The gig economy is bigger than you thought. So what can you do about it?

October 19, 2016

Their ranks have grown over the years from a small minority to a sizeable crowd. Increasingly, they are critical to how work gets done. And now, we’re finding out, gig workers, freelancers and other independent talent may account for a larger portion of the global workforce than previously thought. It’s time you got to know the gig economy better.

According to a new survey and report from the McKinsey Global Institute, which contained input from Randstad, independent workers may account for as much as 30% of the working-age population in the U.S. and the EU 15 countries. That means as many as 162 million are participating in the gig economy in these markets. According to the consulting firm’s “Independent Work: Choice, Necessity, and the Gig Economy,” these numbers indicate that government estimates may have short-changed the real strength of the freelance nation.

The rise of the gig economy has posed particularly difficult challenges for human capital leaders around the globe as much of this talent is often out of the view of contingent workforce managers and is typically acquired in an ad hoc manner. Furthermore, even when they do have visibility, they often lack control over the engagement of freelancers and contractors, leading to costs and compliance issues. For MSP buyers, this requires program managers to work more closely with their service provider to develop a more comprehensive and strategic approach to managing independent talent.

McKinsey’s report found that government data show only 11% of U.S. and 14% of EU workers engage in gig employment. However, this information fails to fully capture all types of independent labor, including those who take on work as a supplement to their full-time jobs. Additionally, the app economy has given way to new categories of employment such as on-demand workers and contractors that may not be captured by government researchers. McKinsey also defines independent workers as those who sell products through online e-commerce portals such as eBay and individuals who lease assets using facilitators such as Airbnb.

Of the 162 million possible independents, the firm estimates that 30% freely choose this type of employment while 14% do so reluctantly and prefer a traditional work arrangement. The largest share (40%) of the gig economy are considered “casual earners,” those who work to supplement another income source while 16% financially have to seek an additional job. Further, based on surveys of workers and historical data, McKinsey hypothesized that in the U.S. as many as 129 million would perform some kind of independent work, while in Europe that number would increase to 138 million if workers could freely choose their employment types.

 

A clear workforce shift

McKinsey’s report isn’t the only recent survey to indicate the rise of the gig worker. The Brookings Institute has also released a report closely examining the rise of two key constituents of the app-driven U.S. economy: ride-sharing and room-sharing services. While these are only two of many industries enabled by online portals, they are strong indicators of how quickly the gig economy is rising.

Following the proliferation of services such as Uber and Lyft, employment of independent workers in the ride-sharing sector has grown 69% from 2010 to 2014, according to Brookings. The number of workers employed by firms rose only 17% in the four-year period. During the same time, growth of independents in the room-sharing sector rose 17%, compared with a 7% for payrolled employees in the same industry. This also closely tracked the success of services such as Airbnb.

These are just two examples of high-profile services. Look around, and you will see a broad offering of channels connecting independent talent with employers, including twago, Gigwalk, TaskRabbit, Upwork, Freelancer.com, Etsy, HomeAway and many more. Many of these offerings provide a whole suite of services that minimize the administrative hassles for employers and workers to connect and exchange payment for services, which further accelerates the gig economy’s expansion.

Clearly, technology is driving much of the growth in the gig economy, but at the same time more workers themselves are comfortable with freelancing, desire supplemental income or see gig work as a holdover while searching for full-time, permanent positions. A shifting attitude among talent in many markets is enabling employers to tap into an ever-increasing pool of talent — although in regions such as Asia, workers still prioritize traditional work arrangements. But even there, the gig economy is increasingly attractive to labor and employers alike.

 

Long-term implications

As the gig economy continues to expand, what will it mean for employers and workers? How will this impact their relationship as well as the one between traditional, permanent employees and their organizations? As McKinsey points out, the private sector and government regulators need to consider the positive and negative implications of this shift toward the gig economy.

One of the most meaningful results is the enablement of greater participation in the workforce. Retirees, caregivers and students who may have been locked out of traditional jobs due to schedule constraints could be some of the biggest beneficiaries from an increase in gig roles. Workers who voluntarily engage in independent employment also tend to be more engaged because they often are performing work they enjoy.

That engagement is beneficial for employers, too, because it leads to higher productivity. Furthermore, independent talent provides companies with greater flexibility, agility and cost advantages; and the deeper the talent pool, the more available the skills.

However, the gig economy is not without risks. Workers who want full-time, permanent employment may find it more difficult to come by. Companies that rely on key freelance talent may lose it more quickly if competing employers offer more lucrative compensation. Also, managing a growing freelance workforce can be challenging (learn how technology is helping to mitigate complexities). Governments also stand to lose tax revenues as a result of more workers becoming independent. While there are many winners in an expanding gig economy, not everyone will benefit.

Even so, there is no turning back the gig economy movement. Employers would do well to integrate independent talent in their overall workforce strategy, and workers must be ready to adapt to a new jobs landscape. A new day is coming to the world of work, and it’s time for all parties to embrace the changes ahead.

1 Results from UK, Germany, France, Spain, and Sweden scaled up to EU-15.

1 Results from UK, Germany, France, Spain, and Sweden scaled up to EU-15.

1 Results from UK, Germany, France, Spain, and Sweden scaled up to EU-15.

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