Will Gig Economy Workers Survive the Effects of the Coronavirus Pandemic?
The coronavirus pandemic and subsequent economic fallout will no doubt have an impact on gig economy workers in very significant ways.
The pandemic has of course affected all workers in a variety of ways, including those who work full-time on a W-2, but what makes this most pressing for gig workers is that many lacked access to traditional benefits and retirement savings options long before all of this.
This is a major issue because the gig economy (consisting of part-time workers and independent contractors, like freelancers or ride share drivers) constitutes a large and growing segment of the overall U.S. economy.
In fact, Gallup data from 2018 indicates more than one-third of the U.S. workforce are gig workers in some capacity. Additionally, there are over 30 million small businesses in the U.S., but only 5.6 million of these businesses had full-time employees in 2016. Many are sole proprietorships who use gig workers to accomplish specific tasks.
Will the pandemic affect how gig workers are employed in the U.S.?
“The pendulum could swing one of two ways,” says Kevin Boyles, VP of Workplace Savings Solutions at Millennium Trust. “We could either see gig workers being cut due to employers looking for ‘easy’ ways to reduce expenses. Or, we could see a rise in gig work across industries, likely so that employers aren’t obligated to provide healthcare and other typically expensive benefits to a larger amount of full-time workers.”
In a time like this, saving for retirement is a pipe dream for many contractors and independent workers who are preoccupied with covering their monthly expenses and waiting to see which way the pendulum swings for the makeup of the workforce, and consequently retirement savings access.
The Rise of the Gig Worker and the Savings Gap
The majority of the rapid growth of the gig economy can be traced back to the advent of Obamacare and popular companies, like Uber and Lyft, who have thrived with the use of contract workers.
Under Obamacare, employers were required to offer health insurance to full-time employees. Naturally, this was out of reach for many small- and mid-sized businesses, and some companies that couldn't afford the additional expense turned to independent contractors to maintain daily operations.
Meanwhile, companies like Uber, Lyft and Task Rabbit, built successful business models on the increased availability of gig workers willing to work without the traditional benefits of health insurance and retirement matching programs.
The coronavirus pandemic marks the first time the U.S. has experienced significant economic distress since the subprime mortgage crisis of 2007, and the gig economy has grown significantly since then.
As the gig economy has grown, so has the size of saving disparities. A 2018 Federal Reserve report found that 58% of workers who use “gigs” as their primary source of income would not be able to easily pay a $400 emergency expense (and 38% for non-gig workers).
With reduced hours, furloughs and layoffs, many gig workers have been forced to make withdrawals from whatever retirement savings they do have. The Coronavirus Aid, Relief and Economic Security Act (CARES Act) has extended some benefits to independent contractors, but leaves the specifics on accessing these benefits somewhat unclear.
“Moving forward, when businesses are back on their feet, we hope to see more education for employers and their employees on things like emergency savings and affordable retirement savings options,” says Boyles. “We believe this pandemic will shape Americans’ views on financial wellness for the better.”
Subscribe to the Millennium Trust Blog for the latest trending topics.
The material in this blog is presented for general informational purposes only and does not constitute tax or legal advice. Millennium Trust Company performs the duties of a directed custodian, and as such does not offer or sell investments or provide investment, legal or tax advice.