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No, the Sharing Economy Isn’t Dead

How to understand new data on independent contracting.

Jonathan Weiss/Dreamstime.comJonathan Weiss/Dreamstime.comFor years, we've heard about the growth of the sharing economy as online platforms like Uber continue to shape the U.S. economy. But how influential are they really?

A recent Bureau of Labor Statistics survey on alternative work arrangements claims that there are fewer independent contractors today than there were in 2005—back before Uber's founding. Considering that the ubiquitous online platforms rely on independent contractors, this survey led some to declare the death of the sharing economy.

But don't start writing the obituary for the side hustle yet. This new data doesn't prove that the gig economy is dead.

It's important to realize just what the government was measuring. It turns out that the government's survey design paints an incomplete picture of the labor market by excluding millions of entrepreneurial independent contractors. Yesterday, I testified before a House Education and the Workforce subcommittee to set the record straight.

BLS created the Contingent Worker Supplement (CWS) in 1995 to measure work outside of the standard, more common employer-employee relationship. This month's update followed a 13-year gap in releasing the survey. While the CWS contains lots of interesting data, its finding that only 6.9 percent of workers are independent contractor received the most attention, and rightfully so. This measure is down from 7.4 percent in 2005 and less than half the level of most other estimates.

The CWS's main flaw is that it only tracks alternative work if these jobs are a primary source of income. This decision creates problems for the measurement of independent contractors. An office worker who drove with Lyft after work on the weekends would count as an independent contractor unless his Lyft earnings exceeded those from his day job. In other words, all side hustlesare excluded from the government's measures of alternative work.

Other government statistics tell a different story. Data from the Federal Reserve's Enterprising and Informal Work Activity survey estimates that 36 percent of workers took part in all types of freelance work in 2015—five times the level found by the CWS. Of these freelancers, 56 percent are formally employed in other jobs. Similarly, in its survey of around 8,000 U.S. and EU independent workers, the McKinsey Global Institute finds that 56 percent of respondents use independent work to earn supplemental income.

But the problems extend beyond excluding supplemental independent contractor work. The CWS only considers work done in the previous week. Given the nature of freelance work, it would be better to ask about independent contractor jobs over the previous year. A construction worker may freelance as a math tutor through Thumbtack over the slower winter, or a college student may do TaskRabbit deliveries during summer breaks. And since independent contractors are their own bosses, people working side hustles have countless reasons to simply choose to not put in the extra hours during certain weeks.

Another factor that lowers the CWS's measures of overall independent work compared to other estimates is the decision to exclude self-employed people who are not independent contractors (such as shop or restaurant owners).

While there is potential for confusion from some respondents if they owned an Etsy shop, for example, this decision makes sense given that this group of self-employed people is captured under BLS's monthly employment survey. As the CWS's technical note states, "Nearly 9 in 10 independent contractors are self-employed. Conversely, 3 in every 5 self-employed workers are independent contractors."

Additionally, survey respondents may not realize their worker classification status. For people who identify themselves as wage and salary workers, the CWS asks if last week they were working as "someone who obtains customers on their own to provide a product or service." Uber drivers could be forgiven for thinking that they did not obtain customers on their own because they relied on the application as an intermediary.

Despite leaving out millions of workers who use independent contractor gigs for supplemental income, the CWS did provide evidence to counter the notion that all independent contractors are helpless workers stuck in low-wage, insecure jobs that they hate.

The CWS's independent contractors as quite secure in their jobs, as only three percent are classified as contingent workers. Contingent means that workers do not expect their jobs to last or that they work temporary jobs. This is the same percentage as workers in traditional employment arrangements.

When it comes to take-home pay, the CWS finds that median weekly earnings for full-time independent contractors are $851, which is right in line with pay for workers in traditional arrangements ($884). Furthermore, educational attainment among independent contractors is in line with workers in traditional work arrangements, providing evidence that people of all education and skill levels can find ways to work independently. Far from only encompassing low-paying "gig" jobs, the most common industry in which independent contractors work is in the high-paying field of professional and business services.

While the CWS is a very accurate survey, its design leads to an incomplete picture of independent work. Two simple updates to the survey (and a commitment to releasing it more than once every 13 years) would go a long way towards providing some much-needed data on the changing workforce.

First, the CWS needs to measure alternative work that provides supplemental income. Second, it should use a one-year lookback period instead of only asking about work completed during the previous week.

Until those results are available, there is no reason to mourn the death of the sharing economy.

Photo Credit: Jonathan Weiss/Dreamstime.com

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  • John||

    The gig economy was always a workaround for people who were unable to find full-time stable jobs or for whatever reason unable to work such. To a large extent, these sorts of things are people coping with a bad labor market. That is not necessarily a bad thing since it allows people to soften the effects of losing their jobs or being unable to work full-time stable jobs. It is, however, a workaround and not an end in itself. The decline of the gig economy should be viewed as a good thing because it means more people are finding staple full-time jobs and more employers can afford to give them such.

