gig_economy

The Science of The Gig Economy

Jacob_Mohrmann
Jacob Mohrmann
Research and Insights Manager, Maritz 

Editor’s Note: It’s remarkably timely that news broke today about California requiring certain “gig economy companies” to treat their contractors like employees. Why so timely? Because I’ve been polishing up this piece from Jacob Morhmann on the behavioral principles at play regarding contract or “gig” workers. It’s a fascinating, evolving topic that individuals, organizations and policymakers need to keep studying.  (I talked to SHRM about some of this last year.)

Full disclosure: I’ve spent 95% of my career as a “gig worker” or what we old people call “freelancing.” It has been both great and terrible. Eventually the secret, mustachioed cabal that funds PeopleScience will fire me for some (totally made-up!) reason, and I’ll be back at it. So I’m reading this, too.

 

You’ve likely heard a lot in the last few years about the “gig economy” and the independent contractors that form its ranks: from Uber drivers, to IT consultants, to creatives, to a random person hanging a picture on your wall or delivering you food.

The gig economy is often pitched as an all-new provider of the ultimate millennial job: be your own boss, work when you want, have a flexible environment and win the game of life! Contract work isn’t new, however, and actual experiences often fall short of this initial marketing pitch. Contract work also tends not to provide the traditional stability, security or benefits that might come with a more formal job, and it creates a different type of relationship between employer and “employee.”

The first thing that comes to mind for many people when talking about the gig economy is Uber or companies whose business models are centered on renting out independent contractors. This includes companies like Lyft, Task Rabbit and Postmates. Uber certainly pitches itself as a vehicle (pun intended) for opportunity, but frequent issues arise. Workers often struggle to make enough, and not knowing how much you will make in a given day, week or month can make life difficult. When factoring in expenses, the average driver makes under $10 an hour. As an independent contractor, workers also lack many "hygiene factors" of employment, such as insurance, benefits, protections under labor laws, holiday pay, sick days or disability pay.

 

Workers also lack many "hygiene factors" of employment, such as insurance, benefits, protections under labor laws, holiday pay, sick days or disability pay.

This is not to say that “contract work” is always a negative experience. Some people do relish the freedom and flexibility that comes with contract work, particularly when those jobs come with better pay and good treatment by employers. One prime example of this is a behavioral researcher at Irrational Labs. They bring her in on a temporary basis to help work with and consult for companies and to help run interesting experiments. There is an element of expertise and prestige to her job, and her work remains fresh and interesting when she is brought on new assignments. She also benefits from being able to take time off as she needs, both for vacation and daily needs, and her work is 100% remote.

There are some obvious differences between this position and others, and those point to why it is so positive and successful by comparison. Important behavioral needs are addressed. There are hygiene factors such as salary (and enough salary to make up for the fact that benefits are not provided through the job), elements of status and respect, and she has a flexible work schedule and sense of autonomy. The one main difficulty in her case is being remote all the time. She lives in a different city and relishes the ability to work with a cool company in another location, but it can feel a little removed from the action when she is always working from somewhere else. (Editor’s note: I am not moving to wherever the secret cabal that funds PeopleScience is. Unless it’s Cabo.)

These behavioral needs and hygiene factors, of course, are not addressed in all contract worker gigs, and appropriately addressing them is more likely the exception to the rule. Many contract workers are hired for what are essentially normal full-time 9-to-5 jobs, but they are hired via contract companies. These employees often enter into the agreement hoping to eventually work their way to a position as a traditional full-time employee. The current position, of course, does not afford them benefits, flexibility or even the decent pay promised by the gig economy. There is frequently a negative element of comparison as well and a sense of unfairness when working side-by-side with employees that have benefits not afforded to the contract worker. Principles at play: social comparison and relativity.

This arrangement often leaves workers feeling as though they are not full members of the companies they work for, and “identity” is an important motivator (whether you’re working a job or voting). It also leaves them feeling unsupported, and perceived organizational support translates to a lot of important work outcomes like performance.

 

 

This arrangement often leaves workers feeling as though they are not full members of the companies they work for, and “identity” is an important motivator.

There are also often small differences that make it even clearer they are outsiders. For example, consider the full-time social media contractor for a local brand who worked alongside full-time employees of the company. She couldn’t win the company box baseball ticket giveaway even though she received all the emails asking who wanted them (and even once responded first and would have gotten them, prompting a new term I just made up: reverse regret lottery?). It is important to note that contract workers being excluded doesn’t only affect one employee. A friend of mine at that company mentioned that the contract worker situation, especially with the tickets, left everyone feeling awkward and uncomfortable.

