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The economics of the Digital Transformation – XV

An infographic showing 150 apps and websites connecting offer with demand, enabling the Gig Economy. Image credit: Titlemax

Gig Economy

The Gig Economy has been part of the global economy since trade and commerce were invented. Actually, one might claim that the Gig Economy pre-date all other forms of economy. Industry and organised commerce came relatively late in the history of humankind. In the beginning there were only artisans and people offering their skills on demand.

The organisation of work and the need for capital (CAPEX) has shifted the balance toward enterprises and full time jobs since the organisations provided the means to effectively tie the value produced to the market. This tie (also known as transaction cost) is crucial and it has killed artisans and individual labour to a large extent.

However, the Digital Transformation by decreasing (several) transaction cost is tipping the balance in the other direction. Now a single individual can reach the market at very low cost. Think about a Uber Driver or a home owner (Airbnb). They can connect in a most effective way, and at very low cost the first with an audience that keeps changing (people in the area looking for transport) the second to a world audience. Notice the examples have been chosen to highlight two properties of the cyberspace:

  • Real time snapshot of the context
  • Irrelevance of physical distance

Add to this the fact that many activities that cost (in effort and money) in the physical world, like advertisement, billing and invoicing are basically free in the cyberspace, that is, there are platforms and  applications that can be used at close to zero cost. These platforms are so important that sometime the gig economy is also referred to as the “platform economy”.

The platforms are the equivalent of the factory, providing the aggregation point for workers and the tools to make workers productive and reach the market although without establishing, in general, contractual obligations. Most often, algorithms (like reputation assessment) are deciding who can get a job at that particular time and this often creates a stressful situation for the worker who needs to beat the other pretenders through the algorithm determination of preference. These platforms requires huge investment (although usually a much lower one if compared with a physical factory) and there are a few of them covering a global market.

There are hundreds of apps that connect offer with demand, be it babysitting or dog-sitting, renting or selling old stuff, ridesharing or parking rental. There is basically an app for everything one can imagine and if there is not an app yet it will be created immediately as need arises.

If one as writing skills there is an app to connect to those needing them, there is even an app for ghost writing blogs. There are apps for translating text and apps for proofreading, apps for fixing appliances and apps for chaperoning.

The US is probably the most advanced gig economy with over 40% of US workers participating –full time or part time, with almost half of millennials using it. The total turnover reaches 1 trillion $.

The upside is in the flexible use of time, easiness to find a job, possibility to use it as a temporary solution or as an additional income. The downsides are longer working hours (57% work more than 40 hours per week) no access to employer’s benefits and an average pay that is less than half the one of normal workers.

The pandemic has made all these downsides even more visible. On the one hand the total lack of protection has led to massive loss of income and on the other hand the sudden increase of people who lost their work in the classic economy has increased the number of those seeking an alternative in the gig economy thus creating a bloated offer that decreased the earnings.

Some Countries have started to look into regulating at a basic level the Gig Economy labour market to offset some of the downsides.

Developing countries are also seeing a significant growth of the Gig Economy, mostly because of younger population and lack of alternatives. In these Countries the Gig Economy offers a working platform that is otherwise missing.

About Roberto Saracco

Roberto Saracco fell in love with technology and its implications long time ago. His background is in math and computer science. Until April 2017 he led the EIT Digital Italian Node and then was head of the Industrial Doctoral School of EIT Digital up to September 2018. Previously, up to December 2011 he was the Director of the Telecom Italia Future Centre in Venice, looking at the interplay of technology evolution, economics and society. At the turn of the century he led a World Bank-Infodev project to stimulate entrepreneurship in Latin America. He is a senior member of IEEE where he leads the Industry Advisory Board within the Future Directions Committee and co-chairs the Digital Reality Initiative. He teaches a Master course on Technology Forecasting and Market impact at the University of Trento. He has published over 100 papers in journals and magazines and 14 books.