What Chief Executives Need to Know About the Gig Economy
A steadily increasing number of working-age people are opting for independent work over more customary employment models. Here’s how this shift can affect companies and the economy.
Traditional descriptions of the working life are no longer quite so traditional. According to “Independent Work: Choice, Necessity, and the Gig Economy,” a report issued by McKinsey Global Institute (MGI) in October 2016, working nine-to-five for a single employer is no longer an accurate description of employment for a substantial — and growing — portion of the workforce.
Based on a survey of more than 8,000 respondents from the United States, the United Kingdom, Germany, Sweden, France and Spain, the report indicates that an estimated 162 million people in Europe and the United States (20 percent to 30 percent of the working-age population) engage in a form of independent work. The report defines “independent work” as characterized by three features: a high degree of autonomy; payment by task, assignment or sales; and a short-term relationship between the worker and the client.
The intensifying demands of corporate life, the weak economic recovery and the transformative nature of digital platforms are among the market forces that suggest that the number of independent workers will grow significantly in the coming years. As with any major population shift, the evolution of the independent workforce may hold both benefits and challenges for organizations. Here are five things CEOs should know about this expanding share of the labor market.
They are characterized more by their differences than their similarities
Independent workers differ based on whether they pursue gig work by choice or by necessity, and whether the associated earnings are their primary income or supplemental. The largest group (40 percent of the independent worker population) consists of independent workers by choice and their income is supplemental. The individuals in the smallest group (14 percent) earn their primary income from independent work, but they do so reluctantly; they would prefer a traditional job.
These are not the only areas of diversity. The MGI survey indicates that the independent workforce varies in terms of age (it is a myth that they are predominantly millennials), income level, educational attainment, gender and industry. Occupation, too, reflects diversity; independent work is prevalent in the construction trades, household/personal services and transportation, but it is also preferred by many doctors, therapists, lawyers, accountants, interior designers and writers.
They hold significant potential benefits for enterprises
This group represents a promising population in which to find new, qualified employees. In fact, about 30 percent of the survey respondents reported doing independent work out of necessity and would prefer traditional jobs if the right position at the right employer presented itself.
In addition to their status as potential permanent employees, independent workers represent a deep pool of outsourcing talent for companies. The MGI survey analyzed more than 150 occupational categories to evaluate the types of work that could most easily be performed independently and found significant opportunity for companies to leverage independent resources. This would enable organizations to scale up when needed by bringing in gig workers for specific projects, especially projects that call on skills and expertise not existing in the core staff. Startups, which are often working on a shoestring budget, can especially benefit from using independent workers to handle functions that do not need full-time attention.
They hold equally significant potential threats
It has already been noted that many independent workers want traditional jobs. That preference goes both ways: according to the MGI survey, approximately 16 percent of people in traditional jobs would like to shift to earning their primary income through independent work. In fact, for every primary-income independent worker who would prefer a traditional job, more than two traditional workers wish to shift to independent work. Ultimately, this could represent a significant talent drain for companies.
They represent a shot in the arm for the global economy
Many independent workers are in it for supplemental income or to address financial necessity. In this way, gig work provides a way to soften the blows to the economy occasioned by unemployment and underemployment. The MGI survey also posits that independent work improves labor force participation, stimulates demand and raises productivity. Consumers and organizations also benefit from the greater availability of services independent workers offer without requiring a long-term commitment.
Although they show great promise for benefit, challenges abound
The shift in the workforce may present challenges on many fronts, including within enterprises. Organizations that hire independent workers may become more agile, efficient, productive and capable, but there are trade-offs. Employees will need to take on the extra work of managing external workers and their production. Building a team that contains the perfect mix of internal and external workers can be challenging, sometimes impossible. Companies using independent workers for confidential or high-profile projects may need to entrust those individuals with confidential information, thereby taking on a risk of exposure. And, although independent workers are not staff, business leaders still have a responsibility to ensure that they are treated fairly and ethically, raising new policy and legal questions.