Gig Economy Being Held Back by Tight Labor Market

Today, The Conference Board released a report that details the reasons behind the US gig economy’s stagnant growth. Factors include a tighter labor market, slower rate of outsourcing, operational challenges at companies, and US public policies encouraging “traditional” work. By explaining the responsible factors, it provides context to findings released in June by the Bureau of Labor Statistics, which showed no growth in the share of “gig” workers since the mid-90s.

Despite static growth in the gig economy as a whole, online labor platforms continue growing but remain a tiny share of the labor market outside the transportation sector. For that reason, the new study also discusses the opportunities and challenges for online labor platforms to become a more significant part of the economy. These platforms quickly link individuals and businesses with independent contractors who can provide services.

“The perception about rapid growth of the nontraditional workforce is not supported by hard data,” said Gad Levanon, Chief Economist of North America at The Conference Board. “The cause of this hype was the emergence of online labor platforms. However, other than the transportation sector, these platforms represent a tiny share of income and total hours worked in the US economy. This may change in the future as more employers unlock the potential of these platforms, including their ability to provide businesses with additional workers for the fast-approaching holiday retail season.”

As further discussed in the report, the reasons behind the gig economy’s stagnant growth include:

  • Tighter labor market: Among other sources, tax data on self-employed workers suggests that the gig economy did expand after the financial crisis, when companies had a strong incentive to remove traditional employees from payroll to reduce costs. But in today’s tight labor market, many of the once-nontraditional workers have now obtained regular employment.
  • Slower rate of outsourcing: The 1990s saw a surge in the number of jobs that went from full-time, traditional employees to nontraditional workers outside of companies. But since the 2000s, the outsourcing trend has decelerated.
  • Operational challenges at companies: Many tasks simply do not lend themselves to nontraditional work arrangements. Moreover, while HR oversees the hiring of “regular” employees, Procurement often oversees the spending on nontraditional workers. Given the distinction between the two departments, employing nontraditional workers can pose an operational challenge.
  • US public policies encouraging “traditional” work: In the US, workers without a traditional job face greater exposure to financial and health-related risks than their European counterparts. Less government support incentivizes workers to gravitate more to full-time work rather than nontraditional gig work.

The Conference Board refers to the “gig economy” as workers in nontraditional working arrangements, including independent contractors, temp workers, and on-site workers employed by outsourcing companies.

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