,” their employers do not withhold income tax or Social Security taxes from their paychecks. As a result, gig workers must make quarterly estimated tax payments to the IRS based on what they have earned. Most freelance and gig workers find the need to pay from 25% to 30% of each of their paychecks in order to avoid owing taxes at filing time. In addition, most gig workers are responsible for buying their own work-related equipment like cars, computers, and smartphones. While some of these expenses can be deducted from taxes, not all can be. Many gig workers find they must also factor in the cost of accountants or tax preparation services or software.
  • Stress: All of the above, along with the need to constantly be looking for their next gig and dealing with changes in their current contract can make for increased stress—an undesirable tradeoff to the greater flexibility of gig work.

The Gig Economy and Consumer Safety

While the growth of the digital economy shows that consumers relish and demand the convenience, choice, and potential cost savings of gig services and sales, the gig economy also poses a threat to public safety.

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Due to the remote hiring processes involved, gig workers sometimes do skilled jobs with little or no training or prior experience. For example, passengers of online ridesharing services are often unaware of their driver’s skill level, driver’s license status, or criminal background.

In addition, gig drivers are not subject to the same U.S. Department of Transportation consecutive driving hours limitations imposed on traditional commercial drivers. While some online ride services now lock out their drivers after certain number of hours behind the wheel, drivers often work for more than one service and simply switch back-and-forth, thus allowing them to drive for extended hours.

In the realm of gig sales and rentals, the old adage of “buyer beware” rings particularly true. Products are often sold without warranties or guarantees of quality or authenticity, and rental properties may not be as desirable as they appear on the service’s website.

Sources

  • McFeely, Shane, and Pendell, Ryan. “What Workplace Leaders Can Learn From the Real Gig Economy.” Gallup Workplace (August 16, 2018).
  • Defining and Measuring the Digital Economy.” U.S. Bureau of Economic Analysis (March 15, 2018).
  • Smith, Aaron. “Gig Work, Online Selling and Home Sharing.” Pew Research (November 2017).
  • Bloom, Ester. "Here's how much money Americans are making from the gig economy." CNBC (June 20, 2017).
  • Boxall, Andy. “Number of smartphone users in the world is expected to reach a giant 6.1 billion by 2020.” Digital Trends (October 3, 2015).
  • "The pros and cons of the gig economy." Western Governors University (August 31, 2018).
  • Medina, Andje M. and Peters, Craig M. "How the Gig Economy Hurts Workers and Consumers." Entrepreneur Magazine (July 25, 2017).

FAQs

What is the gig economy pros and cons? ›

Using the Gig Economy: Pros and Cons for Your Organization
  • Pro #1: Less Expensive than Full-Time Employees. ...
  • Pro #2: Short-term Employees for Short-term Projects. ...
  • Pro #3: Save on Education Costs. ...
  • Pro #4: Around-the-Clock Service. ...
  • Con #1: Legal Challenges. ...
  • Con #2: Always Looking for the Next Job.

Why is gig work a good fit for me answer? ›

Working a gig economy job can teach you useful skills for your professional career. If you take a peer-to-peer job, you can improve your communication and customer service skills. By structuring your work schedule, you'll gain time-management skills.

What is a gig economy? ›

A gig economy is a free market system in which temporary positions are common and organizations hire independent workers for short-term commitments. The term "gig" is a slang word for a job that lasts a specified period of time.

What are the benefits of gig economy? ›

Benefits of the gig economy for corporations:

Ability to hire experts for services not needed on a regular basis. Agility in scaling their workforce up and down quickly to meet business demand. Reduced cost of providing healthcare and other benefits. Lower space costs.

Is the gig economy a good thing? ›

The advantages of a gig economy job

Anyone can enter the gig economy, regardless of their skill set. Being able to adjust your own work-life balance. Flexible working hours, often with the choice to decide when to work and for how long. Having the choice of which kind of work and projects that you take on.

Why is the gig economy growing? ›

The increase in costs has caused many individuals to seek supplemental income. As a result, more and more full-time workers are searching for additional ways to make ends meet. Gig work has been a flexible solution for many of these individuals, therefore adding to the growing pool of gig talent.

What makes you fit for this job answer? ›

My skill set is a perfect match for the job requirements. In particular, my sales skills and managerial experience make me an ideal candidate for the position. For example, at my last job, I managed a sales team of five employees, and we had the top sales record of our company branch.

What makes you best fit for this role? ›

For starters, I have all the skills and experience listed in the job description, and I'm confident that I can make an immediate impact on your company. It's not just my background in leading successful projects for Fortune 500 companies, but also my passion for the industry that drives me to succeed.

Why is it called a gig economy? ›

The gig economy meaning is a labor market where freelance, temporary, or independent contract work is common. Full-time, permanent positions are not part of the gig economy. The term “gig” comes from musicians and describes a job that lasts for only a specified period of time.

