Market Update: We break down the business implications, market impact, and expert insights related to Market Update: The gig economy: Past, present, and future – Full Analysis.
It’s been 15 years since the term “gig economy” was coined by then editor of the New Yorker, Tina Brown, to describe a new style of flexible workforce behavior – taking on short-term or casual roles as contractors and freelancers.
At the time, the world was in the midst of the 2009 financial crisis, which caused a global recession and put immense pressure on leading economies. Redundancies from full-time roles soared, leaving many former employees looking for new ways to make a living.
Interestingly, some people date the term “gig economy” to the 1910s when it was used by jazz musicians to explain how they moved from job to job. But since Brown’s usage, the term has evolved to cover everything from food deliveries and store shifts to IT support and creative skills.
One major industry change ushered in by the gig economy was the emergence of door-to-door travel, especially in big cities, with the likes of Uber and Lyft redefining the industry practically overnight. Daniil Petin, vice president of mobility at ridesharing and urban services platform inDrive, which now operates across 46 countries, praises the concept for bringing new freedoms and choices to so many everyday people.
“The gig economy has provided new and flexible work opportunities to those who previously struggled to find and hold down a traditional ‘9 to 5’ job due to their personal circumstances or location,” says Petin.
“By giving flexible options, it has brought many people into the formal economy, who might have been previously excluded. This influx of new workers has also indirectly supported innovation across many industries.”
Incoming growth worldwide
Even now, the gig economy continues to expand at pace. Tracy Stanton, senior vice president of client services EMEA at integrated workforce platform Magnit, believes this should come as no surprise given the turbulent times we currently live in.
“As the global economic outlook continues to look shaky, the use of contingent workers could be on the cusp of significant growth,” explains Stanton.
“Businesses are having to find a delicate balance between keeping costs under control, while focusing on long-term growth. As a result, two-thirds (65%) of businesses are set to increase their use of contingent workers to compete.”
According to Stanton, the UK’s IT and technology sectors are seeing a surge in demand for professionals with skills in AI and machine learning (ML). This aligns with the government’s ambition to position the nation as a global leader in AI’s potential.
“The ongoing talent shortage seen across industries has given workers new career advantages and flexibility,” Stanton adds.
“Rather than just being job seekers, they’re job choosers, with more control over their career paths than ever before. The sought-after skills of software sales, cloud services, and managed security reflect companies’ strategic priorities in navigating today’s technology-centric marketplace.”
Some of these vacancies could be filled by tapping into markets across Europe. For example, Magnit’s own research shows Poland has an excess supply of more than 60,000 IT workers who could be hired to work remotely.
Magnit’s figures chime with what they are seeing at Harnham Group, the global leader in data and AI recruitment.
“This is having critical repercussions on the lives of many self-employed workers, causing them to face high levels of financial exclusion and being denied financial products despite having the necessary levels of affordability.”
Ali Hamriti, co-founder of Rollee
Five benefits of the gig economy
- Agility – Businesses can size teams up and down quickly
- Creativity – People can try new things and show off wider talents
- Flexibility – Workers can choose when and where they work
- Productivity – The more time workers put in, the more they can earn
- Stability – Freelancers can plan their life around work commitments
Kirsty Garshong, its UK contract director, says: “We’ve experienced a surge in demand for contractors over the last two years, with an approximate 50% increase in contract roles year-on-year; 12% of UK data teams are now contractors.
“This is largely due to businesses facing stretched budgets, but also because of a shift towards hiring for project-based work as AI projects proliferate.”
Finding the right fit
Garshong admits using contractors is not appropriate for all tech positions. “In a project such as building a data platform,” she adds, “it can take several months just to understand the inner workings of a business and to complete all of the scoping work required to begin data processes. Therefore, a short contract hire will be unlikely to be able to deliver the outcomes needed in that timeframe.”
There’s also the sticky issue of IR35 in the UK, which requires gig workers to prove they are not simply acting like normal full-time employees. But Harnham Group’s own survey of 3,500 data professionals globally revealed that 67% of UK respondents were contracted outside of IR35, up from 42% in 2023.
“Hiring someone on a short-term basis means that businesses do not have to budget for all of the costs that come with a permanent employee, such as benefits,” Garshong explains.
“If a company only has £60K available and there are 20 working days in a month, over a six-month period they would be able to hire someone at £500 per day and couldwork exactly to that budget without exceeding it.”
The gig economy also allows leaders to take on workers in a ‘try before you buy’ scenario, she says, especially important when many specific roles in AI are not cheap to hire.
“Due to the time-limited nature of contract work, individuals must feel confident in joining new teams, asking plenty of questions, and hitting the ground running,” advises Garshong.
“They must liaise across numerous teams in order to get to the root of any issues and identify where support is most needed. It can be challenging to build rapport with colleagues quickly, but doing so is critical in gaining the trust of team members and boosting workplace morale.”
“There are many reasons why people choose gig economy work. However, a failure of the business model that remains prevalent is workers getting paid the right amount, and on time. Not doing so is a huge risk to the business model and puts retention of those workers in jeopardy.”
Darren Upson, vice president of global demand generation at Tipalti
Five problems facing the gig economy
- Benefits – Workers are unlikely to receive sick pay, holiday pay, or other additional cover
- Deliverables – Many people are only paid based on how much they achieve
- Downtime – Workers face unpaid time off when the jobs aren’t there
- Pricing – Some industries are seeing a race to the bottom on rates
- Protections – Fewer rights are on offer compared to full-time employees
Financing the future
Despite the celebrated flexibility, the gig economy has also been mired in controversy. Concerns over low pay and poor conditions, plus a lack of transparency and oversight, have been raised, while governments have faced issues collecting the right amount of tax from both workers and companies.
To make matters worse, a majority of gig economy workers report having issues accessing financial services, simply due to the nature of their work.
Recent research has found that financial institutions often lack access to the right data to ensure gig workers in the UK can utilize a wide variety of products, such as mortgages and loans.
The study by fintech startup Rollee found that two-thirds of gig workers (66%) had been denied a loan despite knowing they had a good credit score. It also found that 34% of financial institutions are more likely to approve an application from a PAYE worker compared to gig worker counterparts because they have greater transparency of their income and employment data.
Overall, 70% of UK gig economy workers struggled to get approved access to financial products in 2023, an improvement of just six percentage points over 2022 figures.
“This is having critical repercussions on the lives of many self-employed workers, causing them to face high levels of financial exclusion and being denied financial products despite having the necessary levels of affordability,” warns Ali Hamriti, co-founder of Rollee.
Darren Upson is vice president of global demand generation at Tipalti, which works with companies like Amazon, Twitch, Spotify, and Duolingo to help finance teams streamline payments to contractors, freelancers, and self-employed creators.
He agrees there is a problem and says: “There are many reasons why people choose gig economy work. However, a failure of the business model that remains prevalent is workers getting paid the right amount, and on time. Not doing so is a huge risk to the business model and puts retention of those workers in jeopardy.”
Upson argues this leads to poor payee satisfaction and the risk of workers moving to a competitor.
He adds: “The complexity associated with paying workers different amounts every month, based on the amount of work completed, is often where we businesses stumble – with late payments and errors being common when finance teams are processing manually at scale.”
“The future of the gig economy hangs on businesses making it a reliable money-earner for workers,” adds Upson. “Until we see more adoption of payment automation, wage woes will continue, and businesses will begin to see a smaller pool of gig workers.”