Can Gig Workers Make It Work During a Market Downturn?

As technology advances and individuals seek more flexible work situations, the gig economy remains active. In 2019, 57 million Americans freelanced, representing 35 percent of the U.S. workforce.¹ However, with a wavering economy as a result of COVID-19, many are facing uncertainty as it pertains to various aspects of their lives, including their livelihood.

One main indicator of a recession is higher unemployment rates, which may call into question the job security of many people, including gig workers.² Currently, unemployment is increasing, but not just from a market downturn, but as a health and safety measure with many nonessential businesses shutting down either completely or partially. In the week of March 14, the number of unemployment claims was 281,000 — an increase of 70,000 from the previous week and the highest level of claims since September 2, 2017.³ The loss of business activity not only affects the employment status of many but the economy at large.

If the market continues to experience a downturn, even after the pandemic passes over, how might gig workers fare? Below we explore how this sector of the workforce might fair.

Who Makes Up the Gig Economy Workforce?

The gig economy workforce is comprised of a wide variety of individuals who earn income in non-traditional ways — per project, as a temporary engagement and more.⁴ Some engage in “gig work” to supplement their full-time jobs, while others piece together various gigs as their means of making a living.¹ Gig workers may be skilled or unskilled and may include the following:

Independent contractors (e.g. freelance writers, designers, marketing experts, musicians)
Contract firm workers (e.g. construction workers, artists, architects, engineers)
On-call workers, (e.g. substitute teachers, TaskRabbit workers, Uber and Lyft drivers)¹

Among the many industries that create the gig economy, the creative industry leads the way with 75 percent of individuals involved in art and design and 55 percent involved in entertainment.¹While there are many types of work (selling goods, unskilled and skilled services/labor and other), skilled services/labor makes up the largest type with 45 percent of gig workers.¹

A Look at History

Before looking at might what happen in 2020, let's look back. Unemployment rates rose from five percent in 2007 to nine and a half percent in 2009 as a result of The Great Recession.² How did gig workers fare during this time?

Interestingly, a study by the Regional Economic Development Institute demonstrates the rise of the gig economy as occurring in tandem with the Great Recession.⁵ The researchers first note the difficulty in analyzing the gig economy because of the ambiguity arising when defining and identifying gigs and gig workers. However, since many gig workers are self-employed, they took a look at non-employer establishments, or those that have no paid employees, versus employer establishments.

In their analysis, the gap between non-employer growth and employer growth grew notably wider during 2007-2009 and the years after. Among many reasons, the researchers point to the following as to why non-employers increased:

Job loss leads to a necessity for self-employment
Technology increases (e.g. the Internet, smartphones, mobile apps) during this time opened up avenues for independent workers
Baby boomers reached a near-retirement age and desired more flexible work situations
Self-employment grows faster than wage and salary jobs during a recovery⁵

While some of the growth in the gig economy can be attributed to the recession, a combination of other factors contributed to its expansion, such as the increase in technology and baby boomers reaching their 50’s and 60’s.

Today’s Circumstances in Light of the Past

While we can’t predict the future, we can look to the past for insight. Since the gig market has grown even more since The Great Recession, there are more factors and industries represented to consider. As a result, it’s difficult to make sweeping generalizations or predictions, but there are a few possible situations, some of which we explore below.

More People Will Look for Gig Opportunities

With companies laying off individuals or going under, it’s likely there will be an increased search for jobs in general and potentially self-employed positions in particular, as was the case in 2007-2009. Since a market downturn breeds uncertainty, some companies may be searching for temporary engagements, opening up more opportunities for freelancers and gig workers.

However, if there are not enough gig opportunities, this may open up more competition among freelancers and gig workers, making it more difficult to secure work.

Some Gig Workers May Be Better Off Than Others

It’s likely that different types of gig workers might fare better than others in a market downturn depending on level of experience in the gig economy, the type of industry and whether or not they are skilled or unskilled.

Experienced gig workers might be in a better position. They will already have both loyal clients as well as greater numbers of clients than those just starting out. Not only will they be a step ahead of new gig workers, but if they lose one client, they’ll still likely have other opportunities in store. This also places them ahead of full-time employed individuals who are solely relying on one employer for their livelihood — and would be out of work if they lost their one “client.”
Skilled workers might be able to make it work over other types of gig workers. The market is largely comprised of skilled workers, perhaps suggesting that this group might fare better than others.¹ Not only would there be a demand for this type of work, but the general population will likely not be equipped with those sought-after skills, meaning there is less competition. Unskilled workers create the second largest group at 30%, suggesting that those who offer skills and labor over those who sell goods may also be in a better position in general.
Certain industries might have an advantage over others. For example, entertainment spending has not been shown to decrease drastically during typical economic recessions, suggesting that gig workers who are entertainers may be able to make it work better than others.⁶ However, the particulars of this crisis include most people being told to stay at home, forcibly pausing entertainment spending.

Whether or not gig workers can succeed in a market downturn depends on various factors and may be different depending on each individual’s unique situation and how both the pandemic and economic circumstances unfold. We could see pertinent technological advancements that open up more potential paths for those entering the gig economy, as was the case with the iPhone in 2007. In addition, depending on how long the pandemic lasts, the picture will look vastly different — with gig workers who are able to work remotely taking the lead.

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.