The ‘gig economy’ has been described with numerous names including collaborative economy, sharing economy, part-time jobs, on-demand economy, and uberization. The dynamic changes in the competitive landscape have urged businesses to reconsider their working model. As a result, companies are adopting various business models including outsourcing, nearshoring, and gig economy. Proponents of gig economy argue that it will enable more people to participate in labor market by providing flexible options. Businesses can call upon such gig workers at the time of need and thereby improve the overall productivity by keeping costs under control. However, overreliance on gig workers to perform tasks may not always be a wise move.
Downside of Gig Economy
Dipping Productivity of Gig Workers
Self-employment may increase the levels of job satisfaction but the gig economy is making individuals financially vulnerable due to lack of employee benefits. Most of the employee in gig economy do not have an adequate medical cover, savings, or life insurance. Due to such financial insecurities, it is forcing people in the gig economy to take up multiple jobs. Juggling between multiple part-time jobs can hamper the productivity of the person which might result in sub-par works being performed for the companies.
Higher Taxes for Contracted Workers
Independent or self-employed workers are required to pay their own taxes including social security, federal withholding, and Medicare. To cover such taxes, contracted workers in the gig economy usually place a higher cost for their services. In the end, businesses will have to end up paying higher amounts to workers in the gig-economy thereby increasing the cost.
Government Regulations and Policies
In order to tackle the disadvantages of gig economy to the workers, government rolls out various regulations and policies that put pressure on companies to formalize their employment relationships. For instance, recently, a UK court ruled that Uber should treat their drivers as workers and take care of minimum wage, health insurance, and holiday pay. The company was previously able to save 30% of the cost to operate a fleet of 40,000 drivers, will now have to work out on their business model.
Apart from posing challenges for companies, gig economy also has severe consequences for the workers as they usually have to work more than 60 hours per week, without health insurance and financial stability. The stress arising out of such works can have serious effects on a workers health which further increases the healthcare costs.