The gig economy, a labor market characterized by the prevalence of short-term contracts or freelance work, has been around long before the advent of the internet. Traditional forms of self-employment, such as plumbing, and ad-hoc services were advertised in the Yellow Pages and newspaper classified ads. The advent of low-cost broadband internet led to the rise of computer-based gig platforms like Mechanical Turk, Fiverr, and Elance. However, the real game-changer was the proliferation of smartphones, which transformed every location into a potential office and every task into a potential gig.
The Birth of the Gig Economy
The gig economy was born out of a combination of technological advancement and the financial anxiety caused by the 2008 recession. People needed money and had little choice but to take whatever work was available. This was also the era when the term “the sharing economy” became popular. It was touted as an antidote to overconsumption, but it also led to the commoditization of any skill or asset. Among the companies that capitalized on this climate, none went further or held on harder than Uber.
Uber’s Impact on the Gig Economy
Uber became infamous for its aggressive entry into new markets without regulatory approval. It used its venture capital reserves to subsidize its rides, undercutting the traditional cab industry. Once it established a dominant position, it increased prices and tried to minimize driver pay. It also aggressively recruited drivers with signup bonuses, promising them the freedom of being their own boss.
However, Uber’s model effectively turned a traditionally employee-based industry into one that was contractor-based. This had a significant impact on taxi medallions, licenses that cab drivers saw as retirement plans. The influx of ride-sharing services led to a significant drop in the value of these medallions, leaving many struggling to pay off the loans they took out to buy them.
The Struggle for Employee Recognition
Over the years, compensation for app drivers also dwindled. Many drivers sought recognition as employees rather than contractors, so they could have a consistent hourly wage, overtime pay, and benefits. However, companies like Uber and Lyft have been fighting against this. The Department of Labor and the EU have issued rules and deals aimed at making it more difficult for gig economy companies to classify workers as independent contractors rather than employees.
The Future of the Gig Economy
Uber’s initial plan was to eliminate labor costs by replacing drivers with self-driving vehicles and flying taxis. However, this plan did not materialize as intended. The company sold its self-driving car and flying taxi units in late 2020. Despite this, Uber’s business model has influenced many startups, leading to the rise of companies like Airbnb. However, these companies have also faced their own set of challenges, including legal issues and negative impacts on housing affordability.
The gig economy has transformed the labor market, with goods and services being exchanged by third parties facilitated by semi-automated platforms. While these platforms offer workers a degree of choice and control, they also allow companies to avoid legal liability and labor laws. As these platforms become more prevalent, customers with fewer alternatives find themselves at the mercy of these once-cheap platforms that are now increasing their prices. Regulators need to ensure that the costs of this transformation are not borne solely by the workers and customers.
