Wednesday, August 5, 2015

Gig economy aligns incentives, shifts risk, but is more rewarding

A host of applications like Uber,, and Airbnb are replacing lifetime employment on a salary with contractors who must bid for jobs and build reputations for quality service based on immediate feedback by customers:
The gig economy is only part of a shift in employment over the past three decades, unleashed by technology and global trade. It has created many winners and losers, both by outsourcing jobs from the west to Asia and Africa, and by changing the terms on which most people work. Financial and contractual risk that used to be borne by companies has been transferred to employees.

This change better aligns incentives of firms (contractors) with the goals of consumers (lower price, higher quality), but it also exposes contractors to more risk, for which they must be compensated.  However, the benefits of being self employed seem to far outweigh any risk premium:

More self-employed people in Europe and the US report enjoying their jobs than those who are employed. Many entrepreneurs, even those who run a tiny business that amounts to self-employment, like their freedom and self-reliance and the possibility that they could become wealthy.

...which is reflected in falling compensation:

...the average income from self-employment fell 22 per cent in the UK between 2009 and 2014, even as self-employment contributed 732,000 of the 1.1m rise in total employment.


  1. Where there is risk there is profits, so we just need to be hard working and profits will come itself, I am doing Forex trading with OctaFX broker where all my risk is covered completely thanks to their rebate program where I am able to earn 15 dollars profits per lot size trade, it’s really the best and helps me so much while it’s given even on the losing trades too, so that is what makes it truly spectacular and makes me extremely happy with it.

  2. One of my favorite topics, the contingent worker. The traditional full time permanent employee is fading away as many people are opting to contract their skills out to the highest bidder. Many companies are implementing contingent workforce strategies to keep up with demand when business cycle activity increases. The obvious benefit is the cost savings that are achieved from not having to compensate permanent employees during lulls in the action. When activity increases contingent workers are used to increase production on demand and sent home when activity decreases. The strategy works for predictable increases such as seasonal demand and for unpredictable increase such as utility companies using contractors during storm recovery efforts. To me the biggest benefit is the fact a company can hire an exact skill set that may not be needed 365 days out of the year. For example let’s look at the phone or cable company. Let’s say they have X amount of installers and X amount of lineman. The headcount reflects the average amount of employees required to handle the average amount of forecasted installations and service calls that are expected each year. If they get it right there are enough technicians to handle the demand, a win for all. Utility wires are of exposed to the elements and after a bad storm a utility company could end up in a position where there are not enough technicians to cover the demand. As a result they will rely on contingent workers to keep up with the increased temporary demand. For instance after a hurricane a utility company needs more lineman, not more installers. The lineman require a specific skill, an ideal situation for a contingent worker. People always complain that the utilities are not responsive or prepared after a storm, but I disagree totally. Could you imagine how high our bills would be if the utility companies had to maintain a storm recovery headcount 365 days out of the year. The bill would be insanely high and the service would not be in demand at all! Contingent workers are here to stay. Tucked away in the pages of a new report by the U.S. Government Accountability Office is a startling statistic: 40.4% of the U.S. workforce is now made up of contingent workers-that is, people who don’t have what we consider traditional secure jobs (Pofeldt, 2015).
    Pofeldt, Elaine. May 25, 2015 “Shocker: 40% of Workers Now Have ‘Contingent” Jobs, Says U.S. Government” retrieved on October 24, 2015 from

  3. There are so many factors that contribute to the pros and cons of a "contingent" job. Though there are many ways to define or group these workers. Realistically, we need the large organizations in our economy. Uber and Airbnb allow individuals to decide when they "work", but they are still technically working for these companies. Personal trainers may be considered to have a "contingent" job, but they are still regulated in one way or another.
    Success for these individuals will vary from one situation to the next. One individual may hold a full time job with benefits for their family, while their other half may have the opportunity to freelance - not having to worry about the actual income. This must be considered when looking at the numbers.
    Many of these individuals may be happier in a self-employed situation. They are able to make the decisions, have their own schedule, and are likely doing something that they truly enjoy. Not all individuals have the opportunity to be successful in that type of situation.