What is the Gig Economy?
If you’re thinking about picking up work in the gig economy to help pay off debts, learn how Tally can help you without putting in extra hours.
August 16, 2021
The gig economy has been expanding steadily since the turn of the millennium. Between 2000 and 2017, more than eight million people filed sole proprietor tax returns, signaling major growth in the gig economy. T What’s more, as many as 44 million Americans now engage in self-employment activities during any given week. That represents 28% of the entire country’s workforce.
But, just what is the gig economy? For that matter, what is a gig worker? Are they synonymous with self-employment and independent contractors, or are there important distinctions? Here’s an introduction to these terms, how they relate to the gig economy and what it all means for you.
The gig economy explained
The gig economy is a portion of the labor market that consists of independent contractors rather than full-time employees. The demand for their services is diverse, which has created many types of gig workers. Gig jobs can include everything from dog walkers to software developers.
The term can still be a bit nebulous and has further connotations that distinguish it from general self-employment. For example, nearly half of all physicians are owners or independent contractors at their practices, but they have not historically been considered part of the gig economy.
That’s because gig jobs are so named not just for the status of the service providers as independent contractors but also for the short-term nature of the work involved.
Consumers want food delivery, and drivers fulfill their orders in an hour.
Businesses need website pages, and designers complete them in a week.
A couple wants pictures of their wedding, and the photographer takes them in a day.
At the end of each of these “gigs,” the worker’s relationship with their client ends. The gig worker must generate (or at least fulfill, depending on their business model) new demand for their services.
The role of online platforms in the gig economy
Unsurprisingly, the internet has been one of the most significant factors behind the gig economy’s growth. Its unprecedented ability to connect buyer and seller has led to the formation of “on-demand companies,” which combine instant digital communication and an established wish-fulfillment system.
The strategy is a massive contributor to the increasing size of the gig economy, as seen by the rise of companies like Uber and Lyft. The number of sole proprietors providing these taxi services increased by a whopping 722% between 2000 and 2017.
Of course, on-demand services like these aren’t the only gig economy platforms. More generic freelancing sites like Fiverr and Upwork have had a similar effect on other industries as well.
These established marketplaces make online gigs available to everyone and minimize the impact of what is typically the biggest hurdle for independent contractors: finding a stable source of customers willing to pay for their services.
The future of the gig economy
The gig economy is showing no signs that it will slow down any time soon. If anything, its growth is likely to accelerate as the platforms become more widely established and the career path becomes more accepted.
While COVID-19 was a setback for the gig economy, it also forced droves of workers to resort to gig work that wouldn’t have done so otherwise. Before the pandemic, the unemployment rate among full-time workers sat at a near-record low of 3.5%. During quarantine, it peaked at a staggering 12.8% – more than three times higher.
Many workers had no option but to resort to picking up gigs to make ends meet. For example, food delivery was a particularly attractive option.
Unemployment levels have since returned much closer to their previous levels. If the gig economy sees a similar return to form and resumes its steady march upward at the same rate, 50% of the American workforce will participate in the gig economy in some way by 2027.
Should you participate in the gig economy?
It’s no surprise that the gig economy has experienced such sustained growth. Dissatisfaction with the 40-hour workweek has been rising for years, and freelancing offers a sense of freedom that employment can rarely match. 59.9% of self-employed workers report a feeling of empowerment in their ability to make meaningful change versus just 44.3% of salaried employees.
If nothing else, it can eliminate the presence of the manager relationship, which is one of the most common reasons people feel unhappy in their position. As the old saying goes, people don’t quit their jobs – they quit their bosses.
While there are undeniable advantages to working for yourself, there are significant risks too. Only 39.4% of self-employed people have access to benefits versus 60.4% of employees. They also report significantly less satisfaction with their pay, hours and job security on average.
There are also tax implications to freelance jobs. As an employee, your employer withholds both federal and state taxes from your paycheck. Come tax time; you’ll usually only have to report the amount on your W-2 and maybe some investment or savings activities.
As an independent contractor, you’re responsible for paying estimated taxes throughout the year, as well as accounting for your business expenses. Depending on the complexity of your operations, you might even need to worry about electing a business entity structure.
Whether you should participate will be unique to everyone, but it comes down to finding a balance of fulfillment and lifestyle. Just remember, it doesn’t have to be one or the other. 54% of self-employed people also engage in traditional employment. Feel free to try it out for yourself to see if it works for you.
Considering joining the gig economy to help pay down credit card debt? Let Tally give you a hand. The credit card debt repayment app helps compile all your credit card debt in one place, creating a single monthly payment that helps pay down your debt smarter and faster.