What is the full meaning of gig? ›

gig noun [C] (PERFORMANCE)

informal. a single performance by a musician or group of musicians, especially playing modern or pop music, or by a comedian (= a performer who makes people laugh, for example by telling jokes or funny stories): The band is going to Atlanta to play a gig at the Fox Theatre.

Why is it called gig? ›

Gig is slang for a live musical performance. Originally coined in the 1920s by jazz musicians, the term, short for the word “engagement”, now refers to any aspect of performing, such as assisting with and attending musical performance. More broadly, the term “gigging” means having paid work, being employed.

Who benefits most from the gig economy? ›

Employers benefit from gig work by gaining access to skilled talent at a time when hiring full-time employees has become more challenging. Gig workers, also known as contingent or contract workers, benefit from flexibility and access to new opportunities that might not have been available before.

Who started the gig economy? ›

The history of the gig economy goes as far back as the smoky lounges that hosted 1910s jazz sessions. Really? Yes, it was jazz session musicians who first minted the term “gig” to refer to musical performances. These musicians typically worked on a per-job basis, so they were, essentially, the pioneers of gig work.

Is gig economy the future? ›

Moving on an exponential growth trajectory, the gig economy workforce is projected to increase 3X from 7.7 million in 2021 to 23.5 million in 2030. The growing gig economy is influencing a paradigm shift in the workforce, workplace and work models and can reshape the future of work.

Is the gig economy sustainable? ›

With the loss of the social safety net typically afforded by employer-provided benefits and without a corresponding increase in governmental replacements for these benefits, the gig economy is not sustainable or desireable.

What is the gig economy and why is it so controversial? ›

A gig economy is a labor market that relies heavily on temporary and part-time positions filled by independent contractors and freelancers rather than full-time permanent employees. Gig workers gain flexibility and independence but little or no job security.

What are the challenges faced by gig workers? ›

THE CHALLENGES GIG WORKERS FACE

- Contractual relationship between the platform owner and gig worker denying the latter access to many workplace entitlements. - Stress due to pressure from algorithmic management practices and performance evaluation on the basis of ratings.

Why is it called a gig economy? ›

The gig economy meaning is a labor market where freelance, temporary, or independent contract work is common. Full-time, permanent positions are not part of the gig economy. The term “gig” comes from musicians and describes a job that lasts for only a specified period of time.

How does gig economy help entrepreneurs? ›

Gig work may encourage the formation of new businesses by giving potential entrepreneurs a way to supplement their income during the lean times that many new ventures experience, the researchers explain. And if these entrepreneurs start a business and it fails, gig work gives them something to fall back on.

How can I improve my gig economy? ›

Offer truly fair rewards. Recognise the importance of a fair and objective rewarding mechanism for gig workers. Without recognising the great work your workers are doing, it's all too easy for them to feel undervalued. “Gamification” tools can also help incentivise desirable traits such as loyalty and quality of work.

What is the gig economy PDF? ›

Abstract. The term "gig economy" is defined by a market which is based on a fixed-term contract or that is paid per project by a company, third party, or online marketplace. The impact of the gig economy at work is very pervasive and felt across industries.

Is gig economy good for India? ›

The gig economy can serve up to 90 million jobs in the non-farm sectors in India with a potential to add 1.25% to the GDP over the "long term". As India moves towards its stated goal of becoming a USD 5 trillion economy by 2025, the gig economy will be a major building block in bridging the income and unemployment gap.

Who started the gig economy? ›

The history of the gig economy goes as far back as the smoky lounges that hosted 1910s jazz sessions. Really? Yes, it was jazz session musicians who first minted the term “gig” to refer to musical performances. These musicians typically worked on a per-job basis, so they were, essentially, the pioneers of gig work.

Is gig economy the future? ›

Moving on an exponential growth trajectory, the gig economy workforce is projected to increase 3X from 7.7 million in 2021 to 23.5 million in 2030. The growing gig economy is influencing a paradigm shift in the workforce, workplace and work models and can reshape the future of work.

Why is the gig economy growing? ›

The increase in costs has caused many individuals to seek supplemental income. As a result, more and more full-time workers are searching for additional ways to make ends meet. Gig work has been a flexible solution for many of these individuals, therefore adding to the growing pool of gig talent.

When did the gig economy rise? ›

The pandemic further amplified its popularity since the current health crisis disrupted many businesses and altered the course of many companies. You can trace the rise of the gig economy to the global financial crisis in 2007 and 2008.

How the gig economy is changing the workforce? ›

Reshaping the global workforce

For employees, gig work often offers more flexibility than traditional work models, and for recruiters, they can fill openings for clients faster and more efficiently. While the trend of hiring gig workers has been upward for years now, the pandemic accelerated the transition.

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