How the gig economy could help close the skills gap

How the gig economy could help close the skills gap

By Gregory Ferenstein, contractor with Tech4America, a San Francisco-based tech policy nonprofit.

Former President Obama often referred to the “train and pray” trap of workforce education, in which people intensively bury themselves in books and hope that there’s a job waiting for them on the other side of a credential.  In a new economic analysis, I argue that for highly skilled workers, the gig economy is a feasible alternative to “train and pray” school-centric approaches, because job experience itself is the best form of job training. I frequently talk to policymakers who are obsessed with complex credentialing and regional workforce forecasting schemes as a plan to help people find gainful employment. My recommendation is much simpler: get people working as quickly as possible, even if they only freelance a few hours each month. Most high-demand careers need only minimal formal schooling to begin entry-level freelancing, and the portfolio of work and recommendations gained from working in the gig economy are at least as valuable as a degree or job training program.

 

Freelancing in the Gig Economy

 

The gig economy is often reported as a dead-end market for disposable low-wage labor, but a significant portion of temporary, secondary, and part-time, self-employed work is in high-growth industries, creating opportunities for what economist Georgios Panos calls “skill diversification” through multiple job-holding.  I don’t want to sugarcoat the very real challenges that full-time, low-wage gig workers face, but I think gig work is often a problem precisely because it’s used more as a full-time wage job substitute rather than as a temporary tool of occupational transition.

Freelancing isn’t normally thought of as “training” because, conventionally, education and work are compartmentalized. People are either “students,” “apprentices,” or “employees.” But I think these artificial classifications confuse the inherent nature of skilled work. It actually takes much longer to learn a skill than the length of a typical school-centric training program—one reason that government retraining programs are often seen as a “failure”.  In my analysis, I compared people who switched occupations when they had previously held more than one job with those who switched occupations after holding one job. Using data from the U.S. Census Displaced Worker supplement, which collects information about people who lost their job due to plant closings or insufficient hours, I found that in most cases, people who held more than one job did indeed fare worse than those who only held one job. But, a sizable portion, the top 75th percentile of workers, ended up better off, earning 19% more than those who held only one job.

Websites that connect customers to local service contractors are exploding

It’s difficult to investigate how skilled side work helps people, partly because many surveys only ask about primary occupation and partly because many workers do not consider side hustles a “job.” Someone freelancing as a programmer for five hours a month on the side may not tell a surveyor they hold a second job.  But, of those datasets that collect information on second job holding, there’s a pattern of upward mobility among those who have held both low skill and high skill jobs simultaneously. I analyzed both a longitudinal panel study from Britain, the Understanding Society dataset, and the much larger Monthly Outgoing Rotation supplement to the Census. Of those who switch careers, workers who had a skilled side job ended up faring better than single or unskilled second job holders, making between (roughly) 110% to 160% or previous wages.   The data is messy and sample sizes are often small, but I think the advantage observed from higher-skilled side job holders is compelling evidence of the “skill diversification” hypothesis.

 

But, just how accessible is skilled side work? Can it scale?

 

Looking at the census supplement, somewhere between 5% and 20% of jobs held in high-skilled professions, such as teaching and nursing, are as secondary jobs. In 2017, 6% of nurse practitioners and 17% of instructors were people who did the work as secondary jobs (instructor growth is most likely due to the wild expansion of online learning sites).   Websites that connect customers to local service contractors are exploding. People all over the world are leveraging online platform websites to find work as data scientists, programmers, appliance repairmen, healthcare aides and more (indeed, for the report, I worked with a freelance data science student who freelanced on the side). Thumbtack, one of the largest of the companies that connect freelancers with employers, has raised over $270M to date. Its Founder, Marco Zappacosta, recently said his business is banking on the growth of so-called “non-tradable, non-routine” jobs, or jobs that both cannot be shipped overseas and require a local expert to administer and troubleshoot.    This is all to say that there appears to be more than enough space for many, if not most, people to begin transitioning careers through side work.

To simulate what the effect of more job experience would be prior to displacement at scale, I asked a startup with a large database of resumes, TalentWorks, to look at how job experience impacted wages and hireability. According to the company’s analysis, five or more years of experience would boost wages by about 50%, or an amount that would offset the loss many workers will otherwise experience from displacement. TalentWorks found that 61% of “entry-level” jobs require at least three years of experience, confirming the paradox that displaced workers often find themselves, as they are caught in a Catch-22 of needing job experience to get a job.

TalentWorks found that 61% of “entry-level” jobs require at least three years of experience

This isn’t to say that school isn’t valuable, but rather that experience needs to be thought of as part of the training pathway. That takes at least a few years beyond formal classroom training. Currently, many workers need to quit a job to begin training. Wouldn’t it be better if they could add a job to gain experience instead?

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