What Is the Gig Economy, and Are There Any Benefits?

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30th Apr 2020 Business Question Reference this

Tags: EconomicsQuestionsGig Economy

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What is the gig economy?

According to a report conducted by the Department for Business, Energy and Industrial Strategy, the gig economy '...involves the exchange of labour for money between individuals or companies via digital platforms that actively facilitate matching between providers and customers, on a short-term and payment by task basis'.

Put simply, workers in the gig economy get paid for the 'gigs' they do such as food delivery or taxi services.

The report estimates that 2.8 million people have worked in the gig economy in the last 12 months in Great Britain.

What are the benefits of the gig economy?

  • Flexibility: workers in the gig economy can choose the amount of 'work' hours, enabling them to prioritise other commitments. The classic example would be a student working for Deliveroo who has to stop working due to exams.
  • Profitability for businesses: by outsourcing workers, companies can see an overall growth of profitability as there will be no need to contribute to employment benefits or extra costs of keeping staff in the office. Furthermore, outsourcing secretaries or paralegals can enable employees to work much more efficiently.
  • Parliamentary scrutiny: the Work and Pensions Committee are launching an inquiry into the gig economy to see how the Government can ensure workers are entitled to legal employment rights.

What are the consequences of the gig economy?

  • Job insecurity: hours are not guaranteed and are purely based on employer demand. Furthermore, workers who do not have a fixed contract will not receive the same benefits as employees including sick pay, holiday pay, or a contribution to their pension pot. Jeremy Corbyn, the leader of the Labour Party, defines the gig economy as a '...more rapacious and exploitative form of capitalism'.
  • National Insurance: as well as not receiving employee benefits, employers do not need to pay employer national insurance contributions. The Office for Budget Responsibility estimated that this will cost the Treasury £3.5bn in 2020-21.
  • Poor wages: individuals working in the gig economy are not compensated for their overhead costs. For an Uber driver these include car insurance, fuel, car rental, maintenance etc.
  • Frustration among workers: levels of discontent in the gig economy has lead to Uber drivers striking in London over pay and conditions. This can have adverse effects on employers in the gig economy as workers may take legal action, as we have seen with Uber, CitySprint and eCourier.

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