What the Gig Economy's Rise Means for U.S. Growth -- and for Workers

The following article, originally published at 11:34 a.m. on Thursday, Nov. 17, 2016, has been updated with comments from Federal Reserve Governor Lael Brainard.

Dolly Parton's 9 to 5 wasn't a paean to the virtues of a traditional job in Corporate America. But the secretary she portrayed in the 1980 film of the same name nonetheless enjoyed a steady paycheck, regular hours and paid sick leave.

After 36 years of labor-market evolution, those benefits are no longer standard. Robotics have eaten into well-paying manufacturing jobs, software can perform document reviews once handled by entry-level lawyers and, increasingly, freelance jobs that let workers set their own hours are replacing staff positions.

"While these jobs might provide workers with more flexibility , they might also come with increased income volatility and financial vulnerability," New York Federal Reserve President William Dudley said Thursday during a conference on workforce transformation organized in tandem with the Federal Reserve's board of governors and the Freelancers Union.

Such risks are important considerations for the central bank as it works to achieve stable economic growth and maximum employment in the wake of a global financial crisis and a recession that saw joblessness in the U.S. reach a peak of 10% in 2009.

"There is a long-standing recognition that secure and dignified work provides a key sense of purpose and worth," Federal Reserve Governor Lael Brainard said. "Understanding the evolution of work in today's economy is not only central to the mission of the Federal Reserve, it goes to the core of who we are as providers for our family and our sense of being productive members of our society."

Although unemployment has fallen in the past seven years to 4.9%, frustration with a slow recovery and wages that haven't kept pace with inflation fueled a populist movement that handed the U.S. presidency to real estate mogul Donald Trump, who despite his lack of political experience, convinced voters he could bring back high-paying jobs and "make America great again."

It was a rallying cry that was particularly resonant in so-called Rust Belt states like Pennsylvania, Michigan and Wisconsin, which have traditionally supported Democrats but flipped in the Nov. 8 election. Many of the communities in those states have seen living standards decline with the erosion of stable jobs at employers like Ford (F) , General Motors (GM) and U.S. Steel (X) .

"As technological changes persist, it is inevitable that the nature of our jobs will continue to evolve," Dudley said. "While technological transformation allows for further growth in productivity and innovation, we must also think through how these changes affect the workforce overall."

It's important for workers and advocates across the ideological spectrum to work together on ensuring that freelance workers have the protections and benefits they need, said Sara Horowitz, the founder and executive director of the Freelancers Union, which promotes the interests of contract workers, who number more than 50 million in the U.S.

This fall, New York City approved legislation backed by the union allowing freelancers to file complaints with the Department of Labor Standards against non-paying clients and setting penalties. The union is pushing similar proposals throughout the country.

"We have to imagine a world of stakeholders together," Horowitz said. President Franklin Roosevelt's New Deal, which helped drive an economic boom in post-World War II America, wasn't a mathematical equation, she said, and "we aren't going to go back and rebuild the New Deal in the same pristine way that it worked" through the early 1970s. 

That's partly because the lines in today's labor market are much blurrier. A McKinsey report in October found that as many as 162 million people in Europe and the U.S. -- 20% to 30% of the working-age population -- do at least some independent work.

They fit into four broad groups, the study said: free agents, who actively choose such work and earn their primary income through it; casual earners, who use contract jobs for supplemental income purely because they want to; reluctants, who make their primary living from independent work but would prefer traditional jobs; and the financially strapped, who do extra independent work out of need.

The rise of online platforms like Uber and Airbnb have made it easier for workers across all of those categories to find gigs, according to a December 2015 report by the JPMorgan Chase (JPM) institute, which based its findings on a three-year study of 1 million randomly selected checking accounts. 

In the U.S. alone, nearly one in every 10 residents earned money in the past year through an online gig, 18% garnered income from selling something online and 1% rented property through a home-sharing site, according to a survey released Thursday morning by the Pew Research Center. Totaling all the people who performed at least one of those activities, nearly a quarter of Americans earned money through the "platform economy" in the past year, the survey found.

"Proponents of these digital earning platforms argue that they offer important benefits, such as the freedom and flexibility to work at a time and place of one's choosing or the ability to turn a hobby or pastime into a source of income," Aaron Smith, associate director of research for Pew, wrote in the report. "Others worry that this emerging 'gig economy' represents a troubling shift in which workers face increased financial instability and are required to shoulder more of the burden for ensuring their own pay and benefits."

It's still too early to tell how much of the shift toward contract jobs is a cyclical development caused by the Great Recession as opposed to a structural change, Brainard said.

"If market forces and technology are driving the growing prevalence of gig work, these trends will likely continue, and policymakers must better understand these changes," she said. The U.S. Bureau of Labor Statistics' plans to conduct a survey on independent work next May, the first such report since 2005.

"Better data should help deepen our understanding of how the growth of contingent work is changing the behavior of workers and employers and what these developments imply for the overall economy and household welfare," Brainard said. "We should be attuned to the possibility that the growth in flexible work arrangements may alter the natural rate of employment and how the labor market reacts to shocks."

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