Gig economy

  • Category
    Economy
  • Published
    20th Feb, 2020

Recently, Finance Minister Nirmala Sitharaman said that preference to taxi aggregators like Ola and Uber was among one of the many factors responsible for the slowdown in the automobile sector.

Issue

Context

Recently, Finance Minister Nirmala Sitharaman said that preference to taxi aggregators like Ola and Uber was among one of the many factors responsible for the slowdown in the automobile sector.

Background:

  • Automobile sector slowdown: the Year 2019 was one of the worst years for the automobile industry with falling sales and piling inventory.
    • Passenger vehicle sales declined by 17.98 per cent in April-November 2019 over the same period last year.
    • Commercial vehicle sales showed a steeper decline.
  • FinMin argument: Recently, it was argued by FinMinthat change in mind-set of millennials, who now prefer taxi aggregators like Ola and Uber instead of committing for monthly instalments to own a car, was among one of the many factors responsible for the slowdown in the automobile sector.
  • Gig economy: Ola and Uber are examples of a larger gig economy. The gig economy is based on flexible, temporary, or freelance jobs, often involving connecting with clients or customers through an online platform.
    • Gig economy is made up of three main components: the independent workers paid by the gig (i.e., a task or a project); the consumers who need a specific service (for example, an immediate ride or package delivery); and the companies that connect workers to consumer in a direct manner, including app-based technology platforms.
  • Scope and prevalence of the gig economy: The gig economy is firmly on its way to becoming a key part of India Inc.’s strategy. According to Professional Gig Economy 2018-19 Report by Flexing, as many as 72% of all gig projects were in large corporates and professional services firms in 2018-19 compared with 52% two years back.
    • According to Intuit, the percentage of Americans in the gig economy was 34% in 2016 and is expected to grow to 43% by 2020.
    • India constitutes about 40% of freelance jobs offered globally. According to a report on the future of jobs in India by FICCI, EY, and NASSCOM, with a 24% share, India is leading in terms of online labour market globally.
    • Gig hubs in India: Prevalence of gig economy is more in metro cities; with Delhi NCR at 43 percent emerging as the biggest hub, followed by Mumbai at 19 percent and Bangalore at 18 percent.

Analysis

Understanding Gig Economy

  • Based on temporary hiring: In a gig economy, temporary, flexible jobs are commonplace and companies tend toward hiring independent contractors and freelancers instead of full-time employees.
    • This undermines the traditional economy of full-time workers who rarely change positions and instead focus on a lifetime career.
  • Technology dependent: In the modern digital world, computers have developed to the point that they can take place of jobs previously held by people.
    • Technology and the internet facilitate work from home or away from the office.
    • Technology and internet offer to workers connectivity with employers and customers.
  • Confined more to urban areas: Those who don't engage in using technological services such as the Internet, tend to be left behind by the benefits of the gig economy.
    • Cities tend to have the most highly developed services and are the most entrenched in the gig economy.
  • Attracts young workers: Gig economy attracts millennials because it offers them alternative work arrangements. It provides them with what they value: flexible working hours, the ability to work from home, a variety of experiences, and a sense of excitement to be working on different projects with varied companies.
  • Wide range: There is a wide range of positions that fall into the category of a gig. The gig economy is prevalent in wide-ranging sectors/segment; Finance, agriculture and forestry, transportation, education, healthcare, construction.
    • For example, adjunct and part-time professors have contracted employees as opposed to tenured professors.
  • Change of traditional roles: Workers are taking upon themselves a much larger share of the market risk of economic ups and downs, changing trends, and fickle consumer preferences, which were traditionally borne by capitalist business owners who employed wage and salaried workers.

Facts about gig economy (as per a report in 2019 by BCG)

  • Use of gig work platforms has grown by more than 30% in emerging economies.
  • Freelancers are pursuing work in all industries.
  • Only 20% of freelancers would prefer full-time employment.
  • Gig work attracts people of every experience level.
  • 40% of companies expect that gig workers will become an increasing part of their workforce.

Advantages of the gig economy

  • Cater to immediate demand: Gig economy can benefit workers, businesses, and consumers by making work more adaptable to the needs of the moment and demand for flexible lifestyles.
  • Cheaper and more efficient: Most times, employers cannot afford to hire full-time employees. In a gig economy, large numbers of people work part-time or in temporary positions.
    • The result is cheaper, more efficient services, such as Uber or Airbnb, for those willing to use them.
  • Wider choice to employers: Technology and connectivity through the internet don’t require the freelancer to come into the office for work. Hence, employers have a wider range of applicants to choose from as they don't have to hire someone based on their proximity.
  • Offers specific expertise: Professional services firms are hiring gig workers to add deep domain expertise to client-impact teams. Majority of professional services contact workers have years of domain-specific knowledge, like consultants.
  • The wider choice to employees: People often find they need to move around or take multiple positions to afford the lifestyle they want. These days, people also tend to change careers many times throughout their lives; the gig economy is a reflection of this rising trend.
  • Youth economic productivity: India has a high share of young population which is only expected to grow. According to economists at IMF, youth inactivity in India is at 30%, the highest amongst developing countries.
    • Gig economy offers the perfect platform for engagement of youth in productive employment activities.
    • It is also estimated that the gig economy offers a relatively high gender-parity in the workforce, as compared to traditional employment.

Disadvantages of the gig economy

  • Erosion of traditional economic relationships: Gig economy can have downsides due to the erosion of traditional economic relationships between workers, businesses, and clients. This can eliminate the benefits that flow from building long-term trust, customary practice, and familiarity with clients and employers.
    • It could also discourage investment in relationship-specific assets that would otherwise be profitable to pursue since no party has an incentive to invest significantly in a relationship that only lasts until the next gig comes along.
  • Crowding out traditional workers: Workers who prefer a traditional career path, stability and security that come with it are being crowded out in some industries.
    • The gig economy makes it harder for full-time employees to develop fully in their careers since temporary employees are often cheaper to hire and offer more flexibility in their availability.
  • Disrupted work-life balance for gig workers: Flexibility in a gig economy often means that workers have to make themselves available at any time the gig comes up, regardless of their other needs, and they must always be on the hunt for the next gig.
    • Hence, for some workers, the flexibility of working gigs can disrupt the work-life balance, sleep patterns, and activities of daily life.
  • No employment-related rights: Unlike traditional employment, workers in the gig economy are usually ineligible for any social benefits such as insurance, medical benefits, employees' provident fund, bonus or gratuity.

Conclusion and Way forward

The success of the gig economy will be dependent on how policymakers, futurists, industry, and governments come together to develop an enabling framework and labour laws that allow it to thrive and sustain. Also, companies will have to re-evaluate their current practices to accommodate gig workers.

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