Much has been written about those who work in the “gig economy” (see here, and here), and those of us who try to count them. The term itself, however, is hard to define. Some think of the gig economy as work contingent on demand. Others include an element of technology that connects workers with potential sources of income.
A recent Government Accountability Office study offers various definitions, the narrowest of which produces an estimate of 7.9 percent of the workforce in the gig sector in 2010. But this group includes temps, on-call workers, and contractors: jobs that have been around forever. Senator Mark Warner, in his recent op-ed at the Washington Post, cites that study (although the Post inadvertently links to a different report from 2000) to conclude that one-third of the U.S. labor force could be in the gig sector, and that these gig-workers “now find themselves piecing together two, three or more on-demand work opportunities to make a living” [emphasis added]. While it is true that the broadest of the GAO definitions produces an estimate of 40 percent of the workforce gigging, there is nothing new about these work arrangements GAO includes in the broad definition: independent contractors, self-employed individuals, and even part-time workers. These work arrangements existed long before Uber opened for business.
There are good reasons to try to get a better handle on the gig economy. In the gig sector, the types of risks we typically think of as business risk—e.g., lack of customers because of bad weather, sick workers—become the worker’s problem. To be sure, even before the gig revolution, some sectors of the economy worked just like that. Cab drivers, for instance, never had much in the way of benefits such as healthcare, a pension, paid holidays or even sick days. It is no surprise that much of the gig work is beginning in sectors where workers, such as drivers, handymen, and baby-sitters, already took large risks.
The evidence that piecemeal work is replacing traditional employment in the United States is scant. So we wondered: how about the District? We ran into the same definitional problems about the gig economy when looking at the District’s data, but we decided to focus on the self-employed, specifically, those who characterize themselves as “self-employed in an unincorporated business they own.” For laymen, those are the people who pick up contract work, get a 1099 from the IRS at the end of the year, and pay self-employment taxes. The Bureau of Labor Statistics and the U.S. Census differentiate between the 1099’ers and self-employed who actually own a business that receives the monies for the services rendered, and in return pays a salary to the business owner, with proper deductions for social security and Medicaid. (This Pew piece on the characteristics of the self-employed provides a much more detailed explanation of the term).
We first look at the number of District taxpayers who have paid self-employment taxes. The data show that the total number of people who pay self-employment taxes has increased in the District from 35,000 in 2006 to nearly 49,000 in 2014. This is a very steep increase (36 percent overall and nearly 4.5 percent annualized) even when compared to the relatively rapid increase in the District’s population and tax filers (tax filers grew at about 2 percent per year during the same period). But data show that the rapid increase in the number of filers who paid self-employment taxes occurred before 2010. In fact, since 2010, the share of tax filers who pay self-employment taxes has been stable at about 14 percent.
So why did the District see such a rapid expansion in reported self-employment? This, we suspect, has less to do with changes in the underlying economy and more to do with changes in tax policy. Beginning in 2002, the District started offering Earned Income Tax Credits, first at 10 percent of the federal credit, and by 2009, at 40 percent of the federal credit (one of the most generous such programs in the nation). The credit targets low income families and single parents with children, and the key recipients of this benefit are those who file as head of households.
Since the policy changes began, both the number and the share of heads of households who pay self-employment taxes has increased. In 2006, only 7 percent of filers who paid self-employment taxes were heads of households. In 2010—one year after the benefits maxed at 40 percent of federal credit—this share doubled to 14 percent, and then reached 17 percent in 2012. During the same period, there were no significant changes in the share of singles or married filers who reported self-employment income.
One might say that tax data is not the best measure of the gig economy because it captures all taxpayers who pay self-employment income. In the District, for instance, a government employee who teaches a class at a college, or a professor who writes a paper for a non-profit, would all receive a 1099 and pay self-employment taxes. So the data are noisy, mixing moonlighters with the gig-workers.
So let’s turn to the American Community Survey, which inquires about the employment status of workers. Here we present data on District residents who characterize themselves as self-employed. And, surprisingly enough, we see a decline, both in levels and in shares. In 2014, only 13,100 residents—2.4 percent of District residents older than 16—claimed to be mainly self-employed, down from the post-recession peak of nearly 18,000 self-employed residents (or 3.4 percent of those over the age of 16). Self-employed persons increased slightly in the District during the recession, but since 2012—the time when resident employment really began to increase—self-employment has gone down.
In 2014, the self-employed in the District made up about 5 percent of total resident employment. This figure has been relatively stable, except for 2012. Self-employment income has likewise been rather stable at 3 percent of personal income. District residents who are self-employed routinely generate about 70 percent of their income from their self-employment work.
Incidentally, the District’s self-employed residents—just like its employed residents—are better educated than those elsewhere in the United States. Nearly 60 percent of District’s self-employed have a graduate or a professional degree (compared to only 13 percent across the United States), and fewer than one in five completed schooling only up to high school (compared to 36 percent in the country as a whole).
Is it possible that the data are not capturing the gig economy? We can think of two reasons—one relatively unique to the District, and the other more general.
- It is possible that the District’s gig workers—the Uber drivers, the Amazon flex folks, the Taskrabbits—are not District residents, just like the many District workers who receive minimum wage do not live in the District.
- It is possible that some workers do not fully report their income because they do not realize that they must report earnings from Etsy, Sittercity, or airbnb.
It matters to us to measure the gig economy correctly because we need to be able to track the changes in the District’s economy and understand how work activities connect to incomes. We plan to dig a bit deeper, looking at who might be the gig workers in the District and what types of jobs they hold.
What exactly is this data?
Data on the number of people paying self-employment taxes in the District by tax filer type is from the IRS (2013 data set is now public). Data on class of worker are from various years of ACS. DC data on self-employment has error terms of +/- 0.5 percent to +/- 0.7 percent depending on the year (or about 2,000 workers).