The Gig Economy and Unemployment Benefits

The policy implications of contingent work

The idea of the gig economy has risen in prominence along with companies like Uber and Lyft. These companies started in the early 2010s and have fundamentally changed how transportation works in cities over the last decade. Uber and Lyft and other companies like Upwork and Fivver use what economists call contingent workers: workers hired on a temporary or non-permanent basis. Contingent work has always been a part of modern economics. Large corporations or private businesses routinely hire freelancers and consultants, and any homeowner knows the value of a good contractor. Gig work and contingent workers are here to stay, and the U of M has researchers looking into what that means for the US economy.

Tobey Kass

Tobey Kass, an Economics Ph.D. candidate, wrote a paper titled "The Value of Contingent Work" to explore the role contingent workers play in the economy and how public policy should adjust to the rise of the gig economy. You can find out more about Tobey's research on her webpage

What is the general state of contingent work in the US economy? And, what misconceptions do you think people have about the nature of contingent work? 

"The rise of contingent work can be challenging to capture with traditional job surveys, which target the conventional workforce, people who work according to a set schedule for 40 hours per week. Still, we know that contingent workers make up at least 5-10 percent of the labor force. Gig workers also participate in various industries. Musicians, artists, and freelance journalists, for example, are all contingent workers. Generally speaking, contingent workers tend to make less than their permanently employed counterparts and tend to be slightly less educated"

"Additionally, contingent workers as a whole work a wider variety of hours. It is common for gig workers to run the gamut between a 15-hour to 40-hour workweek, and those hours tend to be more flexible, meaning that workers can sometimes choose what days or times to work. Contingent work is, overall, more accessible than traditional work, but it offers fewer of the benefits and protections of permanent employment. Minimum wage, unemployment insurance, and OSHA rules may not apply to contingent workers. Furthermore, employer-sponsored benefits such as healthcare or retirement plans, like 401(k)s, are not commonly offered to contingent workers."

What are the tradeoffs firms and companies face when hiring a contingent worker instead of a traditional employee?

"Contingent workers tend to earn a lower wage than permanent workers, so the company can reduce costs due to wages by hiring gig workers. Companies face significant overhead when hiring a permanent employee. Staff may need to interview a large number of candidates. Then, once hiring is complete, the firm uses time and resources to train and retain that employee. On the other hand, contingent workers have lower overhead costs since the company may hire gig workers through a third party that can hire workers more efficiently. Also, if the need for a particular kind of work decreases over time, the company does not need to go through firing the worker, which is another form of overhead for using traditional employees."

"However, permanent employees may have higher productivity if they invest more time learning how to do their job well at the firm and put in more effort to develop a healthy relationship with the firm. In short, if the traditional employees invest more in their firm-specific human capital, that translates to higher productivity."

Your research looks at the impact of expanding unemployment to contingent workers. What did you find in your study, and what would you recommend policymakers consider when assessing laws that impact the gig economy? 

"Using the model in my research, I found that the recent technological development of apps that have made it easier to find contingent work has lowered the need for unemployment in the economy in an aggregate sense because anyone experiencing a spell of unemployment may be able to use an app on their phone to sell their skills in the contingent labor market."

"I also found that expanding unemployment insurance to contingent workers could cause welfare losses. When unemployment insurance encompasses contingent workers, individuals who could easily find contingent work may instead take an unemployment insurance payment, causing an increase in the number of people on unemployment. As a result of this dynamic, unemployment insurance costs increase, and taxes would need to increase to cover the expenses."

"It is crucial to keep in mind that the above statement assumes that contingent work is easily accessible. The welfare gains or losses from extending unemployment to gig workers depend on the availability of contingent work."


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