Examining the rise of the gig economy

The modern business landscape may not quite live or die on contract employment, but numerous industries pivotal to the global economy — IT, professional services and health care, to name a few — are generating new jobs at a pace that may not be sustainable. This is particularly true of tech: the Bureau of Labor Statistics projects 13 percent job growth between 2016 and 2026 across all tech employment classifications. Moreover, recent PricewaterhouseCoopers research indicates that there will be one million more jobs requiring computing skills than applicants ready to fill them by 2020.

These employment trends aren't guaranteed to last. But there's no doubt that contract labor carries immense importance right now and will likely do so for the foreseeable future. To understand how the gig economy affects your business, take a look at how contracting rose to its current level of importance and where it appears likely to head.

A slow but steady uptick 

The gig economy may have attracted increasing attention in recent years, but contract work is nothing new. Data from the Bureau of Labor Statistics (BLS) released in June 2018 show that 6.7 percent of American workers were independent contractors in 1995 — not many fewer than the 6.9 percent who identified themselves as such in 2017. In fact, the BLS reported that an even higher percentage of U.S. employees — 7.4 percent — were contractors in 2005.

However, those figures don't count workers who received their assignments from contract firms, on-call employees and those hired through temp agencies. Economic experts disagree about how many Americans are contract employees. This disagreement stems from loose definitions of contingent labor, as noted in a post on the Wharton School of Business' Knowledge@Wharton blog. For example, Lawrence Katz at Harvard University and Alan Krueger at Princeton University show that the percentage of American employees engaged in "alternative work arrangements" jumped from 10 to 16 percent from 2005 to 2015. Indeed, the authors argue that "all of the net employment growth in the U.S. economy from 2005 to 2015 appears to have occurred in alternative work arrangements." Katz and Krueger, unlike the BLS, consider on-call employees and those hired through temp agencies and contract firms in their analysis. Given the ways in which contracting has changed over time, the Harvard-Princeton study may offer the more comprehensive assessment of its scope.

Factors driving the shift 

Undoubtedly, hiring an increasing proportion of contract workers rather than permanent staff helps employers' bottom line, by providing an opportunity to reduce costs such as employee health insurance and retirement contributions. VentureBeat pointed out that many startups, particularly those involved in or largely dependent on tech, turn to contingent work early on in their life cycles to avoid cash-flow problems. Hiring contractors also enables companies to eliminate, or at the very least mitigate, certain human resources risks: The average number of personnel issues per employee drops considerably when employees have shorter tenures.

However, according to NPR, a fair number of freelance workers are taking impermanent gigs by choice rather than necessity, even if they may not be guaranteed health insurance, other benefits or a path to full-time work. Flexibility is important to individuals operating in highly selective segments of the tech sector, like high-end code work, as well as those with skills germane to burgeoning trends like blockchain or machine learning. (Those in the latter category may even have more than a few firms jockeying for their services.) Last but not least, employees who belong to the millennial generation have become accustomed to nontraditional work arrangements, and they will soon occupy a much greater share of the workforce than baby boomers or members of Generation X.

The shape of contract labor to come 

Company leaders, economic experts and workers across all sectors know that contracting will remain pivotally important. It may not fulfill the most dramatic predictions of its dominance, like the 2010 Intuit study predicting that up to 40 percent of the American workforce would be contractors by 2020. But its importance remains undeniable, and organizations need to make sure that they only team up with staffing firms capable of identifying and delivering premier talent in such a competitive business era.