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Side hustles. They are the new way to make millions.
Have you ever had one? I have, and it's a fascinating experience, both the good and the bad.
We've heard so much about them and how they can help you gain extra cash. They can even make you a millionaire, but the idea is much more than some extra bucks at the end of the month. The gig economy is sold as a way for people to have complete independence.
The ads, influencers, and YouTube tutorials all sell one thing. Work wherever and whenever you want, in the jobs you want. Make as much money as you desire. There's no bad side to it. It seems great from the outside, but the reality is that the gig economy is broken, and it all comes down to how it operates.
This way of working bases itself on short-term contracts or freelance work. There's no certainty in the future, and it's the very essence of it that's taking a toll on individuals. In the most ironic twist, the gig economy doesn't spark independence. More often than, gig workers have high workloads, low wages, and plenty of uncertainty.
As more and more platforms appear, from Fiverr to Zola, Uber to Upwork, and the living costs increase, the gig economy is no longer a romantic idea. For many, it's the only income, and the platforms themselves are making it harder to live. At the same time, the gig economy might be the way of the future, and we're not seeing many warning signs.
While there are many definitions, the gig economy can be summarized as a labor market that relies almost entirely on temporary work. People working in the gig economy are called contractors. Their jobs are usually standalone contracts, which are generally shorter and, in most cases, cheaper.
Examples are plenty. There are platforms such as Upwork where you can find work in design, writing, editing, and even administrative tasks. Then another aspect, one of the most popular in the world, involves platforms such as Uber and Didi.
Ridesharing is a "standalone" contract that we often take for granted. Still, it's one of the core pillars of the gig economy. Contractors use their cars to get a side income by taking other people to work or home. It makes perfect sense. That's part of the promise: earning an additional income in your free time.
If you're only doing these to get an extra income and already have a salary, you wouldn't have to worry about health coverage, paid vacation time, and stability. However, there are many whose main income depends on these platforms.
There are negative sides to the gig economy, but that doesn't take away from the fact that its popularity has skyrocketed. This goes both ways for freelancers and companies alike, and two nations are driving the growth: the United States and India. Analyzing both can tell us a lot about where this sector is going.
The number of transactions within the gig economy has grown considerably in the United States. The pace has been consistent and relentless. In only five years, the volume has more than doubled, including a pandemic in the middle.
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India is another fascinating example. Businesses within the country are turning to the gig economy in hordes. In 2020, 57% used gig economy services to solve their needs. In 2023, that number is 65%, and estimates indicate that India will double its pre-pandemic gig economy population by 2024.
There's no stopping people from getting into this sector, but why?
From a personal perspective, the idea of finding a job that was relatively easy and gave some additional income was all too tempting.
Granted, I did have a salary and a full-time job. As far as the theory went, I was the perfect example of a side hustler, and I'm not the only one. Millennials make up a vast majority of the gig economy.
As millennials are a key part of the workforce, being the largest percentage of workers right now, it's understandable that the gig economy has become a prevalent form of income. The US, for example, estimates that there will be close to 100 million freelancers by 2028; all the while, the country's population is bound to slow down.
India isn't far behind, but it does present a challenge when it comes to stats. As there's more informality, it's hard to quantify how many people work in the gig economy.
Official sources cited 7.7 million gig workers in 2021, which is set to grow by 300% by 2030. This far outgrew the prediction that there would be 6.8 million workers by 2021. So, the numbers tell us that the world is bound to rely on this form of work, which might not be a good thing, but before we dive into the bad, here's who's who in the gig economy.
Fortunately for us, there's plenty of information about the demographics behind the gig economy, and, as expected, Millennials are leading the charge, but Gen Zs are also catching up.
The motivations behind the gig economy are also fascinating. The idea of a 9-5 job has lost plenty of momentum for several reasons.
I've known several people that felt they had some free time (what a privilege), so they ventured into the gig economy. However, that's not the majority of the cases. In fact, analyzing the reasons behind the growth of gig economy jobs is almost impossible. People have different realities, and the closest we can get is to understand what drivers most of them.
While we've seen that people love the idea of being an independent worker, there are some drawbacks. The first and most important is the issue of wages.
When I started at Upwork, I first noticed the wages. In my area of expertise, a job outside these platforms could go for $120 on average, $80 on the low side, and $150 on the expensive side.
I found similar jobs for $12. Some would go as low as $6. At first, I thought it was a glitch, but the more I scoured the listings, the more I realized it wasn't. Upwork, and other platforms, relied on the millions of freelancers to offer the lowest wages available.
