No one knows how many people are working in the gig economy. Or how many hours they are working, and how much they're earning or how they might respond to an economic downturn.
Until now, that hasn't mattered much, but with the explosion of jobs working for the likes of Uber Technologies Inc., Grubhub Inc. and Lyft Inc., it could, for the first time, be a significant blind spot for policy makers as they look to craft a response to the next economic downtime.
|
The Bureau of Labor Statistics, the unit of the U.S. Department of Labor that produces monthly nonfarm payroll reports among other data, does not have a formal measure in place to track workers in the gig economy, Karen Kosanovich, a BLS economist, said in an interview. Gig economy workers are typically independent contractors, meaning they are not classified as full-time employees.
There is no universally accepted definition of what constitutes a gig economy worker and attempts to quantify the number of people working in the gig economy have produced mixed results. The most recent contingent worker supplement survey, conducted by the BLS in May 2017 and released in June 2018, indicated 5.9 million people held contingent jobs, totaling upward of 3.8% of U.S. workers.
The BLS conducted the same survey in February 2005, which estimated contingent workers ranged from 1.8% to 4.1% of employment. Research from economists Lawrence Katz and Alan Krueger published in 2016 estimated a five-point increase between 2005 and 2015, but was later revised downward to one to two points, according to a paper authored by both men published by the National Bureau of Economic Research in January.
Given that the gig economy is likely to grow, especially if workers lose their full-time jobs in the event of a recession, it could create a blind spot in BLS data, according to Ernie Tedeschi, a policy economist for Evercore ISI.
"I think that the statistics are generally capturing how good the labor market is now," Tedeschi, a former economist at the U.S. Department of the Treasury, said in an interview. "It could be that, in the event of a downturn, BLS statistics could miss what is becoming an increasingly important safety net or option for people who otherwise wouldn't be able to find regular work."
Phillips Curve distortions
"Maximum employment" is the first of the Federal Reserve's two policy objectives, the other being stable prices. The relationship between employment and inflation, known as the Phillips Curve, has "broken down," Fed Governor Lael Brainard said earlier this year, with low unemployment not generating the kind of inflationary pressures they might have been expected to in the past. That means the Fed potentially keeping interest rates lower for longer, which risks creating asset bubbles in the financial sector, she said.
The changing shape of the Phillips Curve may be at least partly a function of the growth in the gig economy, according to a paper published late last year by Federal Reserve Bank of Dallas Economist John V. Duca. "The rise of self-employment ... by reducing the bargaining power of labor, could lower the natural rate of unemployment," he wrote.
The growing importance of the gig economy comes as the U.S. economy's record expansion looks to be running out of steam. Traders have become increasingly convinced that the Federal Reserve will lower its benchmark interest rate again in October after a week of key economic indicators pointed to weaker U.S. momentum.
The odds of a cut in October have moved up sharply in recent days, partly due to the Oct. 1 release of an Institute for Supply Management report showing that the U.S. manufacturing sector fell deeper into contraction territory in September. Those worries heightened on Oct. 3, when the ISM's nonmanufacturing index saw a sharper-than-expected slowdown, falling to 52.6% in September from 56.4% in August. A reading above 50% indicates expansion.
However, a strong set of September job numbers from the Bureau of Labor Statistics on Oct. 4 may have eased concerns.
Targeting benefits
Missing headcount for gig economy workers could make things more complicated for lawmakers who are trying to target benefits to prop up the labor market and consumer spending.
"You might possibly need a different structure in terms of the benefits and targeted tax policies that you might need in an economy with a different labor market structure," Justin Weidner, a Deutsche Bank economist, said in an interview. "This definitely makes things more complicated for fiscal policymakers."
A major challenge for gig economy workers in a downturn is whether or not they are eligible for unemployment insurance based off their gig economy work. Each state sets its own standards for collecting unemployment insurance benefits.
Materials from the U.S. Department of Labor indicate that in some cases, certain employment characteristics, including receiving a 1099 for tax purposes or signing an independent contractor agreement does not automatically classify a worker as an independent contractor under The Fair Labor Standards Act.
Misclassification of employees can affect a range of benefits to which employees are entitled, including unemployment insurance, overtime compensation and family and medical leave, according to the Department of Labor.
Insurance eligibility
Unemployment insurance is considered an automatic stabilizer that is designed to help counteract the effects of a recession by providing support to out-of-work individuals. The discrepancy between benefits made available to previously full-time employees and gig economy workers risks leaving a segment of the labor force behind, according to Evercore's Tedeschi.
"[If] gig economy firms are also hit by a downturn in demand — some of these people, whether you want to call them laid off or demand dries up and so they can't find any work — is this key safety net going to be available to them?" he said. "I worry that in a lot of cases it won't be."
Others are less concerned. Such work has always been a feature of the U.S. economy and it has largely gone unnoted by BLS statistics, according to Andrew Garin, an assistant professor of economics at the University of Illinois. Whether that work comes from walking dogs in a given neighborhood or signing on as a driver for a ridesharing app, it is very unlikely that work will ever show up in a government survey, he said.
Still, his research shows that the gig economy is of growing significance.
A paper written by Garin and others analyzing 1099 tax filings from the Internal Revenue Service showed the share of the workforce taking in income from the gig economy increased by 1.9 percentage points from 2000 to 2016. More than half of the increase occurred between 2013 and 2016, "and can be attributed almost entirely to dramatic growth among gigs mediated through online labor platforms," the paper reads.

