Is the gig economy all it’s cracked up to be?
The “gig” economy was supposed to be an opportunity for entrepreneurs to be their own boss. Everyone from Uber to Postmates, Lyft, Airbnb, Turo and Parklee have all sold themselves as platforms for freelancers and would-be entrepreneurs to work for themselves.
But what about the dollars and cents? Are people really making a living doing this stuff? Can they quit their jobs and become full-time entrepreneurs driving for Uber or Lyft? Unfortunately, that’s probably not a great idea.
There’s no debate about the growth of the gig economy. A 2017 report from employee staffing firm Kelly found that there are approximately 50 million free agents in the US, constituting a third of the workforce. Outsourcing site UpWork says that nearly half (46%) of Gen Z workers (who are generally defined as those people born between 1997 and 2000) are freelancers. Data compiled by Wonolo, a firm that connects contractors to companies, found – among other things – that gig economy workers and freelancers contribute $1.4tn to the US economy annually and that the growth in freelance workers is nearly doubling every year.
But a new study by the JPMorgan Chase Institute seems to indicate life in the gig economy is not what it has been cracked up to be. The study didn’t rely on surveys or questionnaires. It used actual financial data. The company dug up 38m payments directed through 128 different online platforms to 2.3m of its customers’ checking accounts from October 2012 to March 2018. Its conclusions are pretty obvious: you may want to keep your day job.
First the good news: People who actually have assets and are able to rent them out on sites like Airbnb, Turo, Parklee and other apps saw a 69% rise in their incomes during this period. Unfortunately, the same can’t be said for those who don’t have an asset and instead are looking to rent themselves out – like the people who work in the transportation sector. The average Uber, Lyft or Postmates delivery driver made 53% less in 2017 than in 2013. Those workers are seeing about $783 a month on average (down from $1,469). It’s certainly not a princely sum.
Why have those drivers suffered such a steep income decline? JP Morgan Chase offers a few reasons. Among them are fewer working fewer hours, a flattening of demand, a decline in trip prices and an overall decrease in the amount these platforms are paying.
The lesson for gig workers should be clear. Renting out physical property is a business that goes back to the beginning of civilization and today’s online platforms are making it easier. But renting out oneself – unless you have a whole bunch of skills, degrees or certifications – is never going to be a profitable endeavor. Even Uber and Lyft agree that driving people around for them is not meant to be a full-time business.
“The fact that this study did not examine hourly earnings, the metric that drivers care most about, has resulted in misleading headlines,” a Lyft spokesperson said in an email to Recode. “Many more drivers are choosing to earn with Lyft on a part-time basis, often fewer than 10 hours per week, and they tell us they truly value the flexibility Lyft provides.”
If you want to start a real business, then start a real business. If you just need to earn a few extra bucks to make ends meet, then by all means drive for Uber or rent out a room. But don’t buy into the myth that the gig economy will be your road to entrepreneurial success – unless you have a lot of assets to rent or more than 24 hours in a day to work.