In 2024, the so-called gig economy had a market size of $556.7 billion. By 2032, that’s expected to more than triple to $1,847 billion
But what is it? And why is it growing?
For millions of people, working nine-to-five for a single employer or being on the payroll is no longer a reality. Instead, they balance various income streams and work independently, job-by-job.
What is the gig economy?
If you’ve ever used an app to call a freelance taxi driver, book a holiday rental, order food or buy a homemade craft then you’ve probably participated in this segment of the economy.
The “gig economy involves the exchange of labour for money between individuals or companies via digital platforms that actively facilitate matching between providers and customers, on a short-term and payment-by-task basis,” according to the UK government.
It’s in focus not just because it’s growing, bringing economic benefits in terms of productivity and employment, but also because it raises questions about levels of consumer and worker protection and labour-market policies.
While gig-economy workers often eschew the rights offered to employees on the payroll, in February 2021 a UK court found that drivers for a car ride-hailing app were entitled to benefits including paid holidays, a minimum wage and a pension. Court rulings in other countries could potentially set a precedent for the gig economy as a whole.
A McKinsey survey in 2022 found that more than a third (36%) of the US workforce identified as independent workers.
As the market grows, and the companies at the top of the chain get larger, the challenge for policy-makers and officials is to balance the innovation that creates jobs against the need to ensure the companies are offering workers a fair deal. Gig-economy companies present complications for product-market regulation, competition policy, tax and labour-market policies.
Independence and flexibility were cited as the main aspect that people working in the gig economy were often satisfied with, according to a UK government survey. Respondents were less satisfied with work-related benefits and the level of income, with one in four saying they were very or fairly dissatisfied with those aspects of their work.
For students who want to earn an income while studying, or primary carers who want to fit work around school or daycare hours, these companies can offer flexible working patterns.
Who works in the gig economy?
Back in 2016, a McKinsey study categorized independent workers into four segments.
1. Free agents, who choose independent work and derive their primary income from it.
2. Casual earners, who use independent work by choice for supplemental income.
3. Reluctants, who make their primary living from independent work but would prefer traditional jobs.
4. Financially strapped, who do supplemental independent work out of necessity.
Public policy-makers face the task of keeping all four of these groups in the gig economy happy, which may require adapting policy settings so that they are ready for the digital age. Challenges exist but are not insurmountable, the McKinsey Global Institute report said.
“Issues such as benefits, income-security measures, and training and credentials offer room for policy-makers, as well as innovators and new intermediaries, to provide solutions”, the authors wrote. “Independent workers and traditional jobholders alike will have to become more proactive about managing their careers as digital technologies continue to reshape the world of work.”
There are different generational patterns at play among gig workers, with a survey of US freelancers in 2023 finding that 45% of Millennials freelanced, compared to 15% of Gen Z and just 9% of Baby Boomers.
What are the financial aspects for gig workers to consider?
Gig workers face unique financial challenges that require careful management of income, expenses, and tax obligations.
These workers must diligently track all income themselves, and report it accurately on their tax returns.
In the US, gig workers are also responsible for paying self-employment tax, which covers both the employer and employee portions of Social Security and Medicare contributions, totaling 15.3% of their net income.
To offset these costs, gig workers can take advantage of various deductions, including expenses related to car maintenance, gas, insurance, and even a home office if applicable.
Budgeting becomes crucial, as gig workers need to set aside money for taxes, personal expenses, and potential fluctuations in income. It’s recommended that gig workers in the US allocate 20-25% of their profits for federal taxes and 5% for state taxes to avoid unexpected tax bills.
The impact of the gig economy on employers
The rise of the gig economy has significantly altered how employers manage their workforce and production output.
In a world of talent scarcity, companies are increasingly turning to freelancers, gig workers, and independent contractors to create a more flexible and agile labor force.
This shift allows employers to quickly adjust their workforce size and expertise based on business needs, potentially saving time and money on recruitment and training.
Employers can now access specialized skills on-demand without the long-term commitment of full-time employees.
However, this new dynamic also presents challenges, such as maintaining team cohesion and motivating a workforce that may not be as invested in the company’s long-term goals.
Legal considerations have also become more complex, with employers needing to carefully navigate worker classification to avoid misclassification issues.
Despite these challenges, many organizations find that incorporating gig workers into their labour strategy allows them to become more competitive and responsive to market demands.
The author, Emma Charlton, is a Senior Writer and Agenda Contributor for the World Economic Forum. The views and opinions expressed in this Op-Ed are solely those of the author and do not necessarily reflect the official policy or position of TRENDS.