I’ve only just heard about the so-called ‘Gig Economy’ so forgive me for not blogging about it before. If you’re not sure what it is either, this is the idea that a high proportion of workers right now – and even more in the future – will not be in permanent, full-time job positions. A high proportion of work will be done by freelancers, the self-employed, part-time workers, consultants, or contractors. Apparently in the USA, 42 million workers are already employed in this way, and this is set to rise in the future. The term was originally coined by Micha Kaufman, Co-Founder and CEO of Fiverr, which is a website devoted to promoting the professional skills and expertise of freelance or self-employed workers to potential clients.
“So what?” I hear you say, and what, if any, are the implications for operations management? From the operator’s perspective, the use of temporary workers is so-called ‘external numerical flexibility’ (discussed on page 186 of our book). Traditionally, this was typically adopted to cope with peaks in demand, so that the permanent workforce was supplemented by temporary workers, such as those employed by the postal service at Christmas and by retailers during their sales periods. This enables firms to keep their labour cost percentage stable, as wage costs go up and down roughly at the same rate as their revenues. The danger is that the quality of provision may fall, if temporary workers are not as well trained, or skilled, as permanent staff.
But in the ‘Gig Economy’, temporary workers are not simply being added to the permanent workforce, they are replacing permanent workers. This is because labour cost is likely to be lowered with such an employment strategy. In the past, operators found it difficult to find suitably qualified temps, unless they went through agencies that charged relatively high rates. With the growth in the internet and websites like Fiverr, the hassle and cost of hiring temps is considerably reduced. Moreover, since the freelancers advertise their services online, rates are kept low by market forces (it operates more or less like a “perfect market” – discussed on page 44 of our book).
From the employee’s perspective, the ‘Gig Economy’ may not be such a great idea. We’ve already established that rates of pay may be lower, and in addition there is little or no job security. Freelance workers may spend almost as much time looking for work as doing work. That is not to say that there may be a significant number of people who like working in this way. They enjoy the freedom it gives them, the flexibility to fit work in around other things such as their family, and the variety it may offer.
But there may be a large number of people with little or no choice about working in this way. The global economic turndown lead to organisations shedding a significant number of employees. Even now in the UK, it is forecast that 1 million public sector jobs will go by 2020. What used to happen, with an economic recovery, is that people would get rehired on permanent contracts. This time round however, it looks like this will not happen – because we have shifted to the ‘Gig Economy’. It’s here to stay.
This fundamentally changes with relationship between the employer and the workforce. A freelance worker works for themselves and thinks of their employer as their customer. The employer does not have employees, they become suppliers. So the idea of a “social contract” between employer and employee is lost. Messrs. Cadbury and Rowntree would find this very strange.