Gig Economy – Shaping the Future of Work
What is Gig Economy?
Gig economy can be defined as a work engagement where on one side, there is a service seeker i.e. a consumer with a demand for a specific task, and on the other side, there is a service provider i.e. a gig worker who can perform that specific task. In this economy, tech-enabled platforms connect the consumer to the gig worker to hire services on a short-term basis. Gig workers include self-employed, freelancers, independent contributors and part-time workers. This project-based gig economy allows the service adopter to cut overhead costs, and the gig worker to get paid for a specific task performed instead of receiving a fixed salary. Thus, a shift from a full time 9-to-5 job to an on-demand, freelance and task-based economy can be termed as gig economy.
Trends in Gig Economy
The digital gig economy generated a gross volume of approximately $204 bn from worldwide customers in 2018. Transportation-based services contributed to over 50% of this value. The size of the gig economy is projected to grow by a 17% CAGR and generate a gross volume of ~$455 bn by 2023. India has emerged as the 5th largest country for flexi-staffing after US, China, Brazil and Japan. Haryana, Madhya Pradesh, Andhra Pradesh, Gujarat and Telangana have most opportunities in terms of growth for the flexi-workers. Digital platforms have emerged as enablers for employment creation with the power to easily discover job seekers and job providers in the absence of middlemen. The McKinsey Global Institute mentions that digital platforms for labour could increase US GDP by 2.3% as well as its full-time equivalent employment by 2.7% by 2025. Due to the rapid developments in technology, the transaction cost for outsourcing non-core activities is reducing and facilitating an increase in the number of tasks which can be performed by each worker. Thus, firms are shrinking in size and we are witnessing a rise in start-ups which are outsourcing many activities to expert service providers on a contractual basis. While the gig economy is popular amongst the blue-collar workers in India – Uber/Ola drivers, there is now huge potential for the white-collar workers as well, due to increasing demand in industries – project-specific consultants, logo/content design, web design etc. (For example– Tapchief in India). The gig economy is expanding from less skilled services (For example– domestic chores at BookMyChotu in India, TaskRabbit in US) to more skilled jobs (For example– Guru in India, Upwork in US).
Evolving Workforce Culture
An inclination towards flexible work is being driven by factors such as freedom, technology upgradation, skill focus, additional income and human capital. Gig economy allows task ownership, convenience and flexibility. Based on tastes and preferences, you can determine the number and type of projects you work on, the quantum of your earnings, and thus, the work-life balance. For example– you may want to take up five projects in one month to maximize earnings but only three in another month. Similarly, you have the freedom to not offer your services for a task if you don’t believe in the underlying cause of the task– a flexibility you don’t have in a traditional job. An increase in the adoption of smartphones and the rate of digitization is enabling gig freelancers to offer various professional services through tech-based platforms. Gig workers can sign up for tasks in which they are more skilled. For example– performing interior decoration on a freelance basis for multiple consumers instead of undertaking a full-time interior designing job at a corporate. With the rising costs and large masses seeking employment, a gig economy opens doors to earning additional income through gig work. A rise in the education level and tech-literacy level is further empowering this economy of the future.
Consumers for On-Demand Services
Service seekers are moving towards a gig economy for reasons such as cost-cutting and skilled workforce. Corporates find it cheaper to employ freelancers to perform specific tasks by avoiding the traditional administrative and compliance costs associated with regular employees. With an increase in the on-demand services for specific tasks as per business needs, it is now flexible and affordable to hire people skilled in such services. For example– a company can hire a freelance branding consultant to rebrand the company as a one-time activity instead of having a permanent PR team.
Thus, a gig economy offers a symbiotic relationship where both the service seeker and the service provider have equal freedom to look for options that cater to their specific needs.
Regional Differences in Gig Economy – United States vs India
Developed countries such as the United States are early adopters of the gig economy due to higher rates of digitization, economic development and disposable income. These factors are also responsible for leading global companies being founded in the US such as Uber, Airbnb, and Upwork. Thus, the US is currently a leader in the global gig economy. On the other hand, developing countries such as India represent a great potential as an adopter of the gig economy due to the expanding supply of freelancers and lower-skilled labour.
With technology penetration and the improvement in human capital, emerging economies like India will grow in the global gig economy at an accelerating rate. With the US being a more advanced economy, India can study the trends in the US gig economy to promote the potential of gig tasks in India. For example– for Uber and Airbnb in the US, there are Ola and OYO in India respectively.
The gig economy in the US is being shaped by a shift in the attitude of works towards a need for higher work independence. Whereas in India, the large number of workers seeking opportunities to employ their talent/ skills is empowering the gig economy– India ranks 7th in the talent pool of graduates in science and engineering. Further, India is witnessing a rise in the need for supplemental income due to high unemployment amongst the urban youth, increasing cost of living, growing aspirations of students and changing mindsets of women engaged in homemaking. This is exhibited by the existence and growth of gig platforms such as Frapp, Internshala and Awign.
