Are We Moving Towards a Gig-based Economy?

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Two weeks ago Hillary Clinton gave a talk in which she outlined her economic vision.

Here is one part of that speech:

“… many Americans are making extra money renting out a small room, designing websites, selling products they design themselves at home, or even driving their own car. This on-demand, or so-called gig economy is creating exciting economies and unleashing innovation. But it is also raising hard questions about work-place protections and what a good job will look like in the future.”

Hillary was talking about companies such as Airbnb, Etsy, and Uber, which have certainly been in the news quite a bit. And all that media coverage may lead one to think that there has been a dramatic shift in the nature of work as the result of such companies.

However, according to an article in yesterday’s Wall Street Journal, “Proof of a ‘Gig Economy’ Revolution Is Hard to Find”, there does not appear to be any dramatic shift in the nature of work.

Far from turning into a nation of gig workers, Americans are becoming slightly less likely to be self-employed, and less prone to hold multiple jobs. Official government data shows around 95% of those who report having jobs are accounted for on the formal payroll of U.S. employers, little changed from a decade ago.

If Uber and its ilk were fundamentally undermining the relationship workers have with employers, that shift would be showing up in at least some of the key economic indicators. Hundreds of thousands of Americans, or even a few million, may have dabbled in the gig economy, but in the context of the 157 million-strong U.S. labor force, the trend remains marginal.

“It could be companies like Lyft and Uber look terribly important by their capital market valuation, but the actual economic activity they’re responsible for might not be all that great,” said Gary Burtless, a labor market economist at the centrist Brookings Institution.

So despite the hoopla over these gig-based companies and the sharing economy, data shows that Americans are becoming less likely to be self-employed or hold multiple jobs. But regardless of what the data shows, I am sure this topic will continue to be discussed in the political arena because of the hoopla.

And given the tremendous valuations some of these firms have achieved, I am sure they will continue to receive a good deal of financial press as well. So while I certainly see such firms playing a role in our economy, I have trouble envisioning any of these firms becoming “great” firms along the lines of an IBM, Google, or Apple.

I think great firms require great employees who are committed to the vision and the culture of the firm for which they work. I also think great firms require great leaders who feel they can inspire their employees to achieve the firm’s goals. I don’t see a group of independent contractors ever having that level of commitment, nor management having much influence over such workers.

Of course, there could be exceptions, such as the success and passion of many Amway distributors (now owned by Alticor). As Jonathan Friedman, a partner at LionBird, an early-stage investing fund, perhaps these gig-based firms could learn a few things from a direct sales model.

I wrote about the Fortune 500 yesterday, and how it has changed over the past 60 years; it will be interesting to see if any of these “gig-based” firms make it on to the Fortune 500 in the next 10 years.

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Jim Borden

Accounting Prof. at Villanova; happily married for 30+ years; father of 3 outstanding young men; vegan; interests: fitness, creativity, education, blogging, social media.

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