Gig Economy

Updated on January 29, 2024
Article byJyotsna Suthar
Reviewed byDheeraj Vaidya, CFA, FRM

Gig Economy Meaning

A gig economy is an economy with a temporary, flexible exchange of labor via online platforms that clients or companies tend to hire. Its primary goal is to provide quality services at a cheaper and sustainable rate. Hence, it is also known as the platform economy.

Gig Economy

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It is essential to the business’ foreign operations. In addition to freelancers and independent workers, part-timers and contract workers get included in this category instead of full-time employees. These jobs offer flexibility, lower hiring costs, independent freelancing jobs, etc. However, it has also endangered the jobs of traditional workers. 

Key Takeaways

  • The gig economy is a system where people go for freelancing, temporary contractual jobs instead of full-time. It enables the flexible exchange of labor at a cheaper rate.
  • Freelancers and workers use gig economy platforms like Fiverr, Upwork, Uber, Lyft, and Amazon flex.
  • Various benefits to this kind of economy include independent flexibility, cheap availability of labor, higher productivity, etc. However, the excess workload can cause stress to the gig workers.
  • It erodes the foundation of the traditional economy consisting of full-time workers. Employers provide no additional extra benefits to the gig workers. They have to pay their taxes and expenses independently.

Gig Economy Explained

The gig economy allows companies to hire freelancers and independent workers at a cheaper rate. In this way, the employer gets resources at a lower cost, and workers get to follow their career paths. Various key drivers, such as flexible working, changing work styles, and varied fee models, boosted the freelance economy in the 21st century. 

The word “gig” refers to a temporary nature of business used by musicians and artists. However, in the later stages, businesses and organizations added various definitions. However, people are unaware of this concept, although it has prevailed for many years. 

Many businesses lost operations during the global recession in 2007-2008. It led to an alteration of the nature of business. The young generation started working as freelancers on a contract basis to survive the crisis. In 2017, almost 55 million Americans became part of the gig economy. Later, companies like Uber, Flipkey, Airbnb, and Amazon flex started hiring gig economy workers through online gig platforms. 

However, the instant boost was during the global COVID-19 pandemic in 2020, which led the gig workforce to surge. According to a CNBC report, in February 2020, the number of gig economy workers increased by 15% (i.e., 6 million more people) to the gig economy. The gig economy jobs include carpooling, labor and delivery services, and freelancing. 

While there are various gig economy jobs, the working structure remains the same. They work on a contractual or freelancing basis to render their services. In return, the clients pay them. For example, a person works as a driver with a ride-sharing company, Uber. First, he gets a cab ride and earns money for it. Then, he moves to the next ride, and this process continues till the time he wants to work with Uber.

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Let us look at some freelance economy examples to understand the concept and its global effects. 

Example #1

Suppose Eliza and John are siblings living in Texas. The former works in a well-known company, whereas the latter is a graduate student. Suddenly, there was a breakout of the COVID-19 virus in the state. During the lockdown, many companies fired their employees to cut costs. As a result, Eliza lost her job.

John started looking for jobs through gig economy apps like Fiverr and Upwork. Soon after he posted his profile, he got hired as a freelancer by a well-known company. Later, Eliza also started working on a contractual basis for clients with the help of online platforms. 

Example #2

The 2022-Inflation has caused many workers to shift to gig economy platforms for jobs. Pew Research Center’s 2021 survey states that 16% of Americans installed gig economy apps to take up some gig work. So, 7% of the population took gig work as their full-time job. As a result of inflation, people are shifting towards gig economy jobs. As per PYMENTS, 40% of the American workforce makes 40% of their income from gig work.

Pros and Cons

In the United States of America, about one-third of the working population is engaged in this economy. Experts believe that the working numbers will rise, and the U.S. is on its way to establishing a gig economy. The gig economy is different from the traditional economy.

The freelance economy has certain pros and cons associated with it. First, it provides work flexibility to the workers working in remote areas. That means as the workers often work on an independent, part-time contract basis, they also work from home. Also, these workers get the freedom to either take up part-time or temporary work.

There is no compulsion to continue working with the same worker or company. Even an individual’s approach towards work has changed as they want to work on their terms and flexibility. Due to this approach, startups have a way to emerge in the global market. 

Businesses and consumers benefit, too, as this economy includes a wide variety of positions. So, work becomes more adaptable to the moment’s needs and flexible lifestyle demands. For the employer, it is the cheapest mode of resource acquisition. They can get cheap and efficient labor. The gig workers get an opportunity to follow their career path, and for that, they get paid well enough. However, there are downsides to this concept. 

Although the gig workers have work flexibility, an extra stress load gets added. Also, these workers avail no benefits usually given to full-time employees. Like full-time workers have job security, gig workers lack it as they have inconsistent income. In all this, isolation might trigger the worker. Also, people who cannot access or use the internet may be left behind. 

More work flexibilityInconsistent income
IndependenceNo Benefits
Affordable LaborWorkload stress
Specific SkillsTaxes and Expenses
Good paymentIsolation
Higher productivityInadoptability
Effective Services 

Frequently Asked Questions (FAQs)

1. How big is the gig economy?

According to a Statista report, the global gig economy shall grow to $455.2 million by the end of 2023. While in 2018, the market size of the economy was $204 million. 

2. When did the gig economy start?

The freelance economy started in the 18th century when some jazz musicians used the word “gig” in 1915. Then, in 1940, the first temp agency provided temporary jobs to workers. By the late 90s, Upwork started, and almost 10% of the American workforce was a part of this economy. But the concept got popularized after the global recession in 2008 and the Covid-19 pandemic in 2020. 

3. How the gig economy is changing the workforce?

The platform economy has allowed the employees to decide the nature of work. They can choose between freelancing and part-time work. According to a study by Mckinsey, 20-30% of the total population of the United States comprises the gig workforce.

4.  How the gig economy is changing the workforce?

It can be the biggest economy since workers are more independent and flexible. In addition, the global pandemic of 2020 gave another reason to the employees to go for gig work as they could work remotely. 

This article is a guide to Gig Economy and its definition. Here, we explain its pros and cons with examples. You can also go through our recommended articles on finance –

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