The labor market is experiencing an ongoing slowdown in job creation and hiring, turning the workforce into an exclusive club with high standards for admission. This is especially true for young workers, who are contending with competition — from their fellow peers, other job seekers with more experience and even technologies such as artificial intelligence — for fewer open positions.
And sitting on the sidelines for too long today can have dire consequences. Amid a cost of living crisis due to inflation, tightened standards for student loan repayment, cuts to the social safety net and pervasive economic uncertainty, young workers cannot afford to wait for a concrete employment offer.
Against odds like that, many young workers are finding reprieve in the “gig economy,” an umbrella term for alternative work arrangements outside the full-time/part-time paradigm. The gig economy is primarily made up of independent contractors and on-demand freelancers, although the term is sometimes used to describe temporary workers provided by staffing agencies, the great majority of whom are W-2 employees.
Studies indicate young workers are not only joining the gig economy at a higher rate than their older counterparts, but many also prefer these roles over traditional nine-to-five opportunities. In addition to providing real income, the gig economy offers young workers the chance to build a career on their own terms, according to their own goals and outside a system that has repeatedly rejected them.
The gig economy is likely to continue to grow precisely due to the entrance of more young workers driven by tightening labor market conditions, increased automation, acceptance of remote work and preferences for individual autonomy. One report suggests that, by 2027, as many as half or more of all workers in developed countries are expected to be part of the gig economy, and more than 70 percent of this cohort will consist of Gen Z and Millennial workers.
But the federal government could very well be missing these seismic shifts in labor market activity because of the way it collects statistics on gig economy participation. Key surveys conducted by the Bureau of Labor Statistics appear to undercount the number of independent contractors working in the gig economy, the amount of hours they spend doing business and the wages they receive.
In fact, recent findings from the Federal Reserve suggest that more than 7 million workers could be missing from monthly employment numbers due to the blind spots in BLS surveys, such as the Current Employment Survey, which estimates nonfarm payroll gains, and the Current Population Survey, which estimates the unemployment rate.
Developed in the 1920s and 1940s, these surveys were not designed to adequately account for people outside a traditional full-time or part-time employment arrangement. As a result, the employment rate could be as much as 2.4 percent to 5.5 percent higher than the official number — a difference of as many as 13.2 million workers. Similarly, the National Bureau of Economic Research reports that a significant number of independent contractors are being miscoded as employees.
Accurate estimates of the gig economy are not just important for getting a better read on the labor market or guiding the Federal Reserve when calibrating monetary policy. They also shed light on a growing segment of the economy and the challenges faced by its workers. Issues like a lack of job security and benefits, ambiguities in workers’ legal protections and underpayment of taxes due to blatant worker misclassification can be adequately addressed only when policy makers can answer basic questions about the number of independent contractors in the workforce. And for a generation often underrepresented in politics, business, as well as society at large, addressing the needs of a substantial segment of its workforce would allow many young people to feel seen and heard by their leaders.
To keep pace with the realities of today’s labor market, the federal government must modernize its measurement of work itself. The gig economy is not a fringe phenomenon — it is a growing feature of employment for an increasing share of the population, particularly young workers.
Outdated methods of tracking these developments risk leaving policy makers unable to address the needs, contributions and vulnerabilities of millions. A better measurement of the growth of the independent contractor population is not just a matter of developing better statistics — it is a prerequisite for building an inclusive, forward-looking economy where all work counts and all workers have basic protections.
Noah Yosif is the chief economist at the American Staffing Association.
