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The Gig Economy Fallout

When I first started researching this “gig economy” thing I was constantly coming across articles about the flexibility and freedom it offered making much of it seem so sunshine and rosy primarily due to the constant referencing of what I’ve come to call the Uber Et Al’s which is primarily the On Demand Economy which can be more succinctly classified using a JP Morgan Chase study called “Paychecks, Paydays, and the Online Platform Economy” (February 2016) where it distinguishes these various On Demand Gig Economy elements into the Labor Platforms and the Capital Platforms.  This Platform Economy doesn’t include traditional freelancers so it’s still not a complete picture of the entirety of the Gig Economy.  The majority of these articles I originally read made this whole thing sound wonderful but from my discerning eye I was sniffing marketing or at the very least a lack of understanding depending on the intention of the writer.  The more I looked into it the more I discovered that they are not as wonderful as they appear especially in the level of income they generate if you are accustomed to making more than the average $15/hr many of the Uber Et Al’s yield.  This is primarily because getting started in the larger income arenas of the Gig Economy such as freelancing takes time to build what Seth calls “Trusted Connections”; these don’t happen overnight so are you prepared for the interim?  Do you have an Unemployment Contingency Plan?  The Big Picture aka serious income generation is more in alignment with conclusions from the excellent report by the McKinsey Global Institute called “Independent Work: Choice, Necessity, and the Gig Economy” (October 2016) where it delineates the type of people involved with the Gig Economy into four categories; Free Agents, Casual Earners, Reluctants, and Financially Strapped.  It is from this that I now refer to myself as “The Reluctant Gigger”.  This does include freelancers which appear to be where the better income generation is overall.  This is expected where labor won’t generate as much income as specifically honed skills especially when they come with some tenure.  Seth’s wisdom addresses this where he discusses the difference between the Average Freelancer and the Quality Freelancer where the averages ones are more often engaged in some element of the race to the bottom in contrast to the quality ones which are in the race for the top.

The point is that not everyone entering into this arena are doing it only because they are seeking the glories of the “freedom and the flexibility” regardless of percentage of total income.  Many people, myself included, dream of being independently employed, answering only to ourselves, working the hours we establish instead of those often excessive corporate workweeks of way beyond the “traditional” 40 hours without all of the corporate politics etcetera yet it’s that “Real Job” or “Permanent Employment” resulting in that “Steady and Dependable Paycheck” that we’ve been conditioned to adhere to as a form of being a “responsible adult” that keeps us going instead of voluntarily pursuing it.  We admire those who have it at a distance yet cower in fear of the reality of having to always “hunt down” that next bank deposit, all of which is also mirrored in the wisdom of Mr. Godin.

Some are seeking it because they have no choice such as long term positions being eliminated resulting in immense re-employment difficulties in conjunction with depleted cash reserves essentially “shoving” them into the Gig Economy whether or not they’ve heard of it and whether or not they like it as a desperate attempt to maintain some element of their current lifestyle.  Or finding work that pays the same but now you’re a contractor which then can mean when that gig is up you end up “on the bench” seeking out that next contract or at any time it can suddenly end leaving you hanging yet again.  There’s also the alternative of keeping to that “Permanent Job” mentality and taking new roles with pay cuts that are sometimes severe and lowering their lifestyles accordingly without ever realizing there are more alternative sources of part time income generation than previously available thanks to the continuing development of the Gig Economy; if you don’t’ think outside of this shrinking box it will stifle you.   The other side of this is you still have your “permanent job” but now need to replace degrading income generation from things like corporate re-organizations that result in wage reductions or lack of yearly merit raises where little by little your money spends less as the cost of living continues to rise with much of it due to this whole “race to the bottom” phenomenon in some form.

The Job Creation of Corporate America then evolves to supplying Giggers for this new economy yet it doesn’t stop with staffing and wage reductions.  UK Economist and Nobel Laureate Ronald Coase published a small but highly influential article in 1937 titled “The Nature of the Firm” where he “stepped back and asked a fundamental question about why firms exist. The answer was that it is cheaper to perform many functions within a company rather than going to the market every time something needs to be done.  Companies want to avoid finding an outside provider for every function then processing a multitude of contracts and transactions—all processes that were difficult in Coase’s age of limited and slow communication. Keeping functions in-house avoided what he termed “transaction costs.”  But the Internet is bringing those costs down dramatically. Search algorithms make it possible for companies to find the talent or service they need instantly, while technology enables seamless payment and coordination of the details of each transaction. Digital technologies challenge traditional business models by considerably reducing costs associated with search, coordination, and monitoring. Search algorithms make it possible for companies to find the talent or service they need instantly, reducing search costs, while automated systems enable seamless payment and coordination of the details of each transaction. Rating systems and user reviews send rich information signals to establish trust between unknown parties.” (Source: The McKensey Report)

I keep reading about how executives are finding ways to more often incorporate contingent workers (contractors) into their corporate work structure all in an effort to rein in costs aka increased profits while maintaining that aspect of “in house” transactions as identified by Coase.  Of course there is always the “on call” contingent worker aka the freelancer who may establish a relationship with a company yet never truly be “in house” as they are more of an “On Demand” labor that’s only called upon when needed.

From what I’ve said so far over the course of this subject matter it would appear that Corporate America is at the very least obtusely supplying Giggers for the Gig Economy yet according to the statistics in the aforementioned McKinsey Report, their global survey isn’t showing that or at least not yet.  Per this survey of over 6 countries; “10 to 15 percent of the working-age population relies on independent work for their primary income” which is contrasted by “another 10 to 15 percent of the working-age population engages in independent work for supplemental income”.  This equates to 20% to 30% of the working age population deriving some aspect of their income from independent work.  Extrapolating that to population, this “adds up to an independent workforce of up to 162 million people in the United States and Europe combined”.

