The Gig Economy Has Potential, But Can It Overcome These Challenges First?
The Gig Economy. Heard of it? No? Maybe you've heard of the platform economy, freelance economy, or the sharing economy. It's a trend that has been growing throughout the world and is directly impacting what the future of work will look like. So, what is it?
The gig economy is ultimately an environment where short-term, "contract" work is the norm versus working full time at a company. In the gig economy, a startup will hire a contract designer for 40 hours of work instead of hiring an employee and spending a bunch of $$$ on something that just needed 40 hours done on it. Uber. Upwork. Qwick. Gigapult.
They are all platforms powering the gig economy. Many credible sources are saying that the gig economy is the future of work and jobs as we know it are going to fall by the wayside. Folks, the data doesn't lie.
According to Upwork's "Freelancing in America" study conducted in 2017, there are some staggering stats that give the gig economy heaps of credibility. Here are a few direct quotes from the report.
"The U.S. freelance workforce is growing faster than the overall U.S. workforce, outpacing overall U.S. workforce growth at a rate 3x faster since 2014. It numbered 53 million in 2014 and grew to 57.3 million this year (8.1 percent growth since 2014) while the U.S. workforce grew from 156 million to 160 million in the same timeframe (2.6 percent growth)." - Source
Freelancers are expected to be the majority of the U.S. workforce by 2027, based on growth rates witnessed in the past year.
We might reach this milestone even faster as younger generations become a larger portion of our workforce. Almost half of working millennials (47 percent) freelance, a participation rate higher than any other generation. Results also show a progression of less moonlighters (19 percent in 2014 down to 16 percent in 2017) and part-time freelancers (59 percent in 2014 down to 53 percent in 2017) and more full-time freelancers (17 percent in 2014 up to 29 percent in 2017).
This is happening. As someone who's spent a fair amount of time thinking about the future of work and the gig economy, these stats excite me very much. I think a future where people have more freedom to work where they want, when they want, and how they want is a powerful sentiment. Remote teams will become more common and the workforce of 2030 will look nothing like the workforce of 2018.
As exciting as this is, it also worries me a little bit too. As a founder and CEO of a company that works with freelancers, I have a bit of insight into the future and I see the potential, but I also see the major challenges that will be present as the gig economy begins to scale. Here are three challenges the freelancers in the gig economy will need to overcome in order to live up to its full potential.
Challenges Facing Freelancers In The Gig Economy
Getting clients for freelancers just starting out is a challenge. For some, they do free work for a year to build a portfolio. For others, they charge low ball rates and find low-quality clients in the process. For a large majority, they never find enough clients and they go back to getting a 9–5. Even for established freelancers, making sure they have enough cash flow from clients is always top of mind.
Unfortunately, this is only going to get more challenging over time. The number of freelancers is going to increase in major cities. This is going to lead to higher competition among freelancers and will likely result in the experienced freelancers getting the lion's share of the work, leaving new freelancers to pick up scraps left behind. Starting to freelance in 2025 will be a lot harder than starting to freelance today, which is a lot harder than having started in 2010. But, if the gig economy is going to thrive, freelancers need to figure it out.
Benefits, Cash Flow Projections, and All the Other Boring Parts of Freelancing
Although freelancing may seem really sexy to most people, there are many parts of it that aren't desirable. For example, most freelancers need to set an LLC to operate under. They need to pay estimated taxes four times a year and that comes out of their direct income. There's no health insurance, 401k, or really any formal benefits at all. In addition, life is a little riskier as a freelancer. If they aren't careful, some months can be really tight if cash flow isn't managed properly. Lastly, freelancing can be damn lonely if you don't set yourself up around people.
I have a hypothesis that there will be a wave of people who don't think about these downsides, dive right in, and make legal or tax mistakes. OR they'll realize that they aren't cut out to work for themselves. I do see carnage coming within the gig economy as it picks up steam. Some people prefer the stability within their job, for good reason. So, I believe the last challenge is:
Higher Quality Marketplaces
Right now, the most popular and most used marketplaces for freelancers are very low quality. Freelancers charge as low as they can to win customers in a race to the bottom. Clients are looking for "a good deal," not looking to invest high amounts of cash into a freelancer. This is a problem: if the most popular freelancer marketplaces out there have a norm of charging 2¢ per word for blog articles and $10 for a logo, it sets a very dangerous precedent for future freelancers and clients.
New marketplaces need to pop up that are about quality AND about scale. Toptal is working on this-but they only let in the BEST freelancers. What about new freelancers with extraordinary skills? They are SOL. Additionally, Toptal is niche. In order to make a monumental impact, there needs to be a platform where charging high and buying high is the norm, at scale. This is ultimately the fuel for the gig economy that doesn't exist yet.
With That Said…
I'm a believer in the gig economy. My company wants to help fuel its growth, and there are hundreds out there, just like us, who want to do the same. I have faith that the gig economy will mature, grow, and prosper into something beautiful in the future. The stakeholders just need to identify the challenges of growing the gig economy, and address them head-on.
I know I will.