Did Economic Experts Get It Wrong?
Did Economic Experts Get It Wrong?
Why alternative workforces are a vital part of today’s economy.
Numerous theories have surfaced over the years on what it takes to make businesses—and economies thrive. Alternative workforce assumptions made by leading economists—even the likes of 20th century, Noble Prize winning economist, Ronald Coase, have been flat out wrong.
In 1937 Coase explained how large firms grew even bigger because the transactional cost of hiring people for short-term jobs was too high; it was simply more efficient to continue growing the size of companies and performing work in-house. In the decades that have followed, we’ve watched his theory reverse in real-time.
The explosion of the gig economy.
The market crash in 2008 left millions of people unemployed and scrambling. Similar to today’s pandemic, but on a smaller scale, both occurrences left behind a crippled economy. But from the remnants, rose a reimagined workforce with independent contractors at its core.
“During the last recession we saw the emergence of service marketplaces such as TaskRabbit, Uber, Lyft, Airbnb and others,” wrote Leah Solivan, founder of Task Rabbit. “That time marked an exciting inflection point in the history of work. The financial crisis turned our worlds upside down, massively shifted consumer and professional behaviors, and primed the population to seek new and innovative ways to do things. It was those conditions that made the first wave of the independent economy possible, and we’re seeing similar conditions today.”
To Solivan’s point, millions today are watching as the gig economy gains steam like we’ve never seen before—and it’s taking on new importance as our nation starts to recover from the pandemic. While the gig economy has never come with a road map—we’re starting to see a path emerge from those early trailblazers like Solivan, who were willing to take a risk.
A new way to work.
In our last blog post, Going Gig: Post-COVID Workforce Trends, we shared recent research from Gartner that reported 32% of organizations were replacing full-time employees with gig workers as a cost-saving measure. Looking at the future of work, Gartner stated that businesses will continue to expand their use of contingent workers to maintain more flexibility in workforce management post-COVID-19 and will consider introducing other alternative workforce models they have seen during the pandemic.
Human Resources Today has echoed much of the same recently. “The gig economy has been around for a while, but it is likely to witness a sharp spike as people are increasingly looking to work on their own terms and conditions. For many employers, their alternative workforce comprise as much as 30% of the workforce—they are fast realizing that using a mix of contractors, freelancers and full-time employees is the best way to reach results faster.”
Todd Weer, Senior Vice President of Meijer Stores, said during the POI Global Virtual Summit, “The ‘new worker’ is changing whether we want them to or not. Technologies like Hyer, has enabled the gig workforce to come alive—with COVID advancing this conversation a number of years in just a few months.”
As Meijer works to adapt to this new way of work, they’re already reaping the benefits of the gig economy. “Using Hyer allows us to provide a better customer experience, a better stocked store—at the lowest price possible,” said Weer. “It’s critical that companies understand what [technologies like] Hyer can do.”
Opportunities ahead.
The surge in the number of gig workers (currently 58 million strong) is drastically changing the way we go about work. And right now, companies have a tremendous opportunity staring back at them.
Laurie Ruettimann, author, entrepreneur and HR podcast host recently said, “I don’t think we’re surviving a global pandemic to do things in the same way. Our dialogues tend to focus on traditional full-time employees, leaving behind the swelling members of the gig economy. People are participating in more ways that aren’t captured in [standard] HR reports.”
Supporting Ruettimann’s notion, a September survey of 800 executives by McKinsey & Company revealed that two years from now, 70 percent of executives expect to use more gig or temporary workers and contractors onsite at their companies than they did before the pandemic. Proof that the gig economy isn’t just here to stay—it’s playing a driving role in transforming the the future of work.
Re-thinking labor costs.
In recent months, alternative workforces have ignited a better, quicker and more cost-effective approach to labor. These changes are likely to spark behaviors that will transform the future of work, permanently.
In a study completed by Ernst & Young, leading organizations turning to the gig economy do so in order to control costs. “As employee benefits like retirement planning, health insurance and job security are only for full-time workers, temporary labor comes at a much lesser cost. Moreover, since most of the gig economy operates through online channels, recruitment costs are close to none.” Imagine how your bottom line might look without those added expenses. Tempting, isn’t it?
With more organizations leveraging the alternative workforce as a cost saving measure—the gig economy can also fuel innovation and growth. As businesses begin turn to gig workers with greater regularity, Deloitte reported that organizations using alternative workforces may be able to protect themselves from unpredictable demand—enabling them to quickly shore up capacity when and where it’s most needed.
“The rapid emergence of the gig economy presents a new opportunity. By integrating an on-demand, alternative workforce into operations, organizations both big and small can increase the return on talent investments by engaging the right resources at the right time.” A solution that early economist, Ronald Coase, didn’t ponder.
Looking ahead, one thing is certain. Those still clinging to dated theories stand to lose a great deal if they sit this one out. Because right now—the future of work is being written.
