The “Gig” Economy?

This article talks about the rise of people working part-time, doing various ‘gigs’:

Perhaps her intended audience is not interested in “dull” things like economics, but even someone like me with just a smattering of reading in economics can’t help but think of Coase and his Theory of the Firm when reading it.

The question is: why do firms exist? Why isn’t the economy composed of a huge network of independent contractors? If markets and prices and such work so well, why do these big, monolithic companies, which internally, are not ‘free markets’ exist?

His answer is, greatly simplified, “transaction costs”. From the article:

Every time the boss turns around asking for a key member of staff to join today’s frantically convened cost-cutting strategy meeting the reply comes back, “It’s not Sam’s day to come in and he’s the one working on it. Julia can come, though.” “Julia? What she got to do with it?” “Yeah, well, we’ll have to bring her up to speed.”

In other words, while there is a savings from not having Sam present every day, there is also a cost associated with it, which includes having had to look for and interview Sam to do some work, and bargaining over a price for Sam’s services, and then “bring him up to speed”. You have to do those things with regular employees too, but you have to do them less often with people who stick around for years.

So if one wanted to look, in a less anecdotal way and slightly more scientific way, about whether the US, or other countries, are turning into “gig economies”, one could do worse than look at the transaction costs associated with utilizing contractors as opposed to permanent employees. If those costs have fallen (it may be easier to find people, thanks to the internet, for example), perhaps it is more efficient to have more contractors and fewer full time employees and so the equilibrium will tilt in that direction. Of course, another explanation might simply be that the economy is bad, and companies don’t have the budget to take on more people, so they get by with what they can in the short term.

In terms of the social costs and benefits to a “gig economy”… well, that discussion is best left for other sites, as it’s a big, long, complex one with lots of politics and economics and eventually boils down to everyone’s own view of how the society they live in ought to look, which is very much outside the scope of this journal.

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