What will be the effect of coronavirus on gig economy workers?

If demand for ‘gig economy’ work increases as companies try to save costs in the Covid-19 recession, that could allow more people to work flexibly. Alternatively, if more people enter the gig economy, perhaps because they can’t find other jobs, competition for limited ‘gigs’ could increase.

Every day we hear more about the turmoil in labour markets caused by Covid-19. But even before the crisis, new technologies were changing labour markets. Over the past ten years, a new form of self-employment has emerged: the gig economy.

Gig economy workers provide a service (such as a taxi ride or a take-away delivery) on demand, through a platform or app (such as Uber or Deliveroo) that can connect workers and customers directly. Rather than earning a regular wage, they are paid for each ‘gig’ that they do.

Now Covid-19 looks likely to cause even more disruption in this labour market. Gig economy workers have no job security, so that when demand falls during a crisis, workers’ incomes fall immediately. As self-employed workers, they often do not have benefits such as sick pay.

In the short term, the pandemic could affect these workers particularly badly. In the longer term, it is unclear how the pandemic will affect the size of the gig economy, or the type of people working in it over the next decade. Research will be needed to track these changes.

What does evidence from economic research tell us?

As it is a relatively new phenomenon, there is little research about the effects of recessions on gig economy work. But previous research suggests that self-employment more generally can increase following a recession (Congregado et al, 2011). This is referred to as ‘recession-push’ self-employment, where a lack of other employment opportunities pushes people into self-employment, rather than being unemployed.

Evidence suggests that employers also switch to using more insecure forms of work when demand falls and uncertainty rises, such as temporary agency work (Houseman and Heinrich, 2015).

Early research on the short-term effects of the pandemic in the UK indicates that the self-employed are more likely than regular employees to have suffered a fall in hours and earnings in March 2020 (Adams-Prassl et al, 2020; Blundell and Machin, 2020).

Related question: How is coronavirus affecting the self-employed?

Before the current crisis, the gig economy was growing overall (University of Hertfordshire, 2019). Globally, demand for digital gig economy work, such as software development or web design, fell sharply in March. It rebounded in April and May, before falling again during the summer (iLabour Project, 2020 – see Figure 1). There are two possible mechanisms at work:

First, demand for gig work may decrease as the general economic situation worsens during the crisis.
Second, companies may turn to cheaper and more flexible forms of labour, including contracting work that was previously done by employees to gig economy workers.

Figure 1: Digital gig economy work in 2020

Graph showing demand for different gig economy sectors

Source: iLabour Project. Data available at https://ilabour.oii.ox.ac.uk/online-labour-index/. Two week rolling average, indexed to one on 1 January 2020.

Gig economy workers are generally younger, work fewer hours and earn less per hour than other types of worker. Although most use gig work to supplement other income, it is the main source of income for approximately 40% of them (Balaram et al, 2017), and approximately 40% would like to work more hours (Boeri et al, 2020). Many taxi drivers in the gig economy begin driving after a fall in income from other employment, or after building up debts (Koustas, 2018).

Gig economy workers are not eligible for statutory sick pay, although some platforms have offered sick pay. Some gig economy workers are eligible for the government’s Self Employment Income Support Scheme (SEISS), but the scheme only covers those who began work before April 2019. There is evidence that a large proportion of gig economy workers have continued working, despite worries about the health risks, because they cannot afford not to work (Blundell and Machin, 2020).

There is also evidence from before the crisis that many gig economy workers value the flexibility of being able to work when and where they want. In a survey in 2019, nearly half said that they were satisfied with their work (Boeri et al, 2020).

It is not yet clear what the effect of the pandemic on these people will be. If demand for gig economy work increases as companies try to save costs, that could allow more people to work flexibly. Alternatively, if more people enter the gig economy following a recession, competition for limited ‘gigs’ could increase.

Related question: What are the effects of coronavirus on the UK and US labour markets?

What further evidence is needed?

A major issue is that there are currently no official data on the number of people working in the gig economy, their characteristics, the kinds of work that they do, and whether it is their main source of income.

The research discussed above is based on ad hoc surveys, or data from individual platforms, rather than systematic large-scale survey data. Estimates from smaller surveys suggest that anywhere between 2.1% (Balaram et al, 2017) and 9.6% (University of Hertfordshire, 2019) of the UK’s workforce are using online platforms to earn money.

The Office for National Statistics (ONS) is planning to introduce questions about gig economy work into its quarterly Labour Force Survey, but has not yet done so. This would enable researchers to track the size of the gig economy and the effect of the crisis on gig economy workers more accurately.

In the short term, some countries have been making direct cash payments to workers in response to the pandemic. For example, in March, the US government paid most adults a ‘stimulus check’ of $1,200. Research about the effects of these programmes, and whether they are effective in helping gig economy workers, will be required.

There is increasing interest in a ‘universal basic income’ as a long-term solution to the ‘precarity’ and lack of benefits for gig economy workers. A universal basic income would provide a regular payment to everyone unconditionally, whether or not they are working.

Proponents believe that a basic income would help gig economy workers deal with uncertainty better. On the other hand, critics argue that such a scheme would be too expensive, and could discourage people from working. Others consider that targeted schemes for workers with low and unstable income would be cheaper and more effective.

There have been several trials around the world, including in Canada, the United States and Finland. But there are still unanswered questions about how a universal basic income would work. For example, how would it be financed? What amount should be given? Would it replace existing benefits?

Further research will be required to understand the long-term effect on different types of gig economy work. The effects of the pandemic are unlikely to be the same across the different industries that make up the gig economy. For example, in the long term, the demand for taxi services may fall if there is a reduction in tourism. Conversely, demand for administrative services, such as data entry, may increase if employers wishing to cut costs begin outsourcing more of these tasks.

Similarly, the characteristics of gig economy workers may change. More people may turn to gig economy work part-time to supplement other income. Alternatively, higher unemployment might force workers who would prefer full-time work to enter the gig economy as their main job.

There have been several court cases about the status of gig economy workers. In 2019, the UK courts ruled that Uber drivers are not in fact self-employed, and that Uber must pay them the minimum wage and provide benefits such as sick pay. Uber began its final appeal against the ruling in July 2020. If it loses, the ruling could affect workers who provide services to other platforms as well. Similar cases have been bought in other countries, and research is needed to track the effect of any changes in legislation.

Where can I find out more?

Inequality in the impact of the coronavirus shock: new survey evidence for the UK: Abigail Adams-Prassl and co-authors show how the unemployment shock in the UK affects those of different ages, different earnings levels and different employment contract types.

Good gigs: a fairer future for the UK’s gig economy: Report by the Royal Society for the Encouragement of Arts, Manufactures and Commerce on characteristics of gig economy workers, and the work that they do.

Self-employment in the Covid-19 crisis: Jack Blundell and Stephen Machin at the Centre for Economic Performance discuss evidence from their targeted survey of self-employed workers.

Solo self-employment and alternative work arrangements: a cross-country perspective on the changing composition of jobs: A report published in the Journal of Economic Perspectives.

Universal basic income in the United States and advanced countries: An overview of the issues surrounding a basic income, and the research from previous trials.

What do big data tell us about why people take gig economy jobs? Analysis of previous circumstances of gig economy workers published by the American Economic Association.

Platform work in the UK 2016-2019: A report on the growth of the gig economy from the University of Hertfordshire.