Another worker who helps run the operations of a local beverage/brewing company said he recently had to go home sick at other employees’ request, so he wouldn’t infect them. He, of course, didn’t get paid for the sick day and isn’t allowed to work from home because contractors aren’t allowed to check out laptops or work from home. He gets holidays off but doesn’t get paid, which others at the company in the same job do. He can’t use the on-site gym, even though it’s empty most of the time. Flu shots are free for everyone but him, but he can pay $16 for the convenience of getting it at work. He has many other complaints but, in sum, he has basically expressed that he doesn’t feel like a full member of the team and doesn’t feel like the company values him.

While every job is transactional to some extent, these contract workers are denied basic perks and benefits that make our everyday work experience feel more like a relationship. Aside from issues of identity and fairness, this can cut down on a sense of reciprocity that workers may feel towards their employers, and thus the amount of effort they will expend. Plus, as we know from research on social and market norms, transactional relationships are less likely to foster loyalty than relational ones. (Editor’s note: More on this coming soon to PeopleScience. For now, trust us, it’s true.)

Beyond behavioral factors like identity, organizational support and reciprocity, there are even more basic detractors from a contract worker’s experience, like a lack of breaks and vacation time. Research shows that breaks and vacations are important, but employees that do not get paid for holidays, or even sick days, are not motivated not to take them. Even when they do, they can’t relax as much knowing they aren’t sanctioned, paid breaks. This leads to higher burnout and lower productivity.

The differences in experience highlighted by the examples of the researcher and the operations and social media workers are further supported by a 2014 academic paper on the gig economy. The paper concluded that some people do prefer gigs to jobs and relish the freedom from employer commitments, not having to go to an office, and the flexible work hours. It also concluded that few of the workers in the gig economy experience this happy lifestyle. The relatively well-paid independent contractors are happy with their alternative arrangement, but solid majorities of workers in the other categories of contingent workers would likely prefer traditional jobs. As evidence, the study looked at the share of jobs the gig economy had over time: over time, gig jobs declined as a share of the economy when workers had more bargaining leverage during the employment boom – the first internet boom – of the second Clinton Administration, suggesting it is likely employers, not employees, who are pushing the gig economy.

 

 

The relatively well-paid independent contractors are happy with their alternative arrangement, but solid majorities of workers in the other categories of contingent workers would likely prefer traditional jobs.

It’s important to gather more data and analysis on this snowballing build of the gig economy. While it falls short of a full data analysis, a recent article in the Wall Street Journal suggests this effect may be present today as well. The article highlights the ever-increasing difficulty of gig economy companies in hiring and retaining workers, especially as unemployment has been decreasing. It even mentions some companies that have responded to this struggle by either hiring full-time employees (Waitr) or collapsing (Homejoy).

Perhaps many employers hire contract workers instead of full-time employees because they can get away with paying them less or because it provides the opportunity to “try someone out” before offering full time employment. Aside from the impact on the worker and the ethical implications of hiring a low-paid temporary contract worker instead of a full-time employee, companies ought also to consider what they are missing out on. They need to weigh the behavioral costs of their actions. Will retention suffer and thus increase hiring and training costs – aka “churn” – and reduce productivity? What about the impact on company culture and other employees? Will it limit productivity and performance because of reduced identity, reciprocity, perceived organizational support and a more transactional (vs. relational) relationship? All these factors are worthy of consideration.

 

Companies ought to consider what they are missing out on. They need to weigh the behavioral costs of their actions.

While some hiring executives might skip these calculations and focus more on shorter-term compensation costs, these behavioral effects aren’t ignored by every stakeholder. When I was talking to the operations worker about his experience, he mentioned the huge turnover among contract workers and talked about how the company was always hiring and training new people for the same positions. Personally, he was recently denied the request to be brought on as a full-time non-contract employee and is considering leaving.

Companies should do a better job of considering the behavioral costs of hiring low-wage contract workers to do full-time work in terms of productivity, loyalty, identity, retention and culture. Doing so will allow them to better calculate the total costs and benefits – to their organization, workforce and community – of the gig economy and how that impacts everyone’s bottom line.

 

Jacob_Mohrmann
Jacob Mohrmann
Research and Insights Manager, Maritz 

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