NOTE: This is an excerpt of Planet Money’s newsletter. You can sign up here.
In recent months, a slew of studies has debunked predictions that we’re witnessing the dawn of a new “gig economy.” The U.S. Bureau of Labor Statistics (BLS) found that there was actually a decline in the categories of jobs associated with the gig economy between 2005 and 2017. Larry Katz and the late Alan Krueger then revised their influential study that had originally found gig work was exploding. Instead, they found it had only grown modestly. Other economists ended up finding the same — and now writers are declaring the gig economy is “a big nothingburger.”
The Gig Revolution’s True Believer
Arun Sundararajan, an economist at NYU and the author of The Sharing Economy: The End of Employment and the Rise of Crowd-Based Capitalism, remains a true believer in the gig revolution. Sundararajan has been pushing the idea that the gig economy — and specifically work done through digital platforms like Uber and Airbnb — will conquer traditional employment. Instead of an economy dominated by big corporations, he believes it will be dominated by “a crowd” of self-employed entrepreneurs and workers transacting with customers through digital platforms. “We are in the early days of a fundamental reorganization of the economy,” Sundararajan said while riding to the airport in, naturally, an Uber.
When asked about the onslaught of data contradicting his thesis, Sundararajan said the Bureau of Labor Statistics continues “to underestimate the size of the gig economy and in particular of the platform-based gig economy.” The best BLS estimate of the number of gig workers employed through digital platforms — whether full-time, part-time or occasionally — is one percent of the total U.S. workforce, or about 1.6 million workers, as of mid-2017. Sundararajan argues that the survey questions the BLS used to gather this data were clunky and don’t quite capture what’s going on.
While Sundararajan disagrees with estimates about the size of the gig economy, he agrees that most people doing new gig work are either Uber and Lyft drivers or Airbnb hosts. It’s no coincidence that housing and transportation have been the two main areas of growth. Homes and cars are the most valuable things many people possess, and the Internet and smartphones have made using them to make extra money much easier. Sundararajan makes a good case that there will be growth in areas like health care and accounting as well, but there is little evidence to suggest we’re witnessing “the end of employment.”
The Resilience Of Traditional Employment
Employment as a we know it is a relatively new development. At the turn of the 20th century, almost half of Americans were still self-employed as farmers and ranchers and artisans. But in the background, a mighty organization called the company was taking off. By 1960, around 85% of Americans were employees of companies.
While Sundararajan believes our economy will once again be dominated by the self-employed, he admits that full-time employment has “tons of advantages.” It offers stability, a steady paycheck, and benefits. We’ve collectively engineered much of our social safety net around participating in this system. All of this means, Sundararajan says, “we’re going to see full-time employment remain resilient, even though there are more efficient ways of organizing economic activity.” He believes work done through gig platforms can be more efficient than work done in a traditional company — and that will spell the company’s doom.
The Mysterious Benefits Of The Firm
Economists were long confused by the existence of companies. They celebrated prices and competition — and it seemed natural that the most efficient way to do business was as individuals transacting within the open market. Need an advertiser? Hire one for a few weeks. Want design work? Work for the highest bidder until the project is done.
From this traditional view, it seemed odd that we would organize ourselves as full-time employees in top-down, bureaucratic organizations insulated from the market. Then came Ronald Coase, who won a Nobel Prize in 1991 in large part because of his 1937 paper, “The Nature of The Firm.” Coase argued that the reason firms exist is that it’s costly for individuals to transact in the market. You have to search for trustworthy people with quality goods or services and then haggle with them, and doing this over and over is inefficient. Within a company, Coase argued, these “transaction costs” are minimized. You can quickly walk to your colleague’s desk and share ideas without having to figure out if they’re shady. You can share resources, tools, and machinery. You can work in a team and specialize in different tasks. And you can do this all without having to continually negotiate over the price of everything.
The dawn of a new gig economy has seemed plausible because the Internet has been dramatically reducing transaction costs. Search engines have made it incredibly cheap to find goods and services, compare prices, and get bargains. Social media and peer reviews have made it easier to determine if people are trustworthy. E-commerce has made it easier process payments. You can click a button on a mobile phone and instantaneously have GPS guide drivers right to you. But as big as these efficiency gains have been, a new economy based on crowds of people doing gigs through digital platforms—as exciting or scary as that might sound—still doesn’t compare to one based on the efficiencies and stability of the good old-fashioned company.
Did you enjoy this newsletter? Well, it looks even better in your inbox! You can sign up here.
You are one of the CPR readers who wants to know what is really going on these days. We can help you keep up - The Lookout is a free, daily email newsletter with news and happenings from all over Colorado. Sign up here and we will see you in the morning!