Of the 4 previously mentioned types of independent workers, Free Agents, Casual Workers, Reluctants, and Income Strapped, 40% of the independent workers surveyed are Casual Workers.  30% are Free Agents equating to 70% have chosen to be independent workers in contrast to 30% doing it out of necessity (14% Reluctants; 16% Income Strapped) yet that 30% extrapolates to 49 million people in the Gig Economy not by conscious choice.  The full report is almost 150 pages and I’ve not yet read the entire thing but so far I’m not seeing many references to what is driving the current and most importantly future growth.  Whenever the American job reports come out they are primarily focused on the Full Time employment versus those collecting unemployment with the caveat of those that have left these statistics.  I always wondered what happened to them as most would still need to have some kind of income generation in order to survive at the meekest level.  Once I began this research I realized that other than those referenced working Part Time, they are either homeless living on the streets, living with friends or relatives while working it out or have ventured into some form of independent work.  This would not include those who are working Full Time but at a lower wage.  Much of corporate contract work is W2 working a 40 hour week and may not be included in those stats.  This obfuscates the impact of the race to the bottom.  The McKinsey Report does give this statistic; “In addition to drawing people out of traditional jobs, independent work may reengage some portion of the inactive and unemployed population. Government data reveal 232 million adults in the United States and the EU-15 are inactive, unemployed, or work less than full time—and at least 100 million of them would like to start working or increase their hours (20 million in the United States, and 84 million in the EU-15).

When you look around your life, what is the percentage of people you know that are W2’s versus 1099’s?  The result nowadays is the largest majority is the former as far as the main form of income generation is concerned as supported by the previous stats.  Yet every day of every week of each of the oncoming years this will be slowly changing like a canvas being painted using Pointillism where each day is another dot juxtaposed to the next until little by little the real picture begins to form.  When the race to the bottom is the source of each of these points fueled by the incessant corporate addiction to infinite profits with the old adage of the rich get richer, which one of those four types will end up dominating that picture which is now a contrast of voluntary versus involuntary?  Have you thought about this?  Many around me have not.  I can tell by the way they talk about their jobs and the future.  I can tell by the way they react when the word “Gig Economy” comes into the conversation as most react just like recent surveys, that if they’ve heard of it, then to them it’s just a “buzz word” having no clue what it is other than recent Uber Et Al’s news which has no immediate impact on most of their lives.  Yet from what I’ve experienced over the past year is that this is an oncoming and unstoppable storm the arrival of which I will be monitoring and reporting on as The Reluctant Gigger Weather Report.  It will arrive in an eventual greater magnitude than many nowadays could ever imagine and for those unprepared it will leave a wake of devastation not unlike recent hurricane activities in Texas and Florida.  It may sound dramatic and even over the top as you look around because today the weather is clear, the sun is shining and all is well while many have a regularly scheduled deposit in their bank account yet ask yourself what would happen if the quest for infinite profits in conjunction with the race to the bottom continues unabated for the next 10-20 years?  Just how far down can the price of goods be driven down in contrast to depleting wages and/or opportunities to drive income generation?  Seth said in the aforementioned television appearance, “Here’s the thing.  The recession is a forever recession. There’s a cyclical recession that comes and goes but there’s this other thing and it’s the end of the Industrial Age.  It lasted 80 years…and it ended. And so 2012 is not going to be more of the same, it’s going to be worse than the same in that the Industrial Age is going away and a new thing is going to take its place.”  This begs the question of if the quest for infinite profits will bring such a perpetual race to the bottom, will it result in a permanently depressed economy where “permanent jobs” are still around but few and far between and thus going full circle to the days prior to the Industrial Revolution where almost everyone was a contingent worker of some form and those with the lowest level of talent will scrape by for a living and those with the higher levels of talent will get by but the days of easy living will be a thing of the past?  How will this impact the Goods and Services so many enjoy today not to mention those that supply them?  This begs the larger question of if humanity will do what’s best for itself which then has to remove that “psychopathic” element of profiteering driving prices in that race to the bottom in order for all to win; will Prosperity be for a select few or for the good of all?  Who gets to make these decisions and will your voice be included?  Until then, there will be those who continue to plod along with their heads down doing their version of the Daily Grind adhering to the old adage of a “Real Job” with permanence and steady paycheck as they continue to pretend that nothing is changing continuing to live their lives as The Pretender.

(cue song with lyrics)

The Pretender by Jackson Browne
I’m going to rent myself a house
In the shade of the freeway
Gonna pack my lunch in the morning
And go to work each day
And when the evening rolls around
I’ll go on home and lay my body down
And when the morning light comes streaming in
I’ll get up and do it again
Amen
Say it again
Amen
Caught between the longing for love
And the struggle for the legal tender
Where the sirens sing and the church bells ring
And the junk man pounds his fender.
Where the veterans dream of the fight
Fast asleep at the traffic light
And the children solemnly wait
For the ice cream vendor
Out into the cool of the evening
Strolls the Pretender
He knows that all his hopes and dreams
Begin and end there
I’m gonna be a happy idiot
And struggle for the legal tender
Where the ads take aim and lay their claim
To the heart and the soul of the spender
And believe in whatever may lie
In those things that money can buy
Thought true love could have been a contender
Are you there?
Say a prayer for the Pretender
Who started out so young and strong
Only to surrender

 

 

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