Free Lunch in the Gig Economy

A few weeks back Fast Company’s Sarah Kessler published an interesting article on the “gig economy”. The article touches on the recent rise in the independent workforce and whether it’s having a positive or negative impact on workers.

For better or worse dozens of new businesses are facilitating the independent workforce. The article mainly discusses Uber and Handy, but there are numerous young companies directly or indirectly supporting this current trend, among others; Airbnb, Kickstarter, Legalzoom, Funding Circle, Lending Club, and of course Etsy are all helping get makers and doers out there working collectively but independently.

It’s an interesting debate. Are workers better or worse off in the gig economy? Are workers liberated or being taken advantage of? Are companies enabling and supporting a more diverse workforce or they shirking their responsibilities and exploiting workers?

These are tough questions. For workers, valuing the gig economy is heavily dependent on a fuzzy number -  the value we place on flexibility and choice. An economist might approach that question by making an assessment of the opportunity cost.

Employees in a gig economy weren’t born yesterday (at least not all of them). Many left traditional employment for the freedom and flexibility of working when they want and affording the ability to do the other things they care about with the rest of their time. In leaving traditional employment they have forgone a regular paycheck, perhaps health benefits, employee savings plans and the predictability of knowing where they’ll be everyday at 9am, where their next pay check will come from, and for the amount it will be for.

If workers moving from traditional to gig employment experience a net decrease in the total value of compensation and benefits, then the difference between what they previously earned and what they are currently earning would be the financial value they place on having that flexibility. The maximum reduction in net pay that a “giger" would take and still choose to work in the gig economy would be the maximum financial value the employee places in the freedom and
flexibility gained.

Ms. Kessler also authored another interesting piece Pixel & Dimed: On (Not) Getting by in the Gig Economy. In this article she endeavors to become a “micro-entrepreneur” and try to source the equivalent of full time employment by stringing together jobs from various task sites like Postmates, TaskRabbit, and Fiverr.

It’s an interesting experiment but one that seems to miss the point of the gig economy. In an attempt to test the viability of such employment she tries to line up a full day of gig work. One of the major takeaways is that she discovers that the work is fragmented, difficult, sometimes depressing and not the pleasant picture that each company portrays when they display and tout their success stories on their marketing pages.

The tag line seems to be that instead of an independent worker utopia all she found was compartmentalized tasks that involve monotonous work for little money. Is this surprising? Is this a setback?

One would imagine that workers jumping into the gig economy would be aware that the freedom and flexibility they gain from not having to commit to a single career, employer and schedule everyday for the foreseeable future means that there will be equivalent tradeoffs. Just as workers aren’t able or don’t want to commit to a single employer they should fully accept the idea that gig marketplaces like an Uber, Handy or Postmates won’t be committing to them. These companies won’t lose alot of sleep over whether or not a particular worker is ready and able to jump on the next task. If not, on to the next worker. No health, no dental, these are all sacrifices made by workers that aren’t committing to a particular company anymore then the company is committing to them. Is it shocking or astonishing that a gig worker still needs to garner a good reputation and track record among their tasks completed. Full time or gig employment, your reputation is paramount.

Economic principles (particularly the sound ones) don’t come and go that often. Anyone looking at the gig economy with an expectation that it offers a cushy gig with little to no work for easy money should familiarize themselves with Milton Friedman’s There’s No Such Thing as a Free Lunch.

If these new companies are successful it’s because they are bringing more choice to the marketplace. For workers and for consumers. Simply because the choice is there doesn’t mean it’s an easy decision without tradeoffs or without consequences for either party involved. For now people are voting withy their feet and the growth of the gig economy is the best signal that people are finding it more attractive than the alternative. Gig or no gig, choices will always have consequences and a free lunch will always have a cost.

[this note was originally posted on March 1, 2015 before it was re-posted on this site]