How the “Gig Economy” affects Small Businesses

“Gig” is turning into one of those annoying buzz words like, Millennials, Start-up and Unicorn! Like those examples, the definition depends on who you are talking to. Experts agree that the gig economy covers a lot of space and is not well documented. That is why when experts talk about the Gig Economy the numbers changed based upon who is discussing it. But there is no argument that the desire for freedom in the workplace is growing. And it is that desire that is driving the Gig Economy and small businesses need to be in a position to capitalize on it.

The dictionary defines the Gig Economy as a labor market characterized the prevalence of short-term contracts or freelance work as opposed to permanent jobs. Rough estimates puts about 35% of the U.S. Workforce as freelancers in 2019 which amounts to about one trillion in income. 33% of businesses use gig workers.

As of date, the U.S. Government does not effectively measure the Gig Economy. In 2015, the U.S. Government Accountability Office (GAO) provided a Letter on the Contingent Workforce (https://www.gao.gov/assets/670/669899.pdf). The GAO noted that the size of the contingent workforce significantly varied based on definition. There is no consensus among labor experts about whether the Gig Economy should include independent contractors, self-employment workers, or standard part-time workers. Because there is agreement that those who lack job security and those with variable or unpredictable work schedules should be included. The GAO refers to this group as “core contingent.”

Likewise, groups like Upwork, Freelancers Union and the McKinsy Global Institute Survey of Independent Workers have tried to study contingent workers and provide clear categories. The Freelancers Union segmented contingent workers (or as they called them freelancers) into five categories: Independent Contractors, Diversified Workers, Moonlighters, Freelance Business Owners, and Temporary Workers. https://www.slideshare.net/upwork/freelancing-in-america-2016/1. The McKinsey Global Institute Study segmented contingent works into four categories: Free Agents, Casual Earners, Reluctant, and Financially Strapped. https://www.mckinsey.com/featured-insights/employment-and-growth/independent-work-choice-necessity-and-the-gig-economy

What is important to note about all of the definitions is that they are largely based on how the workers view themselves versus how the employer sees them. This is important to understanding how many contingent workers really make up the Gig Economy and how stable it truly is. Are those that are described as Reluctant and Financially Strapped by The McKinsey Global Institute, really a part of the Gig Economy? More importantly, how do you determine the ebbs and flows of the Gig Economy and how stable it truly is?

For stability, it is important to understand how major corporations intend to use contingent workers. A study by Ernst & Young (now known as EY) found that by 2020 25% of the organization expected to use 30% or more contingent workers. Of those studied, 62% say that contingent workers are used to avoid labor costs. https://gigeconomy.ey.com/Impact/Attitudes

This is important because in any capitalistic society, supply and demand is key. In the future, will there be more contingent workers than there are contingent jobs? Or will there be more contingent jobs than contingent workers? Right now, they both seem to be on pace. However, with the swift changes in technology and the need for human workers shifting, it remains to be seen how workers will be utilized in the future. For now, it seems, workers and companies alike are enjoying the benefits of the Gig Economy.

As with most things, Millennials are being blamed (or praised) for this shift in the employment landscape. Preferring flexibility and freedom over stability, Millennials have led the charge of spreading their talents around. The problem is the lack of benefits that come along with the change in the employment landscape. As stated earlier, employers enjoy using contingent workers because of less cost. However, that same study showed that these same employers expect new regulations that will eventually be implemented.

Matthew Taylor, a former advisor to Tony Blair issued The Taylor Review. This review introduced the idea of a “Dependent Contractor.” Mr. Taylor defined this person as someone “who is not an employee, but neither were they genuinely self-employed.” Dependent Contractors should be entitled to benefits and guaranteed minimum hours. This argument is propelled by the likes of companies such as Uber, a company that touts itself as a “gig” but more and more see as an employer.

The tug of war between freedom and security will be one to watch. As businesses large and small are opting for contingent workers to reduce costs, they may find themselves well paid but under served. Larger businesses with the capacity to pay more will find they will have their picking (as usual) for top talent. Ultimately leaving small businesses searching for any help they can get.

The good news is that what contingent workers want, small businesses can give them. A survey of LinkedIn users found that 59% of contingent workers want a better work/life balance. 44% want a culture that fits their personality and 40% want the ability to make an impact. Those statistics show that small businesses can still be competitive even if they do not offer the pay and benefits that major corporations do.

It is important that small business owners stay competitive in those areas and consider how they can become more desirable for contingent workers. This is important because according to the LinkedIn survey https://business.linkedin.com/talent-solutions/blog/trends-and-research/2017/11-stats-that-you-should-know-if-you-are-recruiting-contractors, 70% of contingent workers who switched jobs also moved to a different industry. This means that contingent works find their skills transferable and are willing to move if they find the work more challenging and interesting.

It should not be overlooked that a significant number of workers value work/life balance. This balance equals freedom and isn’t that why many people start their own businesses in the first place? This means that small business owners do not have to stick to traditional type benefits or pay scales. They can work with clients or projects, in any manner that will benefit their business. It is important not to create the type of environment that people want to flee from.

That is why it is so important to prepare for the changes in the workforce. When planning for expansion, the job descriptions need to be very clear. While drafting the job descriptions, it should be determined what work can be done remotely and what work is required to be in the office. In addition, what work can be easily transferable between people and what jobs can be considered “projects.”

Small business owners should worry less about loyalty and more about how they can ensure that certain projects can be accomplished. Successfully managing the changes in workers will be the difference in a small business’ ability to scale. This lack of stability in workers will mean that small business owners will have to be more focused on the management of the business. Ultimately, this means less control over the details. But that is what is needed to grow a business anyway.