Forget the “gig economy” — at least for now.
On Labor Day 2016, we are in the midst of a historic transformation of the U.S. job market. Popular attention focuses on Uber and similar Internet-based networks that unite buyers and sellers. TaskRabbit, for example, creates a platform for people who need something done (grocery shopping, plumbing) and for those willing, for a price, to do it. The free market at its best, say advocates. Not so, say critics. This creates rampant income and job insecurity.
Either way, the gig economy is overrated. It’s not the main engine of change. It accounts for only about 0.5 percent of employment, according to a new study by economists Lawrence Katz of Harvard University and Alan Krueger of Princeton University. That’s one half of 1 percent of all jobs or roughly 750,000 out of 150 million. The much larger change, the study found, lies in the replacement of traditional wage and salary jobs with what Krueger and Katz blandly call “alternative work arrangements.”
In 2015, these unconventional jobs represented 15.8 percent of the U.S. total. That’s almost 1 in 6. What’s more, these alternative work arrangements are growing rapidly; in 2005, they were only 10.7 percent of all jobs. Some industries have long relied on subcontracting (construction, trucking) or temporary work (retailing) instead of traditional employment. But now these job-types are spreading into health care and computer science. They vastly outnumber “gig” jobs by more than 30-1. (Gig jobs were defined as relying on the Internet to match buyers and sellers of services; non-gig jobs use conventional methods.)
The alternative work arrangements fall into four categories: (1) independent contractors and freelancers, usually self-employed, from writers to software engineers; (2) on-call workers who have designated times when they may (or may not) be summoned to the job — a practice common in fast food; (3) workers from temporary work agencies; (4) workers provided by contract firms — cafeteria and security services being examples.
What to make of this?
To some extent, these jobs reflect the United States’ vaunted flexibility. Some help older workers prepare for retirement — or to work after they’ve “retired.” Nearly one-quarter of workers ages 55 to 74 “were employed in an alternative work arrangement,” report Katz and Krueger. Some families will find it easier to balance work and family; women fill more than half of the alternative jobs. Meanwhile, companies presumably save money by better tailoring their workforces to business needs. This makes them more efficient, profitable and competitive.
But if taken too far — and no one knows where the dividing line is — the proliferation of alternative work arrangements threatens to split the labor market undesirably between “insiders” and “outsiders.” The insiders have reasonably stable career jobs with generous fringe benefits; the outsiders live more precariously with periodic work and skimpy or nonexistent benefits. Their insecurity spans the economic spectrum. Some contract workers (consultants, engineers) have higher incomes; on-call workers have lower.
The gig economy has been hyped. It poses as the labor market’s new reality. It isn’t. The new reality is how the old reality is being remade. We don’t really know why this happened. A plausible explanation is that the multiplication of alternative work arrangements was a consequence of the Great Recession, which created mass unemployment and shifted bargaining power to companies. People desperate for work can’t be too picky in their choices. Employers seized the opportunities to cut costs.
What’s needed is a check on potential employer abuse. The good news is that U.S. workers may be retrieving some of their lost bargaining power. The supply-and-demand dynamics for labor look more favorable. As the recovery has continued, the unemployed pool has shrunk. In August, the jobless rate was 4.9 percent, down from a peak of 10 percent. In addition, the retirement of baby boomers reinforces the competition for good workers, exerting upward pressure on wages and giving workers more choice.
Other forces push in the same direction. Immigration seems likely to abate. The huge influx of women into the paid labor market seems to have crested. All this shifts the bargaining advantage to workers. It is unlikely to be offset by the advent of more robots, another trend that has been hyped.
We are already seeing evidence of a more balanced labor market. Wage and salary increases now average about 3.5 percent annually, up from slightly more than 2 percent in late 2013, the Federal Reserve Bank of Atlanta reports. This could be prologue. On Labor Day 2016, the great hope for American workers is that we are quietly entering an era of labor scarcity.
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