No one wants to find themselves staring down the barrel of a pink slip — just ask the tens of millions of Americans who lost work this past spring as the COVID-19 pandemic hit.
New research, however, suggests the gig economy may be able to take some of the sting out of unemployment for many workers.
In “Gig-Labor: Trading Safety Nets for Steering Wheels,” authors Vyacheslav Fos (Boston College), Naser Hamdi (Equifax), Ankit Kalda (Indiana University Kelley School of Business), and Jordan Nickerson (MIT Sloan School of Management) analyzed Uber’s rollout across different American cities in the period between 2012 and 2017. The team compared how people responded to unemployment in cities where Uber was present to how they responded in the cities Uber had not yet entered.
“In our study … we do look at cities that experience large six-month increases in unemployment to see how well the gig economy serves as a substitute when local economic conditions aren’t doing well,” explains Jordan Nickerson, a visiting professor at MIT Sloan and coauthor of the study. “Interestingly, we see larger effects in these areas.”
To wit, laid-off workers who owned a car and had access to Uber in their city were 4.8 percent less likely to file for unemployment insurance (UI) benefits than those who did not have the option to drive for Uber. Extrapolated nationally, that would mean a reduction of between $492 million and $750 million in UI benefits every year if all unemployed workers had the option to leverage Uber, according to the research.
The team also found that gig work correlates with lower debt. While many unemployed workers turn to credit cards and loans to help pay the bills while they search for work, laid-off workers who owned cars saw their average outstanding debt balances decrease by $544 following Uber’s arrival in their local areas. Additionally, Uber’s entry into a market was correlated with a relative decrease in credit delinquencies of 2.9 percent among car owners.
In a nutshell, the study suggests that the availability of Uber — and other gig work opportunities — acts as an important safety net. When people lose work, they can turn to gig jobs to help them fill income gaps as they search for new full-time opportunities. As a result, they’re less reliant on UI benefits and credit.
“I wouldn’t say [these results] necessarily came as a surprise,” Nickerson says. “We picked these outcomes because we thought they should be affected. At the same time, we had no idea how strong the effects should be, so that was more of a surprise.”
The study’s data set doesn’t cover the COVID era, but it’s likely that Uber was a less viable option for many of those who lost work due to the pandemic. As Nickerson explains, “This was likely more to do with the business model than economic conditions. A lot of people didn’t want to be in a car with someone else while COVID cases were elevated.” By the same token, however, Nickerson notes that “there are anecdotes of other gig jobs experiencing increased demand [following pandemic-driven layoffs], like Uber Eats.”
Shredding Our Own Safety Net?
While the study’s findings cast a light on some of the gig economy’s more positive effects, it comes at a particularly tense moment in the public discourse surrounding gig work. Uber and other gig-work platforms are facing increasingly intense scrutiny from labor advocates and politicians alike. We’re also seeing the introduction of new laws around the country that aim to more heavily regulate gig work in the name of labor rights.
One of the fiercest battles is happening in California, where the recently passed Assembly Bill 5 (AB5) would require gig platforms like Uber to reclassify the vast majority of their gig workers as employees. Gig platforms have pushed back, arguing that reclassifying gig workers would impose extreme hardships and potentially force them to shut down operations in California. Proposition 22, a ballot measure aimed at overturning AB5, has become the most expensive ballot measure in California history, with Uber, Lyft, and other organizations spending more than $180 million to promote the passage of the measure.
While AB5 and similar bills aim to protect workers, they could have the opposite effect, judging by the study’s results. If it’s true that reclassifying gig workers as employees would significantly stymie a gig platform’s operations, that would mean fewer people would have the option of leveraging gig work to earn extra income when facing unemployment. As a result, those savings on UI benefits and debt utilization would likely go unrealized.
However, Nickerson notes that laws like AB5 have both their pros and their cons. It’s not quite as simple as saying definitively that AB5 would or wouldn’t dampen the gig economy’s ability to act as a safety net.
“I do think that AB5, and similar laws, would certainly reduce the size of the gig economy,” Nickerson explains. “Right now, a firm like Uber can add an extra driver with almost no cost, allowing anyone to participate who wants to. AB5 will raise the cost of hiring that worker, so anyone looking to do gig work after being laid off could face a harder time getting gig work. At the same time, some workers will benefit — e.g., current Uber drivers who are reclassified will be eligible for benefits. It is ultimately up to policymakers to weigh the pros and cons to all workers.”