A Strong Job Market and the “Gig” Economy

The two don’t go together very well.

It wasn’t so long ago that the so-called “gig” economy was all the rage. In the early 2010s, with a sizable portion of companies being skittish to commit to hiring full-time workers due to fresh memories of the economic downturn, many workers found opportunities to make money through various different gig economy service firms — companies like Uber, Lift, Postmates and others.

What those jobs offered workers were flexible schedules, reasonably decent pay, and the ability to cobble together a livelihood based on holding several such positions (while still being able to hunt around for full-time employment).

For employers, it was the ability to build a workforce for which they didn’t have to cover things like office expenses and various employee benefits — not to mentioning paying for payroll taxes like the employer social security contribution.

In the past few years, the environment has changed dramatically. With national unemployment hovering around 3.5% — and lower still in many larger urban areas — “gig” companies have found it more difficult to find workers.

What’s more, those workers who are hired are churning through the companies more even more quickly than before — many staying with these jobs for just a few months.

Tis is driving up worker recruitment costs to their highest levels ever.

In a May 2019 interview with The Wall Street Journal, Micah Rowland, COO of Fountain, a company that helps gig companies acquire new workers by streamlining the hiring process, puts it this way:

“It [strikes] me that in some of these markets, they’re processing thousands of job applicants every month — and these are not large cities.”

In Rowland’s view, gig companies in some markets may be burning through the entire available labor market of people willing to work in roles of this kind.

It isn’t as though turnover rates aren’t high in other service sectors in the more “traditional” economy. In the fast-food industry, for example, turnover is running as much as 150% annually these days. But in the case of gig employment markets, it’s even higher — sometimes dramatically so.

With the tight labor market showing little sign of loosening anytime soon, it may be that we see some firms looking at “regularizing” employment for at least some of their workers. If it makes economic sense to hire some actual employees in order to curb recruitment costs, some will likely go that route .

There’s another factor at work as well. More of these gig economy workers are becoming more vocal about pushing back on pay and working conditions. Noteworthy examples have been recent protests by rideshare company workers in cities like Los Angeles and San Francisco.  Others have done the envelope math and have determined that once driver-owned vehicle costs of gasoline and depreciation are calculated against declining fares that have dropped below $1 per mile in some markets like Los Angeles and Minneapolis-St. Paul, workers’ effective wages are significantly less than even $10 per hour.

Picking up on these worker concerns, a number of activist groups are making gig economy companies like Lyft and Uber into a “cause célèbre” (not in a good way), but loud, polarizing detractors such as these tend to muddy the water rather than bring fresh new insights to the debate.

As well, one wonders if the activism is even needed; I suspect what we’re seeing now is a pendulum swing which happens so often in economics — where an equilibrium is re-established as things come back into balance after going a bit too far in one direction. In the case of the gig economy, the low unemployment rate in many regions of the country appears to be helping that along.

One thought on “A Strong Job Market and the “Gig” Economy

  1. American workers historically pay scant attention to working conditions and benefits in low level jobs, compared with counterparts overseas. U.S. labor came out of World War II rich, saying “just show me the money” — and that emphasis never changed.

    In Europe, the call of desperation in flattened, war-weary economies was for vacation time, work-breaks and security. The idea was to make clerking in shops pleasant and waiting tables a stable profession, even if pay was low. In America, we retained the optimistic notion that jobs like these would be stepping-stones to entrepreneurial dreams, not a life’s work.

    So, find me an American grocery checker today who is allowed to sit down at work in a swivel chair….I doubt you can unless it’s at German-owned Aldi. Meanwhile, look over to Europe, now much richer than it was, and you see well-paid workers putting in shorter hours and going on long vacations. The pendulum will surely now swing a bit in that direction.

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