The Gig Economy is Terrible: Here's Why

Meet Abraham. He is trying to pay off the lease on his new Lincoln. He got it to stand out in the fleet of other Uber vehicles. He drives for hours every day to try and make a living from what was once a lucrative job. Now, Abraham is barely making it from one paycheck to the next. He’s depressed, overworked, and in debt. What he is not, however, is an employee. Yes, strange as that sounds, that one keyword has been the bane of the existence of Abraham and many of Uber's most important staff - their drivers. They are drivers, yes, but as far as the company is concerned, they are “independent contractors,” not employees. This distinction is crucial to Uber's business model since being an employee, at least in the United States of America, entitles you to a host of benefits and protections that companies must respect, including a minimum wage. It also includes retirement benefits, job-security. Independent contractors get none of that. Instead, they are promised the freedom to choose their own hours, a better work-life balance, and more flexibility. How much of that is true, though? Is there any proof in the pudding, or is "independent contractor" just a more merciful sounding version of "very, very expendable"?

Welcome to the world of the gig economy.

Despite only being used by a relatively small portion of the worldwide population, Uber has been one of the most widely recognizable brands for the last ten years. Voted “The Most Successful Start-up” at one point, it’s certainly doing something right. In fact, it's probably doing something special. Even though Uber is known for being a ride-sharing service (of course, they do delivery as well), Uber owns no cars.

Until recently, in most countries, Uber also maintained no formal employment of the drivers that are the heartbeat of its services. Similarly, Airbnb, which is an accommodation rental service, owns no houses. In gig economy land, the intermediary, in this case, Uber or Airbnb, earns its money by taking a commission on the transactions between 2 parties – the rider and the driver, for example. The service Uber offers isn’t the ride itself, but rather finding you the ride. Uber is charging you for having organized this transaction. The same goes for the driver, one could argue. Uber is helping the driver find a passenger, essentially providing them with a service as well. In that sense, the drivers are also Uber’s customers. People disagree about Uber's role in all of this, and it’s been the subject of many lawsuits recently. Drivers on the app felt like they were being denied benefits that they deserve, benefits that even a taxi driver might get, for example.

However, what does the rest of the business world think about this sort of approach? Well, Uber's success has done the talking, and it didn’t take long for other companies to take note and implement similar systems of their own.

For instance, FlyBLACK for private flying, where you don’t choose a flight time but instead, book a "departure window." Commonly referred to as Uber for private flying, FlyBLACK has a fleet of over 3000 aircraft. As these businesses grow, stories emerge that start-ups like this one have managed to cut enough costs that they are not that much more expensive than commercial airlines. All the while, offering other benefits like allowing you to arrive just 15 minutes before your flight. There is Slate for house cleaning. Admittedly, house cleaning is more of a nit-picky activity than being driven in a taxi. The company was unsuccessful in its initial launch and had to adapt its service to meet the many definitions of "cleanliness.” There are even Uber-like services for babysitting!

By removing the traditional organization of formally employing a bunch of people, taking care of them, and being liable for them, the Uber business model has significantly brought down its costs. However, beyond the bang for your buck, why is the gig economy idea catching on so well? Well, it’s flexible. Not just for the employer but also for the employee. Paperwork, working hours, the ability to switch markets etc., are all reasons why the gig economy has more than a few admirers. The general idea of the gig economy, especially with online gigs, is that it allows people to work jobs that would be much harder to get with traditional bureaucracy. You can, for example, try coming to San Francisco and getting a United States Work Permit to work at a graphic design firm, or you could just open an account on Fiverr from Lisbon and do a similar job. You could either pay thousands of dollars for flights, relocation etc., and move to a different part of the world to find a better job, or do it from the comfort of your home, closer to the people you love.

The pandemic has driven this realization home, and now more and more people are trying to take advantage of the gig economy. People can now try out fields they have always been interested in but were deterred by a high entry bar or paperwork. Independent contractors often report being happier than their regularly employed counterparts as they have more control over how they spend their time. The gig nature also fundamentally involves less commitment, and encourages more risk-taking by people who would previously have been risk-averse in their nine-to-five office job.

However, the same flexibility that made Uber so good took away some of the responsibilities employers had for their employees. Insurance benefits, lack of a minimum wage, and lesser-known restrictions on the job are why there are many class-action lawsuits against companies that follow the Uber business model. Uber is undoubtedly aware of the importance of its employees. For the positions that help keep their app – the most critical element of the business- afloat, Uber hires full-time employees and pays them handsomely. Nobody is arguing that drivers should get software engineering wages. But, the absence of basic employee benefits is difficult to accept, to say the least. Even if you choose to side with Uber, let’s say, in the classification that the drivers are not their employees but rather customers of some sort, one would have to ask why "the customer is always right" no longer seems to apply.

