The popular concept of work as a traditional 9-to-5 job with a single employer bears little resemblance to the way a substantial share of the workforce makes a living. Millions of people assemble various income streams and work independently rather than in structured payroll jobs. While this is hardly a new phenomenon, it has never been well-measured in official statistics—and the resulting data gaps have prevented a clear view into a large share of labor market activity. To better understand the independent workforce and what motivates the people who participate in it, the McKinsey Global Institute undertook an extensive survey of some 8,000 respondents across the United States and Europe. We asked respondents to detail all of their sources of income over the past 12 months, including their primary work as well as any additional income-generating activities. We also asked about their satisfaction with their work lives and about how they aspire to work in the future.
MGI’s new report, Independent work: Choice, necessity, and the gig economy, released at O'Reilly's Next Economy Summit which explores the future of work, looks at the full spectrum of ways in which individuals earn income outside of traditional employee roles. Rather than focusing on self-reported legal classifications, it looks at the characteristics of the work itself: whether workers have autonomy and control; whether they are paid by the task, assignment, or sales; and whether their work relationships are short-term. While the vast majority provide labor services, the report also looks at those who earn income by selling goods and renting out assets (such as spare rooms).
Independent work is larger than people realize, our analysis of government statistics and survey suggest. Overall, we estimate that up to 162 million people in the United States and EU-15—or 20 to 30 percent of the working-age population—engage in some form of independent work.
All kinds of people participate in independent work, but we do see some interesting variations. Low-income households are more likely to participate in independent work—and to do so for lack of better alternatives. There is gender parity in independent work, but men are more likely to be free agents and women are more likely to be supplemental earners. Young people and seniors are active participants in the independent workforce. In the United States, 50 percent of those between the ages of 16 and 24 who earn income and 42 percent of earners over age 55 participate in independent work (vs. only 33 percent of adults ages 24 to 54). In the EU-15, this effect is slightly more pronounced: 55 percent of youths who earn income and 39 percent of earners over age 55 participate in independent work (vs. only 32 percent of adults ages 24 to 54).
Independent work is rapidly evolving as digital platforms create large-scale, efficient marketplaces that facilitate direct and even real-time connections between the customer who needs a service performed and a worker willing to provide that service. Today just 15 percent of the independent workers we surveyed have used a digital platform to find work, but the so-called “on-demand economy” is growing rapidly.
To date, little research has explored why people do independent work. Our survey attempted to fill this gap. While they are demographically diverse, we found that independent workers largely fit into four key segments. Thirty percent are “free agents,” who actively choose independent work and derive their primary income it. Approximately 40 percent are “casual earners,” who use independent work for supplemental income and do so by choice.
“Reluctants,” who make their primary living from independent work but would prefer traditional jobs, make up 14 percent. The “financially strapped,” who do supplemental independent work out of necessity, account for 16 percent.
Those who do independent work by choice (free agents and casual earners) report greater satisfaction with their work lives than those who do it out of necessity (the reluctants and the financially strapped). This finding that holds across countries, age, income, and education. Free agents reported higher levels of satisfaction than those in traditional jobs by choice on multiple dimensions of their work lives, indicating that many people value the non-monetary aspects of working on their own terms. However, those doing independent work out of necessity (reluctants and financially strapped) are particularly dissatisfied by their income variability, hours worked, and benefits.
The growing prevalence of independent work could have tangible economic benefits such as raising labor force participation, providing opportunities for the unemployed, and potentially even boosting productivity. Consumers and organizations could benefit from the greater availability of services and improved matching that better fulfills their needs. Digital platforms can amplify all of these benefits through their larger scale, faster matches, seamless coordination, and richer information signals enabling trust.
Yet some key challenges will need to be addressed for this shift to be a feasible and satisfying development for workers, particularly those independent earners who do it out of necessity.
Issues such as benefits, income security measures, and training and credentials offer room for policy makers as well as innovators and new intermediaries to provide solutions. Independent workers and traditional jobholders alike will have to become more proactive about managing their own careers as digital technologies continue to reshape the world of work.
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