The Hidden Costs

The gig economy has become more popular in recent years. In the gig economy, people work as independent contractors for app-based services. These services could include things like food delivery or pet-walking. Independent contractors do not work a consistent schedule or for a specific employer. Instead, they are considered self-employed and work when needed under a contract. This means they do not benefit from things many employees receive such as a minimum wage, paid time off, or other protections. 

Gig economy companies have a clear financial interest in keeping independent contractors because they are cheaper than paid employees. For instance, gig economy companies often highlight the freedom independent contractors have to set their own schedules. This can be seen with Uber, a large ridesharing company. Uber’s company website recruits drivers by promoting the flexibility their app offers. It is complete with statistics about how much current drivers value this flexibility. Other gig economy companies, like food delivery services DoorDash and Instacart, promote similar things on their websites.

However, there is a downside to all this flexibility that is rarely discussed. Instead of an hourly pay rate or salary, independent contractors are paid for each task they complete. This means no guarantee of a minimum wage. Minimum wage ensures that workers are paid a minimum hourly rate for the time they work, regardless of how busy or slow business is. Without guaranteed income, these workers experience “pay volatility”, or frequent changes in earnings over time. As a researcher interested in uncovering the ways work affects our personal lives, I wanted to understand how pay volatility impacts workers’ health. I recently conducted three studies dedicated to answering this question.

Study #1: Physical Health and Pay Volatility 

In my first study, I recruited 375 gig workers from Amazon’s Mechanical Turk (MTurk), an online platform where workers complete small tasks for a fee. These tasks could include things like translating documents, identifying pictures, or testing websites. I focused on people who spent at least 20 hours per week on the platform and completed at least 1,000 tasks. I then surveyed these workers over the course of three weeks. Since these workers are paid varying rates for each task they complete, they experience changes, or volatility, in their pay. As one participant said, “I can make $80 one day and barely hit $15 the next. It is very unpredictable.” That would be like working common 9am-5pm days and earning $10/hour on one day and $1.88/hour the next. 

My findings showed that gig workers who reported more volatility in their pay also reported more physical symptoms like headaches, back aches, and stomach problems. Workers with more pay volatility were more concerned about making ends meet and were focused on thoughts about their personal finances. Dealing with pay volatility means never knowing how much money you’ll make in a given week or month. That financial insecurity makes it difficult to handle ordinary expenses. My results also showed that these health costs were stronger for those who were more dependent on these volatile forms of pay.  One participant described that although they like working from home on their own time: “Mturk is too unpredictable in terms of the money and effort required that it becomes frustrating and depressing.” 

Study #2: Tipped Workers

While the problem of pay volatility is clearly relevant for gig workers, they aren’t the only ones who experience it. People who rely on tips, such as restaurant servers, bartenders, and hairdressers, also have constantly changing take-home pay. In a second study, I asked 85 tipped workers about their earnings and health every day for two weeks. Below is a sample graph of two participants. The one in blue shows larger changes in received tips (high volatility) and the one in red has fairly stable tip earnings (low volatility). 

I found that earning more tips did not make people feel better or worse on any given day. However, experiencing more volatility in tips was related to more physical health symptoms. For instance, workers with higher tip volatility had a harder time sleeping at night. 

Study #3: High-Paying vs. Low-Paying Jobs

Gig and tipped workers usually do not have high-paying jobs. It is possible that pay volatility is most harmful when working a low-income job. On the contrary, those who earn more money might be less negatively affected by pay volatility. To test this, I conducted a third study with 252 higher-paid workers in the United States. These workers were in sales, finance, and marketing jobs. They averaged around $75,000/year. This is compared to the workers in the previous studies that made around $45,000/year. Sales commissions, where employees get a percentage of the sales they make, are common in these higher-paying industries. Sales commissions can also change over time and experience volatility. This means that higher-paid workers still can experience pay volatility like the lower-paid workers. From this study, I saw a similar pattern where workers who were more dependent on volatile forms of pay reported more physical health symptoms. 

What Can Society Do to Help These Workers? 

1. Lawmakers

• Lawmakers should consider both the benefits and drawbacks of independent contractor work. The benefits, like flexibility, are well-advertised by gig economy companies. However, there are also hidden costs that receive less attention.

  • As one participant in my survey stated, “There are no safeguards in place for workers to guarantee a fair wage on any tasks which, as you can imagine, is probably the one singular aspect of working that produces the most stress, angst, and anxiety”. Ensuring stronger rights and benefits for independent contractors can help create a better working environment for them. 

2. Companies

• Companies that pay workers based on each task they complete or item they sell (commission) should carefully consider whether the benefits outweigh the costs to worker health. Offering decent work and preserving worker health is not only the right thing to do, but beneficial for organizational performance as well. 

• Companies could also reduce workers’ reliance on volatile forms of pay. They could do this by offering higher base pay and reducing the percent of pay from commission or bonuses. This strategy should decrease the effect that pay volatility has on health. 

3. You

• If you want to change the way this work is set up:

  • You can find ways to get involved in efforts to change employment laws. 

  • You can choose to not support companies that use this kind of business model. 

• If you are considering this type of work for yourself:

  • You should think carefully about the advantages and disadvantages of independent contract work. These jobs may be better suited as a side-gig, to supplement more reliable income from a full-time job or spouse’s pay. 

  • Try to set up a budget based on your average earnings. This way you can better plan your expenses over a longer timeframe and are less impacted by daily changes in your pay. 

While jobs within the gig economy have benefits, we must also consider the hidden costs and move towards improving conditions for a large group of workers.

Written By: Dr. Gordon M. Sayre of the Emlyon Business School

Academic Editor: Chemist

Non-Academic Editor: Financial Adviser

Original Paper

• Title: The Costs of Insecurity: Pay Volatility and Health Outcomes

• Journal: Journal of Applied Psychology 

• Date Published: 8 December 2022

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