  • SRoach||

    While I'm pretty sure you meant "stable"", not "staple", I find the typo more accurate.
    Which of these sentences makes more sense.
    "The decline of the gig economy should be viewed as a good thing because it means more people are finding reliable full-time jobs and more employers can afford to give them such."
    "The decline of the gig economy should be viewed as a good thing because it means more people are finding normal full-time jobs and more employers can afford to give them such."

    In many cases, normal jobs aren't stable. There is little, if any, recourse to being let go. A house can sit, unmolested, on beach sand for years before the tides wash it away, but I don't think anyone would call such a structure stable. (Mind you, I don't think it's the employers responsibility to guarantee stability, but the employee should go into such jobs with their eyes open, and one eye toward an escape route.)

    While I won't dispute that, probably for most people, a gig is a workaround for a poor economy, many choose a second job to fight boredom, "to get their beer money" as my brother once said, or just because doing one thing doesn't appeal to them.

  • John||

    The point is that you cannot have an economy based on the gig economy. It is always going to be a work around for situations, whatever they are, that are not the norm. Reason doesn't seem to understand that and seems to honestly believe it will become the norm in the future and that is a good thing if it did.

  • Longtobefree||

    Well, the world got around pretty well for thousands of years before "real" jobs got invented.

  • Earth Skeptic||

    ^^This

    I will argue that the transition from tribal/feudal/slave "work" to more independent "gig" activity represented the first manifestation of a free society. And the more recent dominance of "normal" corporate employment is a step backwards.

  • Don't look at me.||

    How awful would it be to have the job to churn out meaningless numbers that conflict with other meaningless numbers that nobody reads or cares about?

  • Bubba Jones||

    *sobs*

  • Eidde||

    It's just resting?

  • Eidde||

    Verily, the day is coming, and now is, when the youth will gaze uncomprehendingly when you repeat a joke from Monty Python.

  • Atanu Dey||

    You stunned him just as he was waking up. Beautiful plumage.

  • Jerryskids||

    I do construction work and everybody I know is an independent contractor. At least in the evenings or the weekend as long as you're paying cash and understand they're not licensed or insured or taking a 1099 for the little job you're hiring them for. And it's been that way for all my life as far as I know.

  • John||

    That is the way it has always been in the trades. And even if they are not working for cash on the side, tradesman often barter their services with other tradesman to avoid taxes. I am a carpenter and come over and build our new deck and you are an electrician and come over and run the wiring for my new bathroom kind of thing.

  • Bubba Jones||

    Or you're a carpenter who just runs the damned wiring himself?

  • John||

    Running wire isn't as simple as it sounds.

  • Longtobefree||

    Actually, it is. Getting the permit, however - - - - -

  • Rhywun||

    In my city, New York, Uber is not a "gig" job anymore, assuming it ever was. It's basically replaced the "car services" (or "limos") you used to see in storefronts around town.

  • Bubba Jones||

    Call for an Uber at LaGuardia and you get a black car with a TLC plate.
    http://www.uber.com/drive/new-.....lc-plates/

  • Rhywun||

    The one I got last night at LGA was red but yeah. And surprise-- it's no cheaper than a cab or the old car services. The only practical advantage from an end-user viewpoint is the convenience of the app.

  • Bubba Jones||

    It's not "sharing" if I am paying money for it.

  • Longtobefree||

    The CWS's main flaw is that it only tracks alternative work if these jobs are a primary source of income.
    Alternative work my ass! I worked just as hard on contracts as I did when I was an employee. The only difference was when I had a contract I knew how long I was going to be doing that job. "Permanent" employees could be laid off at any time. It used to drive them nuts when I pointed out that in a right to work state an employee had no protection, while I had early termination fees in my contracts.

    Damn, how hard can it be? If you get any 1099's at all, you are an independent contractor. You are also a business owner. I have done independent contracting both as my primary source of income, and as a supplement when the scheduling allowed. And yet I was the same humble genius at all times.

  • Longtobefree||

    The CWS's main flaw is that it only tracks alternative work if these jobs are a primary source of income.
    Alternative work my ass! I worked just as hard on contracts as I did when I was an employee. The only difference was when I had a contract I knew how long I was going to be doing that job. "Permanent" employees could be laid off at any time. It used to drive them nuts when I pointed out that in a right to work state an employee had no protection, while I had early termination fees in my contracts.

    Damn, how hard can it be? If you get any 1099's at all, you are an independent contractor. You are also a business owner. I have done independent contracting both as my primary source of income, and as a supplement when the scheduling allowed. And yet I was the same humble genius at all times.

  • Longtobefree||

    The damn squirrels, however, are NOT part of the gig economy.
    They are secret agents of NSA.

  • swampwiz||

    Uh, contractors could be laid off too. Of course, that meant unemployment benefits, which I considered in the total equation when I was a contract employee.

  • swampwiz||

    I used to be a contract employee in software development. Back then, there was more money to be made being a contractor. Now I think folks are doing contract work at worse wages, and are only doing it because of the lousy employment market.

  • Sanjuro Tsubaki||

    It's just pining for the fyords.

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