The traditional full-time job is the employment path followed by a large percentage of American workers, but there is a growing segment that prefers something different. Many are opting to work for an employer for a specified time, performing an agreed-upon function, and then moving on the next benefactor when the job is done. It’s what is known as the gig economy, and ADP Research Institute reported on it in its Illuminating the Shadow Workforce: Insights into the Gig Workforce in Businesses. In this podcast, Dr. Ahu Yildirmaz, co-head of ADP Research Institute, walks us through the report’s findings and what effect the style of employment is having on the CPA world.
By: Bill Hayes, Pennsylvania CPA Journal Managing Editor
For a large percentage of the American workforce, their work routines sound familiar: taking the train to work each day, sitting at the same desk, working with the same colleagues. However, for a growing segment of our work population, it's more comfortable to work for an employer for a specified amount of time, perform your agreed-upon function from the comfort of your own home, and then move onto your next employer when the job is done. Less focus on permanence and structure, and more focus on flexibility and autonomy. In short, welcome to the gig economy. ADP Research Institute recently released a report on the gig workforce titled Illuminating the Shadow Workforce: Insights into the Gig Workforce in Businesses. To talk about their findings and what it means to individuals and businesses, today we have with us Dr. Ahu Yildirmaz, co-head of ADP Research Institute.
Can you explain to us what exactly is meant by the term gig workforce?
[Yildirmaz] The term gig workforce is challenged by the lack of a common definition, in fact. Businesses have a variety of work arrangements, like full-time employees who have been there for years, or temporary workers who help for a season, or highly skilled consultants for special projects. We selected tax status and months worked to create objective criteria for people who are in the gig workforce. We identified three types of workers: contractors receiving Form 1099 miscellaneous from their hiring organizations, short-term W-2 employees who work for six months or less, or traditional long-term W-2 employees. We considered 1099 contract workers and short-term W-2 employees to be gig workers.
The ADP Research Institute recently released the report, Illuminating the Shadow Workforce. What would you say were one or two of the high-level key findings of the report?
[Yildirmaz] First of all, data shows that one in six workers in mid and large companies is a gig worker in the United States. In other words, on average, 16% of the workforce in these companies is comprised of gig workers, and the share of gig workers in the overall workforce increased by two percentage points in past decades. The prevalence is high and the trend is also growing.
The research also showed that although both 1099 contractors and short-term W-2 workers are considered to be gig workers, their demographic profiles are very much different. 1099 contractors are older, highly educated, and they have specialized skills, and they are much more likely to have a higher income. Short-term W-2 employees, on the other hand, are younger, less educated, and have a lower income. These type of gig workers are typically seasonal or on-call hires.
But what was really interesting in the data, 30% of 1099 contractors are 55 years or older. 30% is a high number because, I mean, look at the overall workforce. Including everybody, only 20% are 55 years or older. 30% is above average. It seems like there is this cohort of workers, the 55-plus cohort, who enjoy what they do, they like the flexibility of gig work, and they do not appear to be working out of financial necessity alone. Roughly 40% of these workers consider themselves retired even though they continue to work for pay. That really reflects that the mainly highly skilled, retired workers are coming back to the workforce, and it looks like they live Chapter Two in their careers.
Obviously, the report found that gig work is growing. What would you say are some of the factors behind that growth for people, and do you expect the growth to continue?
[Yildirmaz] Yes, there are several reasons, from both the demand and supply sides. First, we all know that the labor markets are tight and it's difficult for employers to find the skilled workers that they need to run their businesses. In many cases, companies are increasingly hiring gig workers to handle short-term projects that do not require a full-time employee. This is very common that specialized skills or knowledge is needed for a specific task or project. This also provides an opportunity to workers. This is the supply side, in a way. As I mentioned before, particularly to the 55-plus group, because there is demand, workers with specialized skills, especially highly skilled workers, older, or perhaps retired workers who would like to continue to work, prefer to work as a gig worker because the setup gives them control of what they do and the flexibility that they need. They want to be in the workforce but with their own scheduling and project choice. I think these are the factors behind the growth.
The report found that recreation, construction and business services were the top three industries utilizing gig workers. Did the report say anything specifically about gig work as it relates to the accounting or CPA industry?
[Yildirmaz] Yes. Most of the accounting firms are captured in the business or professional services industry. From the study, we find that about 30% of workers in business services are gig workers. In fact, this is the third-largest share of gig workers from an industry perspective. For professional services, this percentage is about 20%. Although we did not specifically look at the prevalence in the CPA industry stand-alone, from these two sectors, and given the specialized skills needed in accounting, we know that the prevalence of gig work in accounting CPA areas are likely high.
What did the report say specifically about the motivations behind gig work? Are people doing it because a full-time position isn't available, or, at this point, is it more of a lifestyle choice to prefer that?
[Yildirmaz] The vast majority of gig workers say they work this way because they like flexibility, they enjoy what they do, and the ability to control how and what they do. Interestingly, and this was a surprise to many of us, when we asked traditional workers and gig workers to make trade-offs on job elements, the gig workers tended to be willing to trade off benefits and financial security in order to have flexibility. In fact, less than 10% of gig workers work this way because they cannot find a regular job. This is not really because they cannot find a full-time job that's why they are gigging; it actually looks like a lifestyle choice at this point.
What did the report say about the idea of how engaging in gig work can affect earning potential? Are there any issues there?
[Yildirmaz] We looked at the data for their earning potential, but let me first say that it was really clear, as I mentioned before, gig workers appear driven more by flexibility than by pay. That's a given, but then I looked at the data from the earning potential: the average monthly earnings difference between a 1099 contractor and the traditional W-2 worker is about $300 to $400. But I should say that this really is on average. It really depends on what job they are doing. At the end of the work, the job and skills needed determine their earning potential. There are some areas, especially in professional services, with the high skills needed, the earnings of these contractors are much higher than the average.
You spoke a little bit to this earlier, but I wonder if we can elaborate even a little more: was there any breakdown in the interest in gig work according to age? Are millennials more interested in it, are older workers? I know you talked about many older workers, that they're doing jobs but yet they say they're still retired. Or was the interest spread across age groups?
[Yildirmaz] Yes. As you mentioned, we highlighted the 50-plus, right? Gig workers over 50-plus do what they enjoy and flexibility is the most important factor when they make decisions about work, and income and benefits for them come last. Other workers in general appeared to be more set in their ways whether they have a traditional job or a gig job. Millennials, however, do not seem to differentiate between gig work and traditional work to the extent that older workers do. They actually…from the survey, we realized that millennials rarely ask questions. They really do not differentiate gig work versus traditional work. This is more in the older worker's mindset.
Obviously our audience is CPAs, Pennsylvania CPAs. What would you say the overall impact of the gig economy is for CPAs, whether it be on their own industry or on how they work with their clients?
[Yildirmaz] For them, understanding the compliance and regulations related to the gig workforce will be critical. The gig economy presents new opportunities for CPAs. Gig workers need different tax advice and form preparation depending on their work situation. For example, there may be full-time W-2 employees who are doing gig work on the side as their side hustle, workers who only do gig work, and full-time freelancers who are focused on building their own businesses. I think CPAs should make sure they understand the needs of this growing segment of the workforce, but I should also say that this also presents an opportunity to CPAs because they are holding very, very much high skills for a specific job. From an employment perspective, it also offers them opportunity.
The audience can download the full report from our institute's website, adp.com/research.