Advice Technology Top News

Do apps that support side gigs help or hurt the economy?

In the past decade, we’ve seen an explosion in apps that support the gig economy—a growing trend of people pursuing independent contract work, often remotely, instead of or in addition to a mainstream job. There has been both support of and criticism for the gig economy as an economic tool, and apps are clearly the driving force for its development. So are these apps beneficial to the economy as a whole, or do they have a more questionable impact?

The Basic Premise

Apps dedicated to side gigs tend to follow the same pattern, and they aren’t always technologically sophisticated. First, there needs to be a customer need—a type of service that ideally, almost anyone could provide. Sometimes, that’s housesitting or pet sitting. Sometimes, it’s providing transportation. Other times, it’s a professional service, like writing, designing, or voice acting. In any case, the app functions as both a sophisticated classified-ad-style matchmaking service and as a facilitator of the services rendered. Take Uber as an example; Uber provides value because it matches you with a driver whenever you need a ride (and gives you riders if you’re a driver), and because it handles things like ride tracking, fare calculation, and other features.

On the surface, this isn’t a bad thing. You can look at it in one of two ways. In the first, this is simply a tool that increases the efficiency of something that would have happened anyway. Services like this have existed for a long time, and not always in app form. For example, if you’re managing a multifamily property as part of your investment property portfolio, you could enlist the help of property managers to take care of things like collecting rent, finding tenants, and managing evictions when necessary. In a sense, customers are paying a fee in exchange for making more money and making their own lives easier, and gig-focused apps aren’t the first things to do this.

You could also see this as the creation of a service that didn’t exist before. Again, we’ll look at Uber here. Taxi services have existed for a long time, but ridesharing services are a fundamentally different experience. Not only is the process of ordering and paying for a ride more streamlined and easier to access, the availability of drivers is greatly enhanced. Airbnb similarly changed the property rental industry to a sufficient degree that it could be considered to have created a new niche. The creation of new industries is almost always a good thing for the economy, since it provides more job opportunities while simultaneously driving new consumer spending.

These thoughts suggest that gig economy apps are mere extensions of things that develop naturally in the economy overall, and therefore shouldn’t bear criticism for impacting the economy negatively. But this isn’t the only dimension to consider.

The Profit Problem

There’s an inherent problem with how this system handles profits, and it’s one with apparent advantages. Tech startups that focus on gig-based transactions count on being able to scrape relatively small fees from either customers or service providers (ideally both). On a large enough scale, even small fees can accumulate to massive amounts of revenue (though this is far from a guarantee). Accordingly, the scale needs to be as large as possible for the company to continue growing and remain profitable.

This is problematic because it encourages razor-thin profit margins for service providers over the long term, and as more service providers begin to lean on the app for part of their income, it becomes harder to leave. For example, if you wanted to break into the ridesharing market several years ago, you would have to charge fares less than comparable taxi services—and ideally, present a unique value as well. Considering high taxi fares, that wouldn’t be much of a problem, but you’d have to take only a small fee so you could incentivize drivers to use the app regularly. Over time, you’d build a base of both drivers and riders, to the point where you can increase your fee. If drivers don’t like it, they can leave—and be replaced by drivers who are willing to take less per job.

Eventually, you’re in a situation where the app company is collecting millions of dollars in profits, while service providers are constantly underbidding each other to ensure they get enough gigs to stay afloat. Customers are able to enlist services inexpensively and conveniently, but service providers are often barely scraping by. The net economic impact is concentrated among stakeholders—not service providers, even if they’re only using the app to find side gigs to complement their main job.

Benefits and Job Security

Gig workers aren’t paid a salary; instead, they’re paid a fixed fee for each “gig” or task they complete. On paper, this is a strong incentive for gig workers to work harder and provide excellent service quality. However, it leads to a sense of job instability. Gig workers are frequently insecure about their future, and have to deal with inconsistent income, which can make it difficult to raise a family or save enough for retirement.

On top of that, gig apps don’t typically provide any type of benefits for their workers, like health insurance, retirement options, or other perks. This isn’t necessarily bad for the economy, and isn’t unique to gig apps, but over time, it can cause serious financial distress. High-tech IoT devices and other breakthroughs are gradually making healthcare less expensive, but health-related emergencies are still the leading cause of debt and bankruptcy in the United States. Without health insurance, gig workers are stuck fending for those costs on their own, and could face financial ruin because of it.

Gig workers also have no options for collective negotiation or even a structure where they can engage with other workers. Regardless of how you feel about unions, this makes it difficult to gain any kind of power as an independent contractor. You don’t have the option to negotiate what rate you’re paid, and if you leave, you’re extremely easy to replace.

Available Jobs

If a company has an option of hiring someone full-time or using an app to hire cheap, temporary help, they’ll probably choose the latter. As an increasing number of jobs and services become available in the gig economy, the number of available full-time jobs could take a hit. And of course, with higher unemployment rates and less demand for workers, the economy would suffer.

Side Effects

If someone is leveraging side gigs full-time, they’ll face a number of other side effects in their life. Faced with inconsistent income and a job that could easily vanish, it would be nearly impossible to secure a mortgage or loan. If fewer people are buying homes, the construction industry would take a hit, home prices would sink, the average person’s net worth would drop, and eventually, the economy could weaken. Considering a relatively small percentage of people rely on gigs for their total income, we haven’t seen this kind of widespread impact, but it could happen as the numbers increase.

This doesn’t even consider the non-economic impact that the gig economy can have on workers. Inconsistent demand leads to inconsistent hours, and sometimes long, boring shifts as workers attempt to pick up tasks to accomplish. That leads to less job fulfillment, and more importantly, a less healthy work-life balance for workers.

The Bottom Line

Despite the weaknesses of the gig economy, there are remarkable benefits as well. People have more flexibility with the type of work they can take on, side gigs can lead to additional income for the average worker, and entirely new industries are being created. There are clearly positive economic benefits from apps that support the gig economy, but if they’re not carefully designed and managed, they could have a negative impact strong enough to negate them.

We need to think carefully about the technology we create and how we use it on a regular basis, or it could ultimately do as much harm as good.

by Frank Landman

About the author

Cue

Add Comment

Click here to post a comment