Silicon Valley takes credit for transforming the U.S. economy. New research paints a more complicated picture.
By Jared Keller
(Photo: Adam Berry/Getty Images)
At the close of May 2010, a small company launched an unconventional new car service in San Francisco. The premise was simple. Tired of getting stranded in the streets of San Francisco after a night of partying, the co-founders envisioned the modern equivalent of a freelance limo service: Drivers, hailed by a handy smartphone application, set their own hours and keep a share of their fares. No waiting, no problem, and to hell with the unreliable, inconvenient cabs.
The company was Uber. Now valued by many market analysts at more than $60 billion (more than some 8 percent of the companies on the S&P 500, per Bloomberg), Uber has become synonymous with the gig economy, the nebulous ecosystem of on-demand products and services. Thanks to the boundless social potential of an increasingly connected country, there’s an Uber-like app to perform just about any task: for vacation rentals (AirBnb), for food (Postmates), for menial jobs (TaskRabbit). So yes, the gig economy is spreading: A “first-of-its-kind” poll conducted by Timefound that some 44 percent of American adults have participated in the gig economy, while a Pew Research Center survey shows 72 percent of Americans using at least one on-demand service.
But the Silicon Valley creation myth isn’t completely accurate. While the ascent of Uber and its ilk have certainly transformed American consumption habits, new research suggests that the rise of the gig economy is less a product of Internet-based innovation and more a function of the country’s slow, sluggish transition into a post-industrial economy.
In a new National Bureau of Economic Research working paper, Harvard University economics professor Lawrence Katz and Princeton University professor Alan Krueger set out to examine trends in “alternative” work arrangements between 2005 and 2015. They found that, while the percentage of American workers engaged in contingent work (contract work, on-call workers, freelancing, and the like) jumped from 10.7 percent to 15.8 percent — from 15 million to 23.6 million jobs — people employed through digital platforms like Uber and Taskrabbit only accounted for 0.5 of all workers in 2015. In fact, workers tended to report selling goods or services to customers twice as much through offline connections than through the Internet: While 19.4 percent say they’re engaged in “direct selling” to customers, only 7 percent of those workers say they use an intermediary like Uber.
The Silicon Valley creation myth isn’t completely accurate.
This isn’t to say that the 5 percent increase in contingent jobs over the last decade isn’t significant: Katz and Krueger observe that alternative work arrangements accounted for a whopping 94 percent of net employment growth between 2005 and 2015. But the economic impact of the technology-centered gig economy isn’t as substantial as Silicon Valley disciples might indicate: As Krueger observed in 2015, Uber’s $3.5 billion earnings “represents about 0.06 percent of all private-sector compensation.” So much for building apps that change the world.
It’s also worth noting that, while the young people are often framed as the demographic engine of the gig economy, the Millennial propensity for entrepreneurial independence isn’t responsible for the rise of the alternative work arrangement. While a Pew Research Center report suggests that the core consumers in the gig economy are city-dwelling college graduates under the age of 45 with relatively high household incomes, Katz and Kreuger’s analysis reveals that the most significant increase was among workers 55 to 75 years old. There was virtually no change in the percentage of workers aged 16 to 24 employed in alternative work arrangements. Even then, “shifts in the age and economic distribution” of the American labor force only accounted for 10 percent of the uptick in contingent workers since 2005. Millennials may love their side hustles, but they’re not changing the face of the economy just yet.
Instead of hip young techies, it’s relatively skilled older workers cobbling together contract work to make ends meet. No wonder the majority of non-employer business growth in recent years has been concentrated in administrative and support jobs — the hallmarks of a post-industrial economy — and “other services” like maintenance and one-off services. To wit, most of this growth was concentrated in transportation and warehousing between 2013 and 2014. Forget the Ubers and TaskRabbits; the gig economy is here, but it’s not as shiny and bright as a Silicon Valley pitch deck might have you think.
Americans, for the most part, seem relatively fine with this. According to the report, some 80 percent of alternative workers prefer freelancing to being somebody’s corporate stooge (relatedly, temps tend to desire a more permanent job). Similarly, a 2015 Gallup poll found that worker’ satisfaction with their employment prospects has “largely improved” since 2005 despite the pain and anxiety of the Great Recession and the emerging patchwork of alternative work. And why shouldn’t they be? Katz and Krueger’s analysis shows that alternative work arrangements are increasing most among workers in high-wage industries rather than low-wage ones; workers “with attributes and jobs that are associated with higher wages” can eke out a fairly decent living. Meanwhile, only 24 percent of Uber drivers rely on the service as their sole source of income, per Krueger’s 2015 report.
Silicon Valley’s embrace of all things open and shareable has yielded an undeniable transformation in American culture, but if Katz and Kreuger’s analysis is accurate, the worship of start-ups as the small businesses of the future is a remarkable canard. Companies like Uber and AirBnb are far from the economic juggernauts that venture capitalists would like us to believe. Everything else is just marketing.