EY recently announced the results of a Contingent Workforce Study that unearths key insights into the nature of the freelance or contingent workforce (the “gig economy”). The following excerpt from The Gig Economy: An Evolving Workforce, examines the rapid rise and impact of this new economy upon organizations, their financial approach to people management and their readiness to meet the growing demand.
Just as Japanese businesses famously revolutionized supply chains with the concept of just-in-time manufacturing and the dot-com revolution transformed the whole economy with e-commerce, the world of work is changing as businesses seek to rigorously manage costs and improve agility through a more flexible workforce.
Organizations of All Sizes Are Turning the Gig Economy into a Global Phenomenon
Although on-demand apps like Uber, Lyft, Handy, Task Rabbit and Deliveroo have been the most conspicuous examples of the rise of the gig economy, the gig economy itself has, in fact, been operating for as many as three decades in industries such as oil and gas, engineering, technology and scientific research. The difference we’re seeing now is the accelerated, wide-spread adoption of a contingent workforce model across blue-chip and mid- market companies, and governments, which encompasses a much larger proportion of the total workforce.
EY recently conducted a Contingent Workforce Study, which surveyed both major employers and contingent workers in the US on the topic of the contingent workforce. Of the employers we surveyed, one in two reported increasing their use of gig workers over the last five years. This fits with recent research from two Harvard economists, which showed the number of workers engaged in alternative work arrangements rose by 66% in the 10 years to 2015. This compares with just 6% growth in the overall US employment over the same time period.
There are several reasons for this rapid increase in the use of contingent workers, not the least of which is the lasting effects of the 2008-9 global recession. This period created a sharp focus on cost control, which ultimately resulted in a contraction of full-time employment. EY analysis shows that the rate of hiring of full-time employees among S&P 500 organizations since 2009 has slowed sharply versus the pre-recession period. Annual full-time employee headcount growth slowed to 2.7% from 2009- 15 versus 3.9% during the five years before the recession.
In the absence of full-time work, many workers opted for contingent work first as an interim and now a more permanent solution. Behavioral, regulatory and policy shifts, and changes in expectations meant that both workers and organizations adjusted to and embraced the flexibility that contingent work arrangements provided, while technology served to facilitate a more seamless interaction.
In the EY Contingent Workforce Study survey, US employers reported that their organizations are, on average, made up of 17% of contingent workers. At the same time, 20% of organizations reported that their workforce comprised at least 30% contingent workers in 2016.
More Than a Passing Fad, the Gig Economy Looks As if it’s Here to Stay
Is this a cyclical trend that comes from the need to trim costs following the global financial crisis? Or a fad that will fade with the rise of automation and artificial intelligence? The evidence suggests no.
According to the EY Contingent Workforce Study, on average, by 2020, almost one in five US workers will be contingent — the equivalent of 31 million people. If part- time workers are included, a wider definition of contingent work used that captures a range of “alternative work arrangements”, as much as 40% to 50% of the workforce could be in non-permanent employment by 2020.
Across the Atlantic, a similar story is emerging. In the UK, the number of self-employed has touched record highs at 4.8 million, growing 28% over the 10 years to 2016, against only 6% growth in UK employees in the same time period. There are similar stories of rapid growth in the self- employed workforce in the Netherlands, Belgium, France and Australia. The rise of the gig economy is increasingly a global phenomenon.
Giggers Allow Organizations to Flex Their Capabilities and Control Costs
Regardless of how we define it, the gig economy will continue to grow as more organizations expect to make greater use of contingent workers. The natural next question, then, is: why? What’s driving the growing use of contingent workers?
Evidence from EY’s survey of employers shows that organizations are using contingent workers to flex and bolster their capabilities. Contingent workers help employers control labor costs, and respond to the peaks and troughs in demand that come with seasonal trends. Meanwhile, access to virtual portals and other technology advancements have made it possible for contingent workers to gain access to job opportunities in ways that weren’t previously possible.
There is also a more strategic and change management element to drawing on contingent workers: organizations are using contingent workers to overcome resistance to change within legacy workforces. A contingent workforce can help drive and accelerate change. It can also support rapid scale-ups in business models where dramatic growth can occur overnight. Given the extraordinary pace of technology change, contingent workers provide a critical bridge to integrating new products, services, technology and more into operations, without having to expand full-time equivalent headcount.
As the gig economy grows, new challenges emerge for organizations. Are contingent workers as motivated as permanent employees? Are they as well-managed? How well are contingent workers performing? The EY survey of major employers suggests that organizations have not yet found an optimal operating model for managing their contingent workforce. This is creating inefficiencies — and potentially serious risks. High-profile cases have emerged in which business leaders are not fully aware of working practices among their contracted workforce. Do employers even know who is ultimately responsible for the contingent workforce? From an accountability perspective, organizations need answers to this critical question and others.
When it comes to managing the contingent workforce, many organizations currently suffer from fragmented governance models, and manual systems and processes. In many cases, organizations are using basic tools to measure contingent workforce performance rather than data analytics.
When contingent workers start and finish their assignments, some employers report using manual processes for managing the onboarding and off-boarding process.
Inevitably, this means there are oversights. In fact, evidence from contingent workers themselves suggests that 55% did not go through an onboarding process. This presents a host of potential risks for employers or organizations using contingent workers.
While there are major opportunities to gain efficiencies from the flexibility that embracing the gig economy offers, organizations need to fix the lack of leadership accountability and governance over their contingent workforce.
A Rising Tide Lifts All Boats
The rise of the contingent workforce holds a wealth of opportunities for organizations and workers alike. Organizations want to cut costs and improve their agility to meet constantly changing consumer demands. Contingent workers crave flexibility and control.
By working together and collaborating on ways to overcome the potential risks, organizations and giggers alike can ride a rising tide that will lift all boats to economic prosperity and performance.
To learn more about the gig economy and download the full report The Gig Economy: An Evolving Workforce, visit www.ey.com/gigeconomy .
The views of third parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made.