The Gig Economy Explained

"It was the best of times, it was the worst of times."

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In my last post, I talked about why remote work is here to stay, and I got lots of comments about how I was being very optimistic— naive even. Many people seemed to equate remote work with the gig economy, which is not necessarily true. You can work remotely as an employee at a 9-to-5 job. But the fears around the gig economy were widespread. Mainly the fear of becoming a gig worker and losing all benefits from permanent employment and live in absolute precariousness. So I decided to explore further.

Now, I try not to do blanket statements in general. I don’t think the gig economy is all good or all bad. Discussing it in moral absolutes is not helpful nor interesting. However, the gig economy is here to stay. In 2018, Harvard Business Review estimated that 150 million people in North America and Western Europe were independent contractors. Only in China, there are over 110 million. And as I stated on my first post, I think the gig economy will be larger than the paycheck economy in the next 15 years, so let’s make sense of it.

The Cliché

One of the most prevalent depictions when reading about the gig economy is the “Taxi drivers are good, Uber is evil” cliché. This is simplistic and flat-out wrong.

To say that Uber has no redeeming value is to deny reality —and the combined $100 billion market cap for Uber, Lyft and DiDi. Taxis were expensive (thanks to an artificial cap on medallions), hard to get (remember when you had to hail a cab in the rain on rush hour?), unreliable (we were at the mercy of the meter, which could easily be tampered with), prone for abuse (I have dozens of stories of a taxi driver charging ridiculous amounts to get into the city from an airport), and unwilling to change (thanks to a service monopoly and strong unions).

This massive disruption was possible in large part because the consumer got a better, more convenient deal from Uber and other ride-hailing platforms. And this is true for the majority of the players in the gig economy, from Doordash to Instacart to Taskrabbit to Rappi (in LATAM) to Grab (in Southeast Asia) to Ele.me (in China). They are transforming the way we order food, handle tasks, and get stuff delivered. And they are doing it better than the incumbents.

My problem with the coverage of the gig economy is the simplistic “It’s evil” narrative. I've read essay after essay only focusing on all that is wrong with the gig economy without considering the reasons for its success.

The gig platforms, however, represent only one side of the gig economy coin. Let’s talk about the other side: the gig worker.

The Gig Worker

For most people, gig workers are synonymous with Uber drivers and Instacart delivery people. However, it also includes millions of freelancers and independent contractors with wide-ranging skills, servicing individuals and companies big and small.

I did a 2x2 to explain.

The first distinction is the type of skills: doing physical or knowledge (mental) work. This is pretty straightforward. The job might require you to use physical skills like driving, delivering, going shopping, or it might require knowledge ones like writing, planning, strategizing, etc.

The second distinction adds more nuance: the market value of the skill. If the skill is easy to do, it will become commoditized as other people can do it too. If the skill is more technical or is part of a niche, then it will be more valuable. This variable is important because it shows the complexity of the gig economy. As more knowledge jobs are distributed online, the competitive ground becomes larger. You are not only competing with other people in the US, or Canada, but with the entire world. So creating a logo or a website which might’ve been a good-paying gig, is now driven to a much lower cost because you have competitors in India and Bangladesh who charge one tenth of what you charge, and they do a pretty good job. I’ve experienced this firsthand when scouring knowledge-based gig platforms like Upwork or Fiverr.

Now, if you see you job in one quadrant, that doesn’t mean that it cannot expand to other quadrants higher up. If you are a graphic designer with more experience, who also dabbles in some programming, and who usually integrates a design process into a higher-level strategy, then you probably are in the specialist quadrant.

The Risks

For me, there are two major risks that are not caused only by the gig economy, but exacerbated by it.

The first one is inequality. This has been an ever-present issue in society, but it’s one we are seeing grow more and more recently. The problem is the enormous difference between the ones that own capital and the ones that don’t. This has been aggravated by the tech industry as they have enormous network effects and huge profit margins.

The gig economy will intensify the inequality because the growth in the gig economy will primarily come from the commoditized quadrants. The drivers and delivery workers and handymen whose work will not increase in value because there is an almost unlimited supply of people willing to do it.

The second problem is the more existential idea that our lives will be governed by algorithms. In his eye-opening essay, Venkatesh Rao defines subsets of the new society as lying above or below the API.

What this means is that some jobs depend on an API to function. There is no human intervention. An Uber driver depends on the Uber algorithm to actually get clients. The same as a delivery worker from Instacart or Amazon Flex. They have little agency in the type of clients they will get. The API decides who to sort and how to sort them, and workers are often at the mercy of the algorithm.

Let’s apply the API idea to the 2x2 I made.

The API line is mostly in the commoditized qudrants. It’s slanted because for gig knowledge workers it is still harder to be dominated by an algorithm, but more and more instances of the job process are now dominated by a platform (like FlexJobs or Freelancer).

The more you move up towards the higher quadrants, the less you depend on an algorithm or platform to determine your clients and the type of work you do. This is because the job description is more complex or more important to the clients. People in these quadrants have more agency and flexibility and can command higher prices because of this.

Venkatesh Rao sums up the feeling most people on the lower rungs of society are feeling with our technology-dominated world:

What do you do when you find yourself coming of age in a radically unequal society, where the rent is too damn high, success is a serendipitous function of mysterious Internet trends your parents assume you’ve magically mastered in the cradle, and the only skill of unquestionable value — programming computers well — is relatively hard to acquire and ideally suited only to a minority neurotype?

The Paradox

The paradox is that as the gig economy eats a big chunk of the paycheck economy, the two opposing quadrants will grow the most: the traditional gig workers and the specialists.

The traditional gig workers will be an essential part of the economy (as we are realizing now with COVID-19) but one that is commoditized and dominated by APIs, with little autonomy and differentiation.

The specialists gig workers will flourish. They will have true flexibility and agency in determining what type of work they want to do by offering niche services and products to companies all around the world. They will be able to travel and work remotely. They will have projects that are challenging and well paid. They might not grow so much in numbers, but in clout.

The Future

It's sad to say it but the idea of a blue-collar worker in the USA who had lifelong job security, was able to afford a house and a car, send their kids to university, and travel once or twice a year is mostly gone. Not because it was a bad thing— it was a beautiful thing— but because the structure of the economy has changed. Globalization happened. Decentralized supply chains happened. The internet happened. China happened. Digital technologies happened. The financialization of the world economy happened.

We are now living in an age of transition: from private companies employing millions of people in permanent contracts, to a decentralized job market where platforms and the internet are only distributors of work opportunities, not employers. Most people will become self-employed.

I know I offered a somewhat bleak picture. But this doesn’t mean that we need to give up. But we must think about how to adapt to our current techno-economic paradigm (see Carlota Perez), not to one from a bygone era that is not coming back.

The age of mass production is gone and with it its archetypal worker: the blue collar worker. Gone are the innovation principles that governed it: deep hierarchies, horizontal integrations, and standardization of products.

We are now in the age of information and its archetypal worker might as well be the gig worker. It is about networks, and knowledge as capital, about segmentation of markets, and niche products. Let’s think of improvements for this type of era.

My take on this is: Go ahead, bring the automation. Bring the robots and AI and drones and driverless cars. Let’s remove people from repetitive, monotonous work. Instead of converting the traditional gig workers into blue collar workers, let them get the skills to become niche or knowledge workers.

The gig economy levels the playing field. It allows for precariousness, yes, but it also provides the opportunity for driven, creative people to learn and leverage their skills online for a marginal cost. I’m not saying that it is easy, of course, but it is possible.

As always, let me know what you think by replying or commenting.

Thanks for reading,

Santi


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