Upwork is one of the world's most popular platforms for freelancers to find clients. Or the other way around? These platforms make it extremely easy for clients to find freelancers and, to make matters worse, pay them very little.
The minimum fee in Upwork is $3 per hour, and the minimum contract for a fixed job is $5. That's not the worst of it. For a moment, the initial fee from Upwork was 20%, though that has changed to a flat fee of 10% for all jobs, giving freelancers some cushion.
The problem is the excess of talent. There's a guarantee that someone out there will take up that job. So, $3 per hour is more than feasible; it's a new reality. This applies to assistants, writers, designers, and developers, and, on the other side, clients love paying smaller fees to get a somewhat good end product.
In 2017, the New York Times released an article describing how drivers in the US reported earning, before expenses, $20,000 in income. For many, the operation was losing them money.
That was five years ago, but things have mostly stayed the same. Our research showed that Uber drivers in the US earn anywhere from $15 to $22 per hour, with an average of $19.17, placing the yearly salary of an Uber driver anywhere between $29,000 and $34,164.
What's fascinating is that this is the reality in the US, but in India, it's the opposite. There, the average estimated income of an Uber driver can range between 260,000 to 300,000 rupees yearly.
While Uber has stated that drivers can make $55,000 a year (which is still below the median income), calculating how much Uber takes from every trip is challenging. The platform charges 25% of the cut, which is quite high, but the numbers aren't as straightforward.
For example, there are other fees, not only the service fee. These can include booking fees, safe rides fees, and variable commissions.
Shorter rides end up having more impact on the fee than longer ones. Several studies show that fees range between 25% and 42.75%. This means that for drivers to make what they earned per 2.36 miles five years ago, now they must drive 4.71 miles.
Lyft, Uber's competition, has stated that it takes 20%. Still, the situation is similar, with hidden fees eating away at the drivers' income. This has been one of the biggest complaints from drivers. In 2023, the New York Times highlighted the disparity.
Uber and Lyft drivers now earn less in fares and tips than taxi drivers, according to new data from the Taxi and Limousine Commission, which regulates both groups. During the month of September, Uber and Lyft drivers earned an average total of $5,046, including $277 in tips, while those in taxis earned $5,844, including $865 in tips.
Then, many drivers complained that the platform operated in a game-like fashion, urging them to keep driving to achieve higher goals. The problem was that the numbers weren't adding up even with these changes.
So, platforms such as Uber and Lyft don't fulfill their promise of financial freedom. This has sparked strikes all over the world, with many countries trying to deal with either regulating or controlling these platforms.
The International Labor Organization highlights the issue of inadequate social protection for platform workers, who often lack coverage compared to traditional employees due to their classification as self-employed.
Platforms like Uber have faced legal battles regarding classifying workers as independent contractors to avoid providing basic rights. While recent court rulings have imposed certain concessions, most gig workers worldwide still struggle to fulfill their social obligations.
In the United States, gig workers face challenges in contributing to social security, with independent contractors reportedly failing to pay $3.9 billion in Social Security contributions.
A survey conducted in 2023 revealed that 77% of gig workers in the US rely on personal savings for retirement, and 30% believe they will never retire. Similar challenges exist in China, where gig workers lack access to benefits such as retirement programs, workplace injury compensation, and healthcare. Protests and fatalities have highlighted the need for a systematic framework to protect gig workers' rights in China.
India has made efforts to include gig workers in a voluntary retirement savings scheme, recognizing the growing informal workforce and the potential impact of the gig economy.
However, the broader issue remains, as gig workers' limited social security contributions have significant societal implications. This trend raises concerns about the future, with the possibility that all work could migrate to gig platforms, reshaping how labor is managed and creating societal problems.
To address these challenges, the G20-based International Labor Organization urges global action to establish adequate security systems and stability for gig workers.
Several countries have taken steps to stabilize gig economy operations, such as the UK ruling that Uber must treat its drivers as workers, the European Commission working to classify gig workers as employees, and Spain enacting a law requiring companies to convert gig workers into staff. Other countries, like Costa Rica, Egypt, and Singapore, have implemented regulations to recognize gig workers' labor benefits.
Furthermore, the aging population puts additional pressure on pension systems worldwide. The OECD warns that pension reforms, which loosen age requirements and increase benefits, may exacerbate long-term tensions unless they adequately address population aging.
The gig economy's growth necessitates global efforts to ensure adequate social security and protection for gig workers. Failure to address these challenges could lead to long-term societal problems while aging populations further strain pension systems. It is crucial to balance the flexibility the gig economy offers and the need for social provisions to protect workers and promote stability in the evolving labor landscape.
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