Over the last several decades, people have been leaving traditional employment to pursue their own business dreams in larger numbers. The exit rate from self-employment has also remained steady during that time, so the total number of self-employed people has not risen as dramatically as entry rates would indicate. But this is no reason to believe that the new gig economy, which depends entirely on the self-employed, cannot succeed. And, in fact, the data is proving the gig economy can work.
Data from the Pew Research Center shows that in 2014, there were 14.6 million self-employed workers in the US. That’s roughly 10% of the total workforce. Among all the jobs created in that year, 30% had been set up by new entrepreneurs establishing their own businesses or expanding their businesses by hiring. And much of the expansion has been the result of an emerging gig economy that is gradually disrupting more business sectors.
One of the big fears related to the gig economy is how it will affect traditional payroll and salaried workers. Some speculate that small business payroll must shrink in order to accommodate more self-employed individuals taking work away from traditional businesses. But that is not what’s happening – at least not yet.
Las Vegas a Great Case Study
To get a good idea of how the gig economy is affecting small business payroll, one need look no further than Las Vegas. Thanks to a comprehensive study released by the Brookings Institute earlier in 2016, we can get a good idea of how the gig economy is affecting a city that has long relied on traditional payroll employment, strong unions, and tight business regulations. Las Vegas offers the perfect case study on cause-and-effect.
Between 2012 and 2014, gig employment in the Las Vegas transportation sector rose 105%. Payroll employment grew by 4%. That’s quite a disparity until you look at the raw numbers. Roughly 880 gig employees were added along with 500 salaried employees. That’s not such a big difference.
In hospitality and accommodations, the numbers were similar. Gig employment rose 17.7% while salaried employment increased 3.5%. In other words, the kinds of companies that make up the bedrock of the Las Vegas economy are continuing to grow and expand despite an increase in gig workers. This suggests there is plenty of room for both small business payroll and self-employment in Las Vegas.
Not an All-or-Nothing Scenario
In cities across the country, government officials are trying to get a handle on the emerging gig economy through policy making and regulation. Ride-sharing is a great example. Cities from coast to coast are moving to regulate ride-sharing in order to bring it in line with traditional taxi services. It is said that the purpose here is to prevent the taxi industry from being adversely affected.
The truth is, economics is not an all-or-nothing scenario. There is plenty of room for all kinds of businesses and employment models. If we want to ‘level the playing field’ in order to prevent the gig economy from doing any harm, the right way to go about it is not to regulate gig employment; it is to deregulate so traditional businesses can better compete.
The data shows that the gig economy is not having an adverse effect on small business payroll. In fact, in regions where the gig economy is thriving, small businesses are thriving as well. The gig economy works because it introduces competition that motivates everyone to do better. The gig economy can work, and work well, as evidenced by Las Vegas and a few other cities.
