True Lies about the Gig Economy, Part One

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I’ve been writing and speaking about the Gig Economy for over a decade,, and I’ve read hundreds of articles, studies and stories about how it’s evolving. I’m also part of the Gig Economy myself, holding down several paid gigs that diversified my income when I had a full time job, and now have become my income since I left full time work in 2020. It’s been fascinating to watch the reaction to the rise of the gig worker; half of observers are working on solutions, resources, and products to help these workers manage their careers and thrive within the lifestyle. The other half are working diligently (we’re looking at you, California and New York) to destroy the Gig Economy and preserve the status quo.

Those who want to kill the Gig Economy are promoting ideas about the plight of gig workers that support their case. I’m not so sure they’re seeing – or telling – things clearly. Here’s my take (part one, anyway) on what they’re saying.

True Lie Number 1: Gig workers are being exploited. Gig work platforms like Uber, Lyft, Shipt, and Grub Hub are designed to commoditize and provide low cost options for services most consumers just don’t want to take time to do themselves. For some of us, transportation on demand, personal shopping, and food delivery services are conveniences. But for populations who are isolated and need these services to improve their quality of life (someone with a physical disability or other condition that makes leaving home difficult, for example), they’re lifesavers. During the pandemic lockdowns, they were literally lifesavers. Either way, keeping the cost of these services down is the only way to make the business model work.

The workers who make these on-demand platforms viable do not make a lot of money, as many observers (and not coincidentally, competitors) point out. Industries that are threatened by these new companies are howling about exploitation as their business models become obsolete or are priced out of the market. Systems rigged to favor the old model, like the taxi medallion system in New York City, are pulling in markers with political allies to kill competition, ostensibly to protect these gig workers from being exploited.

In this way, the movement to “help” the gig worker is much like the movement to raise the minimum wage. Activists claim that anything less than a “living wage” of $15 an hour makes it impossible for workers to survive, and impossible for someone to support a family.

Here’s the truth: the minimum wage was never intended to be a living wage. It’s intended as a learning wage, compensation for workers whose skill and productivity is also minimal. Studies have shown that raising the minimum wage results in lower earnings for low-skill workers. Employers forced to pay higher wages will choose to hire people with higher skills (just as you would choose a higher quality product if the lower quality product costs the same.)  Or they simply choose to cut hours or cut jobs to cut labor costs, so worker earn less and customers get less or poorer quality service.

Here’s another truth: the number of workers who earn minimum wage is a tiny percentage of the population. The Bureau of Labor Statistics reports that the percentage of hourly paid workers earning the prevailing federal minimum wage or less declined fin 2020 was 1.5 percent. Even in policy makers mean well, they’re basing policy on ancient history. The highest percentage of workers earning minimum wage peaked in 1979 at 13. 4 percent. That was the year data were first collected on a regular basis.

And in a thriving and competitive labor market like the one we’re experiencing now, most companies are starting entry-level workers well above their state’s minimum wage – and paying hiring bonuses as well. They have to, to attract and retain talent.

Economists know that the vast majority of workers who earn minimum wage are young – primarily teenagers at the start of their working lives. Again, from the BLS report: Although workers under age 25 represented only about one-fifth of hourly paid workers, they made up about half of those paid the federal minimum wage or less. Among employed teenagers (ages 16 to 19) paid by the hour, about 8 percent earned the minimum wage or less, compared with about 1 percent of workers age 25 and older. No one is intended to subsist on minimum wage for a lifetime – or even for more than a few months. Although employers sometimes start entry level workers at minimum wage, they raise pay regularly after the employee starts to improve productivity and become more valuable to the business.

Back to gig workers: the majority of gig workers in the low paying on-demand sector are not relying on their earnings as their primary income. Most, like many minimum wage workers, are using these gigs to bring in extra income. Sure, some of them need the extra money to make ends meet, but many are using the money to improve their lives, saving up for things that matter, like education, buying a home or a better car, or paying off debt. They’re also, like some of my extended family, using the money to pay for big family vacations or other luxuries they wouldn’t have the opportunity for on their regular income.

Those who do rely on on-demand work as a primary source of income value the flexibility. Many of them have constraints in their lives that would prevent them from holding down a traditional day job. They’re caring for family members, working around a spouse or partner’s irregular or unpredictable schedule, or dealing with a personal issue that makes it hard for them to predict when they’ll be able to work. They know that the lower wages they earn are a tradeoff for the flexibility and control they have over their own schedule.

Health coverage and paid time off are not available to gig workers, but that’s something the Affordable Health Act and private insurance companies are working to solve. Young workers generally don’t buy (or need) insurance as much as older workers, and gig workers who are supplementing their incomes often have coverage through a partner or primary employment.

A recent report by embroker.com says that 33 percent of workers would choose to work gigs because they value the flexibility; another 14 percent would use the work to ease them through a career transition. Gig work is not a life sentence; it’s a choice people can opt into and out of as their lives and earning needs change. Let’s not kill off that option based on a misguided (and paternalistic) instinct to protect workers from their own choices.