Uber probably epitomizes the gig economy more than other companies, but that doesn't mean there are no other big players around. Fiverr, Upwork, and PeoplePerHour have also been notable players in the gig world. The services that they offer have the same idea. They connect graphic designers, for example, with people who need some graphic design work. Of course, the actual repertoire of their services is more extensive. Freelancers, as people on these platforms are called, have been around for a while now. However, they were never more relevant than during the pandemic years from 2020-2022. During that time, people dreamt of going to far-flung destinations and continuing to work online in order to disconnect from what was a somewhat restrictive reality at the time.

The people who could most take advantage of that were freelancers and gig workers. If they didn’t like this gig, they could try that one. Simple as that.

For all its freedom, though, the gig economy's market-level effect is that a bare-minimum price does not limit contractors as they would be in the "real" world of employees and employers. The lowest bid wins the gig but, in doing so, sets a market rate that is detrimental to everybody. Bringing in immigrants for jobs that citizens won’t do has been essential in social mobility through immigration. The gig economy stands to threaten that as well. Why would any company even bother to go through all the work of hiring someone if they can forgo that by saying they are "independent contractors.”

The possible abuse of this term has meant that Uber and other gig economy businesses are facing mounting pressure. Many companies are returning to the traditional model of having full-time, office-going employees in order to 1. Avoid similar legal struggles as Uber and, 2. To have better control over their workforce. Slate, for example, initially failed to meet its customer's requirements for house cleaning. They realized that the only way to solve this problem was to have better control over whom they hire, as the cleanliness requirements were too vague to be met by someone who had just signed up on the app. Babysitting apps "Poppy" and "Trusted" also had this issue because their success relied too heavily on whether customers could trust the service's independent contractors with their children. As a result, they pivoted away from the independent contractor model to having more regular employees whom they could train, and could reprimand if something went wrong. Uber's CEO has said that the company is willing to cover health benefits for drivers that log full-time hours. But full-time hours defeat the purpose of the gig economy’s supposed flexibility.  

The gig economy may not be so flexible after all. Take Fiverr, for example. It will gladly advertise its flexibility when it needs to. Freelancers report that those who work the most frequently are bumped up by the algorithm, and that freelancers who actually would like to utilize their freedom – the entire selling point of this type of work – are banished to the depths of algorithmic unfavorability. It is not unreasonable that a company would like regular productivity. The issue lies in the fact that these services are expecting the effort of a full-time employee while denying the benefits of that status. You could be a regular contributor to Fiverr and climb the ranks over the years, but the moment you choose to take a break, your worth plummets.

Uber's so-called independent contractors can earn higher wages than their taxi-driving counterparts, but whereas gasoline and insurance are a part of the deal for the average taxi driver, that’s not the case with Uber. New Uber drivers are often drawn to this seemingly higher wage only to later find themselves locked into an ecosystem that is not any less restrictive than the one they thought they left. The freedom they like to advertise as the selling point of this business model is of no value in the real world- Uber drivers have to accept rides, even if they don't want to. If they don’t accept them, or if their ranking goes below a meager 4.6, they risk "de-activation."

Remember the Amazon workers who had to pee in bottles because they were afraid of taking bathroom breaks? They were also "independent contractors." So much freedom, you might think. This is precisely what the gig economy thrives on. Promises made but not kept. This is also why employees get the protections that they do and why so many people fought for this to be the norm. If the gig economy is going to market itself as a modern paradise where you can work whenever you want from wherever you want, it better live up to it. The dystopian reality of gig work is slowly being noticed more and more. AirBnbs have changed the real-estate landscape for many locals in tourism hotspots. Touristy places worldwide are experiencing real-estate inflation to the point where they can no longer afford homes. They’re pushing off having kids because they can’t afford to live in their hometowns.

In the end, the gig economy comes off as almost Orwellian in its activities – fake promises of freedom, "de-activation" as punishment, and a framework that is being uncovered as being increasingly exploitative with each lawsuit. If there is any truth to the label, in fact, it's in the fact that independent contractors are, indeed, quite independent- they’re on their own. The typical office cohesion that colleagues can share is utterly non-existent for workers in the gig economy. This has played a part in companies being able to strong-arm anything out of their contractors. Some of these services are really pushing the envelope as to what can be achieved, while allowing people to experience jobs they might never have had the chance to do before. You can hire someone with just a few clicks to create your wedding invitations, hitching a ride is instantaneous, and your packages arrive right to your doorstep. But at what cost?