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Gig Economy: Definition, Factors Behind It, Critique & Gig Work
By THE INVESTOPEDIA TEAM Updated October 01, 2022
Reviewed by THOMAS BROCK
Fact checked by KATRINA MUNICHIELLO
Gig Economy
Investopedia / Katie Kerpel
What Is a Gig Economy?
A gig economy is a labor market that relies heavily on temporary and part-time positions filled by
independent contractors and freelancers rather than full-time permanent employees.
Gig workers gain flexibility and independence but little or no job security. Many employers save money
by avoiding paying benefits such as health coverage and paid vacation time. Others pay for some
benefits to gig workers but outsource the benefits programs and other management tasks to external
agencies.
The term is borrowed from the music world, where performers book "gigs" that are single or short-term
engagements at various venues.
KEY TAKEAWAYS
The gig economy is based on flexible, temporary, or freelance jobs, often involving connecting with
clients or customers through an online platform.
The gig economy can benefit workers, businesses, and consumers by making work more adaptable to
the needs of the moment and the demand for flexible lifestyles.
At the same time, the gig economy can have downsides due to the erosion of traditional economic
relationships between workers, businesses, and clients.
Understanding a Gig Economy
In a gig economy, large numbers of people work in part-time or temporary positions or as independent
contractors. The result of a gig economy is cheaper, more efficient services, such as Uber or Airbnb, for
those willing to use them.
People who don't use technological services such as the Internet may 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.
A wide variety of positions fall into the category of a gig. The work can range from driving for Uber or
delivering food to writing code or freelance articles. Adjunct and part-time professors, for example, are
contracted employees as opposed to tenure-track or tenured professors. Colleges and universities can
cut costs and match professors to their academic needs by hiring more adjunct and part-time
professors.
The Factors Behind a Gig Economy
America is well on its way to establishing a gig economy, and estimates show as much as a third of the
working population is already in some gig capacity as of 2021. Experts expect this working number to
rise, as these types of positions facilitate independent contracting work, with many of them not
requiring a freelancer to come into an office. Gig workers are much more likely to be part-time workers
and to work from home.
Employers also have a wider range of applicants to choose from because they don't have to hire
someone based on their proximity. Additionally, computers have developed to the point that they can
either take the place of the jobs people previously had or allow people to work just as efficiently from
home as they could in person.
In the modern digital world, it's becoming increasingly common for people to work remotely or from
home. This trend accelerated during the 2020 COVID-19 pandemic.
Economic reasons also factor into the development of a gig economy. Employers who cannot afford to
hire full-time employees to do all the work that needs to be done will often hire part-time or temporary
employees to take care of busier times or specific projects.
On the employee's side of the equation, people often find they need to move or take multiple positions
to afford the lifestyle they want. It's also common to change careers many times throughout a lifetime,
so the gig economy can be viewed as a reflection of this occurring on a large scale.
In 2020, the gig economy experienced significant increases as gig workers delivered necessities to home-
bound consumers, and those whose jobs had been eliminated turned to part-time and contract work for
income. Employers will need to plan for changes to the world of work, including the gig economy, when
the crisis has ended.
Criticisms of the Gig Economy
Despite its benefits, there are some downsides to the gig economy. While not all employers are inclined
to hire contracted employees, the gig economy trend can make it harder for full-time employees to
develop in their careers since temporary employees are often cheaper to hire and more flexible in their
availability. Workers who prefer a traditional career path and the stability and security that come with it
are being crowded out in some industries.
For some workers, the flexibility of working gigs can actually disrupt the work-life balance, sleep
patterns, and activities of daily life. Flexibility in a gig economy often means that workers have to make
themselves available any time gigs come up, regardless of their other needs, and must always be on the
hunt for the next gig. Competition for gigs has increased, too. And unemployment insurance usually
doesn't cover gig workers who can't find employment (2020's CARES Act made an exception).
In effect, workers in a gig economy are more like entrepreneurs than traditional workers. While this may
mean greater freedom of choice for the individual worker, it also means that the security of a steady job
with regular pay, benefits—including a retirement account—and a daily routine that has characterized
work for generations are rapidly becoming a thing of the past.
Lastly, because of the fluid nature of gig economy transactions and relationships, long-term
relationships between workers, employers, clients, and vendors can erode. 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.
What Is an Example of a Gig Economy?
Examples of a gig economy are those jobs that individuals discover and access through online platforms
that list such jobs. These jobs are often one-time or short-term contract jobs. These include driving for a
ride-sharing service, painting someone's house, freelance work, coaching, fitness training, and tutoring.
The job is exchanged for cash and there are no other benefits, such as health insurance.
What Are the Benefits of the Gig Economy?
The gig economy has many benefits for both the employee and employer. An employer has access to a
wide range of talent that they can hire. If the talent proves to be less than acceptable, there is no
contract to keep the employee on or issues of letting them go. In addition, in a time when it has become
difficult to attract full-time workers, employers can hire from the gig economy.
In addition, hiring gig workers can be more affordable as companies don't have to pay for health
insurance or other benefits. For employees, the gig economy's benefits include having the option to do
multiple jobs, work from anywhere depending on the specific job, freedom, and flexibility in their daily
routine.
Is the Gig Economy Worth It?
To the individuals working in the gig economy, it is worth it. Studies show that 79% of individuals who
work in the gig economy are more satisfied than when they were working traditional jobs.
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ARTICLE SOURCES
PART OF
Guide to Successful Self Employment
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Independent Contractor: Definition, How Taxes Work, and Example3 of 24
What Is a Freelancer: Examples, Taxes, Benefits, and Drawbacks4 of 24
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California Assembly Bill 5 (AB5): What's In It and What It Means6 of 24
5 Challenges for Self-Employed Finance Professionals7 of 24
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Saving for Retirement When You Don't Have a Regular Job21 of 24
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Related Terms
Workers’ Compensation: What It Is, How It Works, and Who Pays
Workers’ compensation is a government-mandated program that pays benefits to workers who become
injured or disabled. more
What Is a Freelancer: Examples, Taxes, Benefits, and Drawbacks
A freelancer is an individual who earns money on a per-job or per-task basis, usually for short-term
work. more
Independent Contractor: Definition, How Taxes Work, and Example
An independent contractor is a person or entity engaged in a work performance agreement with
another entity as a non-employee. more
Freelance Economy Definition
The freelance economy revolves around hiring self-employed workers to undertake specific jobs in
return for an agreed-upon payment. more
California Assembly Bill 5 (AB5): What's In It and What It Means
California's AB5 set rules for gig workers and firms hiring them. AB2257 modified them and Prop 22
exempted app-based drivers and companies. more
Self-Employment: Definition, Types, and Benefits
A self-employed individual does not work for a specific employer who pays them a consistent salary or
wage. more
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