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November 18, 2016

Has the gig economy peaked?

The gig economy might not be sustainable, according to a new study by the JPMorgan Chase Institute, which finds that the number of workers joining has declined dramatically over the last two years.

The growth of what the report refers to as the online platform economy (OPE) has certainly been contributing to the changing nature of work. The report, which draws on a sample of over 240,000 individuals who received income from the OPE between October 2012 and June 2016 from one or more of 42 different platforms, explores the dynamics of participation and earnings in order to better understand why growth has slowed.

Participation on labor platforms (those through which participants perform discrete tasks, such as Uber) has doubled year on year, but participation on capital platforms (through which participants sell goods or rent assets, such as Airbnb) has leveled off.

Monthly earnings from labor platforms have fallen by 6% since June 2014. This type of work appeals to the economically vulnerable—those with low incomes and less stable employment. If earnings fall further and platform work becomes less competitive as the labor market continues to improve, this situation will only worsen.

Turnover in the OPE is high. One in six participants in any given month is new, and more than half of participants exit within 12 months. High turnover makes it harder to sustain growth in the supply of goods and services.

Meanwhile, the traditional labor market has strengthened, reducing the number of likely platform participants. Platforms are therefore becoming increasingly reliant on employed participants, who have less interest in and attachment to platform work. As outside employment options improve, recruiting and retaining platform workers becomes increasingly diffcult.

In summary, growth in online platform participation is dependent on attracting new participants or retaining existing participants. Flexibility alone might not be sufficient to continue to attract and engage participants on existing terms. Automation could also eliminate some labor platform opportunities for independent workers.

Efforts to make independent work more sustainable and supportive for workers across all types of platforms might be necessary for continued growth. But high turnover will affect the design of such support systems.

In his article for IZA World of Labor on employment protection, OECD economist Stefano Scarpetta writes that: “Reform of employment protection legislation should not be conducted piecemeal but should be part of a comprehensive reform package to promote greater adaptability of the labor market and better allocation of labor. Measures should include an adequate safety-net, backed up by effective re-employment services, to assist displaced workers in finding new jobs that pay well and lead to stable job opportunities.”

Harvard’s Richard B. Freeman has written for IZA World of Labor about the challenges posed by technology replacing human labor. He argues that automation can actually improve worker well-being by raising incomes and creating more leisure, but cautions that to benefit workers will need to own shares in capital; for example, through stock options. “Without ownership stakes, workers will become serfs working on behalf of the robots’ overlords.”

Related articles:

Employment protection, by Stefano Scarpetta

Who owns the robots rules the world, by Richard B. Freeman