The innovation and convenience of the gig economy—the increasingly popular employment model where people work as independent contractors rather than employees of companies—are offset by its destabilizing effect on personal financial security.
A recent study from Prudential Financial finds the majority of respondents who work solely as temporary or contract workers don’t have access to employer-sponsored retirement plans, and make 58 percent as much as those who hold traditional full-time jobs.
As the company notes, the gig economy may result in unintended economic consequences, as people turn to contract work without the protections of key benefits such as employer-sponsored savings and insurance plans.
Gig economy workers made up 16 percent of the U.S. workforce in 2015, up from 10 percent in 2005, according to a study by economists Lawrence Katz and Alan Krueger.
“While the gig model is cost-efficient for employers, reduces their benefits costs and gives workers flexibility, these workers may, in turn, suffer from income volatility and lack of access to a benefits safety net,” Andy Sullivan, president of Group Insurance with Prudential, said in a statement. “The money made by gig work may contribute to reducing the national income gap, but the decline in employer-sponsored savings and insurance plans is doing little to address the wealth gap.”
Several themes emerged regarding three categories of workers:
gig only, people who did contract work exclusively;
gig plus, individuals who did contract work and held a traditional full- or part-time job;
and full-time, or those with traditional full-time jobs.
The study showed that gig work is not an exclusively urban trend, rather it is equally spread among cities, suburbs and rural areas, thus increasing available income in some areas where there had been few opportunities.
Gig workers are also more likely to be in the service and manual labor sector. The most common job categories for gig-only workers are construction, installation and repair, personal care and sales. The most common work for gig-plus workers is computer and information technology, sales and personal care.
The study showed the scope of the employer-sponsored benefits shortfall among contract workers:
- Only 7 percent of gig-only and 21 percent of gig-plus workers have long-term disability insurance.
- Only 20 percent of gig-only and 37 percent of gig-plus workers have life insurance.
- Sixteen percent of gig-only and 25 percent of gig-plus workers have assets in an employer-sponsored retirement plan, compared to 52 percent for their full-time counterparts, according to the research.
“While working independently has its rewards, the uncertainty of gig income makes it difficult for people to prepare for emergencies or save and invest toward achieving important financial goals,” Sullivan concluded.