Total Addressable Market in India
The gig economy has a huge potential and following are certain calculations made to estimate the market size for the same in India– total population in India is 1,332 million and the working-age group is between 15 and 65 years. The working age population (66.8%) is 890 million and the labour force participation rate (51.8%) is 461 million. Labour force participation rate is the number of workers employed or seeking employment as a percentage of the working age population.
Since, currently in India, very few people in the rural areas are comfortable in using digital platforms to identify employment opportunities, here only the urban labour force has been considered in estimating the addressable market for the gig economy in India. The urban population of the country (30%) is 138 million. Considering that the gig economy enables trading of services, the share of services sector in the urban labour force is 25% and the total workers in the services sector in urban areas is 35 million. Out of which, the contingent worker population is estimated to be 20%, which means 6.9 million. Now, dividing the contingent workers into different income groups– low, middle and high, and taking into consideration different wage levels per annum, gross value of the market can be estimated at $34 bn approximately. To determine the portion of this market which can be considered as the gig market size, we capture the gross value based on the e-commerce readiness index (10%) . This takes into consideration digital penetration and income levels. Thus, the total addressable market is worth $3.4 bn.
Emerging Business Models
The gig economy can be divided into different segments/ models, as follows–
- Digital Marketplaces sign up demand-driven service providers skilled in niche areas such as beauty, fitness, plumbing, electrical repairs, etc. and offers these services to consumers on a contractual basis as per requirements. This business model allows for the service providers to communicate with the end users directly through the app according to their terms and conditions. It also offers additional support services. Thus, to hire someone for a service, the consumer can simply use a tech-based platform (app). With the platform as an intermediary between the two parties, there is an assurance of receiving the service based on the specifications provided. The platform also offers other value-added services such as customer care, after sale services and service guarantee. However, there is a risk of retention of the service providers and quality assurance. For example– UrbanClap, Care.com, HouseJoy, Helpr.
- Service Listing Platform offers a platform to list the demand for various professional services which can then be matched with the services being offered. Essentially, it is a platform convening the demand and supply of services in a gig economy. There are developed terms and conditions to enable fair use of the platform, but no additional support services are provided by the platform (such as– service guarantee, after sales services etc). The platform allows trading of a wide variety of mainstream as well as niche skills in the absence of intermediaries. There is a risk of low-quality assurance due to lesser service obligations and less stringent verification standards. For instance– Guru, Truelancer, Elance, Awign and 99 designs.
- Asset/ Service Sharing is an asset sharing business model that engages gig workers to offer specific services such as transportation, accommodation and delivery. It builds a shared economy for assets and services. It allows for low-cost asset sharing instead of asset ownership. This improves the standard of living considering the affordability quotient. However, there is a risk of disloyalty among users and gig workers. For example– an Uber driver will feel dissatisfied if he/she is not getting enough rides or rewards to obtain a reasonable income and may switch to Ola in the hope of better services. Other risks include quality assurance due to masses.
While the gig economy offers flexibility and control over one’s work schedules, clients and projects, it has certain risks and uncertainties associated with it. There is an uncertainty about job security. In the short run, the income earned by the gig workers is unpredictable since the focus is on on-demand projects. In the long run, in traditional jobs, the employers contribute towards employee benefits such as EPF, health insurance, medical insurance, pension and paid leaves, which secure employees from contingent situations such as retirement, disability, illness, old age etc. Jobs in the gig economy have no such safeguards. There is a risk of gig worker retention. As digital gig platforms enable independent workers to perform tasks on a temporary basis, gig workers may attach a certain degree of casualisation in their work due to the absence of traditional employer-employee relations. This could lead to a lack of sustainable operations especially with an increase in competition and availability of multiple opportunities. Thus, there is a need to strike a balance between flexibility and security. One solution could be a push from the government to offer certain employee rights to the gig workers which secures them about their future. Another could be to promote platforms which are in the business of offering such benefits to gig/ contingent workers. For example– MBO Partners in Silicon Valley.
The gig economy has a disruptive model to connect sellers and buyers for almost all kinds of skills and services. While the size of the gig economy may seem marginal when compared to the traditional economy, it is recognized for its enormous potential with the desire of workers, specially millennials to have a flexible work schedule and the rise in the on-demand consumer services. In India, almost 70% corporates have already used gig workers for at least one task in 2018. However, due to the inherent lack of stability in this open work environment, people need to constantly update their knowledge and skillset to remain relevant in their businesses. With the developments in technology and the emergence of artificial intelligence in work environments, the gig work models will continue to adapt, innovate and expand beyond asset sharing, service sharing, digital listing, and managed marketplaces and will become a significant component of the future of work.