The Rise of Gig Work in an Uncertain Labor Market:

Amid uncertain macroeconomic conditions, ever-changing tariff policies, and worries about the collapse of an AI bubble, the labor market has seen decreased growth and rising unemployment.

According to global outplacement firm Challenger, Gray & Christmas, there were 153,000 announced job cuts in October – the worst reading for the month since 2003. These layoffs have been due to a number of factors, namely, because of the massive tech layoffs aiming to reverse the increased hiring seen during the pandemic.

Additionally, increased AI capabilities are replacing entire business models, and the labor market is seeing the effects: Chegg recently announced a 45% workforce reduction, stating, “The new realities of AI and reduced traffic from Google to content publishers have led to a significant decline in Chegg's traffic and revenue." Recent data from the Bureau of Labor Statistics puts the official unemployment rate at 4.4% for the month of September. Yet more Americans are working than official data suggests.

So where are people turning to amid a tough labor market? The answer is gig work. According to a report by Goldman Sachs, approximately 20% of people who lost their jobs have turned to gig platforms. Companies such as Uber, DoorDash, and Instacart are absorbing the employment strain, becoming a safety net for those who’ve been hit by job cuts.

Previously seen as a supplemental income source, the view on gig work is changing as it becomes an increasingly integral part of the US labor market.

Why More People Are Turning to Gig Work:

As unemployment ticks up, gig work becomes a go-to choice for those looking to overcome the high barriers to entry of a more traditional job. This occurs for two reasons:

1.      Accessibility – Onboarding to platforms such as Uber or DoorDash is a fast and straightforward process, far easier than submitting countless resumes and cover letters in the hopes of getting an interview. Since no prior experience is required, anyone with a vehicle, bank account, and ID can get started.

2.      Immediate Earnings – gig workers are typically paid weekly, with Uber running payroll every Monday morning. This is faster than the majority of jobs where workers are paid bi-weekly or monthly. With gig work, people generate consistent sources of income on a reliable basis.

3.      Flexibility – Workers set their own hours, deciding not only how long to work, but when. Since gig work platforms operate 24/7, there is no set timesheet. What you put in is what you get out, literally.

However, with the benefits comes the tradeoff in wages: Goldman Sachs noted that gig workers made 50-65% of their previous hourly wages. Despite this, for many, these platforms are the only option. In many ways, gig work is functioning as an informal unemployment insurance system, acting as a safety net until people find higher-paying, full-time roles.

The Hidden Labor Force: How Gig Work Distorts Official Job Numbers

The rise in gig work might actually cause the inflation of unemployment statistics. This is because the IRS classifies gig workers as either independent contractors or self-employed individuals. As a result, the US labor market is actually stronger than the data suggests.

Goldman Sachs notes that over 15% of individuals considered unemployed or not part of the labor force may actually be earning a living through gig platforms. If counted, the employment-to-population ratio would increase from 60% to 65%.

Importantly, the gig worker population is disproportionately made up of immigrants – roughly 20-50%. Although more workers typically push wages down, gig-platform wages, specifically in areas with larger immigrant populations, have increased. Overall demand has outpaced supply, and since these platforms determine pay algorithmically, those in areas with larger congestion are paid higher wages. As a result, immigrant-rich areas have seen some of the tightest labor markets.

While regulations exclude gig work from unemployment data, increased wages and low barriers to entry are weakening traditional employment structures within the country.

Why Platform Gig Work is Still Growing – Even as Consumers Cut Back

Consumer sentiment is at a near all-time low. Survey data from the University of Michigan showed another drop in November, putting the index at 51. So, as consumers cut back spending amid job cuts and higher prices, why are platforms such as Uber continuing to grow?

The answer: such platforms have become a staple in the lives of even low-income households. At the touch of a button, customers can access a wider range of goods than they could get at any restaurant or convenience store. Online Gig-work platforms mark a shift in consumer behaviour, and it shows: In Q3, Uber reported a 21% YoY increase in gross bookings, as well as one of the largest trip-volume increases in company history.

Despite the decline of many large fast-casual chains like Chipotle, Uber continues to expand its customer base by ramping up offerings. As a result, loyalty programs such as Uber One have seen growth of over 60%, with over 36 million active monthly users.

Key Takeaway: As consumers continue to spend on Gig-work platforms, demand for delivery drives increases, and the shift towards gig-work becomes more prevalent.

Looking Forward: Portable Benefits and Job Quality Reform

While gig-workers' preferences for specific benefits are diverse, they share a common desire for financial security.  There is ongoing tension between how employers can deliver the necessary benefits while preserving the flexibility and independence of gig work.

A recent Brookings panel defined the “big five” – the most commonly desired benefits, which include retirement, healthcare, childcare, education, and housing. Attempting to fill the gap, legislation such as the Portable Benefits for Independent Workers Pilot Program Act aims to provide benefits through new channels, such as portable benefits or national public retirement. The act allocates $20 million to the Department of Labor to fund grants for testing and developing portable benefit models.

A notably successful initiative is DoorDash’s Pennsylvania Portable Benefits Savings Pilot. The program aimed to help Dashers put money towards savings and expenses such as retirement, health insurance, and paid time off. The outcome?

66% of Dashers who lacked access to benefits gained new access through the program. 89% said they felt more financially secure, and 97% said they would feel even more so if the program became permanent. Overall, Dashers used the benefits to support time off, build emergency funds, and cover health expenses.

The future of gig work hinges not on job availability, but stability.

What This Means for Investors

1.      Platform Profitability Is Still Expanding

Companies such as Uber and DoorDash are increasing customer retention and transaction volumes through loyalty programs. As platforms continue to expand their offerings, diversification hedges demand swings, making them a stable investment opportunity

2.      Gig Work Demand Won’t Slow Down

It doesn’t look like we’re getting an end to tariffs or job cuts anytime soon, and as economic strain increases, there is an increasing supply of gig-work labor. Plus, as these platforms increasingly become a staple in consumer life, demand becomes even more durable.

3.      Regulatory Changes Could Reshape the Industry

New Portable benefit programs might raise costs but improve job retention, meaning a more consistent flow of delivery drivers. Moreover, worker protections could likely shift margins between platforms depending on the specific benefits offered.

Conclusion

Gig work is no longer just a side hustle; it's becoming a pillar of the labor market, especially during times of increased uncertainty. In downturns, people turn to gig platforms. In downturns, they stay for flexibility.

The gig economy is filling gaps of traditional employment, but the next evolution will depend on whether policymakers, platforms, and workers can build a model that balances flexibility with security.