The Rise of the Gig Economy

Even as soon as 10 years ago, telling people you were a freelancer or “went after gigs” was met with a look of concern. In fact, it could be argued that most of the older generations still don't understand the nuances and benefits of the gig (or freelance) economy. However, in 2014, 91 million people worked in the gig economy, according to data from tax forms filed with the IRS—that's almost 30% of the American population. 

A major boost in the rise of the gig economy was the increase in technology coupled with the Great Recession. As we became more connected to one another, it quickly became possible for companies to find the perfect candidate for their positions and to have this candidate work from home.

Young people graduating during the Great Recession found that the jobs promised to them were nowhere to be found. Instead, they relied on the Internet to find work and stumbled into the gig economy. No one grows up hoping to be a freelancer but suddenly millions of people found a way to create their own jobs. For Americans scarred by massive job losses, the gig economy represented a way to diversify their income away from the traditional single-employer model.

The gig economy has a terrible reputation. One of the most significant problems is that people expect the major players in the industry (Uber Inc., Taskrabbit, Fiverr and Handy Technologies) to provide sufficient enough income to live off of. Rather, the apps and websites should be thought of as business connectors; these websites are connecting your business (of one!) with clients. Uber never meant for its independent contractors to have “jobs” as Uber drivers—it’s meant to put drivers of otherwise vacant cars in touch with car-less people who need a ride. (For related reading, see: What's Uber Worth?)

The key to success in the gig economy is to operate yourself as a business. Businesses are constantly looking for new work, they’re identifying opportunities to increase profitability (becoming location independent), they aren’t relying on one client (only cleaning houses for a single company for example) and they aren’t getting bogged down by doing piece work for pennies. (For more, see: Six Freelance Jobs That Don’t Pay.)

Being a full-time entrepreneur is hard work and results in failure more often than not. Becoming a full-time entrepreneur isn’t a decision that people should take lightly, and the gig economy is a great way for people to get their feet wet before diving in. By seeking out gigs, freelancers can easily start their own one-person business and, if it results in failure, can close it without too much difficulty.

Being an Uber driver is a great way to make money on the side of a full-time job and to learn business principles. Waiting for a client in the suburbs on a Saturday night? Probably not as lucrative as waiting downtown when the bars close. A driver who doesn’t want to stay up that late or sacrifice family time on the weekend to drive car-less couples to Ikea won’t make a lot of money—and that’s not Uber’s fault, but rather the Uber driver who’s not running his business-of-one with as much intensity as a successful business owner.

If the Uber debacle has taught us anything it’s that not everyone wants to be an employee. The thought of driving an hour to sit at a desk for eight hours, dealing with co-worker drama and getting home exhausted after another hour in traffic, doesn’t appeal to some people.

The idea of setting up a business and making a go of the American dream has led a lot of workers to experiment in the gig economy and work as independent contractors. However, the energy and skills needed to be a successful entrepreneur aren’t ingrained in everybody which is why we see quasi-entrepreneurial businesses around every corner.

Franchises and “working for Uber” are two of the biggest quasi-entrepreneurial businesses around. In neither case are you, the business owner, allowed full control over pricing and decision-making, and in both cases you’re considered an independent business from the parent company with no guarantee of income or profit. Drivers who sue Uber for employee status are trying to have it both ways—steady income and the freedom of owning a business—without the pitfalls of being an employee.

In terms of quasi-entrepreneurial businesses, franchises are quite expensive so it’s not surprising that aspiring quasi-entrepreneurs look to the gig economy for a way out of their 9-to-5 as it’s easy, cheap and fast. (For related reading, see also: Eight Reasons Why Valued Employees Quit.)

In today’s Wal-Mart (WMT) world, we expect things fast and cheap. Amazon.com's (AMZN) Same-Day Delivery and Prime Now are immensely convenient but without the independent contractors working for Amazon Flex, could the company really offer it for only a few dollars?

Paying people in the gig economy the minimum wage is a lose-lose situation for everybody. Higher wages mean higher expenses for the company which then turn into higher costs for consumers. Consumers that are unwilling to pay high costs go elsewhere. Until consumers are willing to pay more money for services, companies who pay their independent contractors more money are facing corporate suicide.

Consumers seeking cheap goods, freelancers looking to turn their gigs into full-time jobs, and the misunderstanding of what the gig economy is have given the term a bad name. For people looking to make some money on the side or those who simply don’t want a regular job, the growth of the gig economy is something to be celebrated as it means more opportunities for you to increase revenue.