This SmallBusiness.com “explainer” is shared by Steve King, a partner at Emergent Research and a frequent contributor to SmallBusiness.com. An earlier version of this article can be found on the Emergent Research blog, Small Business Labs. We appreciate his willingness to share with the users of SmallBusiness.com his unique insight into the future of work.
(Note: As we explain in the Small Business Introduction to the On-Demand Economy, there are several terms used to describe the on-demand economy or facets of it, including the “sharing economy,” the “access economy,” the “gig economy,” the “1099 economy” and others.)
I’ve been in a lot of meetings lately where people talk about the “Uberization of Work.”
These discussions tend to go the same way. The claim is made that Uber is creating the on-demand economy by hiring independent contractors instead of traditional employees.
I don’t agree.
In fact, at Emergent Research, we believe the opposite: Uber exists because of the growing need for highly flexible part-time work to supplement incomes. In other words, Uber didn’t invent the on-demand economy—they tapped into it.
Service providers who participate in the on-demand economy are continuing a long-practiced tradition
Before Uber, Airbnb was one of the first companies to recognize and tap into the growing need for highly flexible, supplemental income. They recognized this in part because the founders of Airbnb themselves needed supplemental income. But Airbnb didn’t create the practice of people renting out their homes, or rooms in the home, to supplement their income. From boarding houses to the “Bed and Breakfast” model that inspired Airbnb’s brand, the tradition of monetizing one’s home—even one’s stable—dates back to biblical days.
Airbnb, Uber and hundreds of other companies have recognized the ubiquity of smartphones and have integrated technology into the transactional facets of on-demand marketplaces.
The economy (especially “income volatility”) is fueling the on-demand economy
The on-demand economy isn’t responsible for the “jobless recovery” or wage stagnation. Nor is the on-demand economy responsible for the high degree of income volatility many Americans are experiencing. Recent research from the JP Morgan Chase Institute confirms the high degree of income volatility many Americans have experienced. And in some regions, and among some demographics, this volatility has been especially severe. According to the JP Morgan Chase research, the following groups have experienced, on average, more than a 30 percent month-to-month change in total income over the past year.
74% | Lowest income individuals
70% | Ages 18-25
60% | People who live in the west
55% | National average
Supplementing one’s income is an attempt to stabilize it
Today’s on-demand companies like Uber have created simple, highly flexible ways for people to supplement their income. Because of this, they are able to tap into a growing pool of people who, due to wage stagnation, the decline of middle-class jobs, and greater levels of income volatility, are looking for highly flexible part-time work.
In previous generations, there were other responses. The multilevel marketing industry has long tapped into this pool of workers, but they only offered work to people who enjoyed or were at least willing to do sales.
The on-demand economy provides an opportunity for pretty much anyone to generate supplemental income in a highly flexible way.
This income volatility means even those with the annual income needed to pay their bills often hit bumps in the road that lead to financial stress.
Is the rise of the on-demand economy a good thing or a bad thing?
We’re often asked if we think on-demand economy jobs are good or bad. The quick answer is they are both, depending on the job, person and situation.
But the reality is they are a necessary source of income for a growing number of people.
Our work with Intuit shows the majority of those working in the on-demand economy are doing just that—working part-time to generate supplemental income.
By Pkg203 (Own work) [CC BY-SA 3.0], via Wikimedia Commons