Do applications that are compatible with Side Gigs help or hurt the economy?

Do applications that are compatible with Side Gigs help or hurt the economy?

- in Startups, Tech
@Ajay Rana

In the last decade, we have seen an explosion in applications that support concert economics, a growing trend of people seeking work through independent contracts, often remotely, instead of or in addition to a major job. There has been both support and criticism for the concert economy as an economic tool, and applications are clearly the driving force behind its development. So, are these applications beneficial to the economy in general, or do they have a more questionable impact?

The Basic Premise

Applications dedicated to parallel concerts tend to follow the same pattern, and are not always technologically sophisticated. First, there must be a need for the customer, a type of service that, ideally, almost anyone could provide. Sometimes, that’s the care of the house or the care of pets. Sometimes, it is providing transportation. Other times, it is a professional service, such as writing, designing or acting by voice. In any case, the application works as a sophisticated pairing service for classified ads and as a facilitator of the services provided. Take Uber as an example; Uber provides value because it combines it with a driver every time it needs to be carried (and it gives riders if it is a driver), and because it handles things like travel tracking, rate calculation and other features.

On the surface, this is not a bad thing. You can look at it in one of two ways. In the first, this is simply a tool that increases the efficiency of something that would have happened anyway. Services like this have existed for a long time, and not always in the form of application. For example, if you are managing a multi-family property as part of your investment property portfolio, you could count on the help of property managers to deal with things like collecting rent, finding tenants, and managing evictions when necessary. In a sense, customers pay a fee in exchange for making more money and making their own lives easier, and applications focused on concerts are not the first things to do this.

You can also see this as the creation of a service that did not exist before. Once again, we will see Uber here. Taxi services have been around for a long time, but shared-travel services are a fundamentally different experience. Not only the order process and payment of a trip is more agile and easier to access, but the availability of drivers is greatly improved. Airbnb similarly changed the property rental industry to a degree sufficient to be considered as having created a new niche. The creation of new industries is almost always a good thing for the economy, since it provides more job opportunities and, at the same time, generates new consumption expenses.

These thoughts suggest that concert economy applications are mere extensions of things that develop naturally in the economy in general and, therefore, should not be criticized for negatively impacting the economy. But this is not the only dimension to consider.

The Problem of Profits

There is an inherent problem with the way this system handles profits, and it is one with apparent advantages. New technology companies that focus on concert-based transactions have the ability to eliminate relatively low fees from customers or service providers (ideally both). On a large enough scale, even small fees can be accumulated in large amounts of income (although this is far from being a guarantee). Consequently, the scale should be as large as possible so that the company continues to grow and remain profitable.

This is problematic because it encourages long-term profit margins for service providers, and as more service providers begin to rely on the application to obtain a share of their income, it is more difficult to leave them. For example, if you wanted to enter the carpool market several years ago, you would have to charge lower rates than comparable taxi services, and ideally, present a unique value as well. Considering the high taxi rates, that would not be a big problem, but you would have to charge only a small fee to encourage drivers to use the application regularly. Over time, you will build a base of drivers and brokers, to the point where you can increase your rate. If drivers do not like it, they can leave and be replaced by drivers who are willing to take less for work.

Eventually, he finds himself in a situation where the app company is raising millions of dollars in profits, while service providers are constantly bidding to make sure they get enough gigs to stay afloat. Clients can enroll services economically and conveniently, but service providers are often almost not working. The net economic impact is concentrated among the interested parties, not the service providers, even if they are only using the application to find parallel concerts that complement their main work.

Benefits and Job Security

The concert workers do not pay a salary; instead, they are paid a fixed fee for each “concert” or task they complete. On paper, this is a strong incentive for concert workers to work more and provide excellent quality of service. However, it leads to a feeling of instability at work. Concert workers often feel insecure about their future and have to deal with inconsistent income, which can make it difficult to start a family or save enough for retirement.

On top of that, concert apps do not usually provide any kind of benefits for their workers, such as health insurance, retirement options or other benefits. This is not necessarily bad for the economy and is not exclusive to concert applications, but over time it can cause serious financial problems. High-tech IoT devices and other advances are making medical care less expensive, but health-related emergencies remain the leading cause of debt and bankruptcy in the United States. Without health insurance, concert workers are stuck in defense of those costs on their own and could face financial ruin because of it.

The concert workers also have no options for collective bargaining or even a structure in which they can engage with other workers. Regardless of how you feel about unions, this makes it difficult to obtain any kind of power as an independent contractor. You do not have the option to negotiate what rate you are paid and, if you leave, it is extremely easy to replace.

Jobs Available

If a company has the option to hire someone full-time or use an application to hire cheap and temporary help, they will probably choose the latter. As more and more jobs and services become available in the concert economy, the number of full-time jobs available may be affected. And, of course, with higher unemployment rates and less demand for workers, the economy would suffer.

Side Effects

If someone is taking full-time parallel concerts, they will face a number of other side effects in their lives. Faced with inconsistent income and a job that could easily disappear, it would be almost impossible to obtain a mortgage or a loan. If fewer people buy houses, the construction industry would be affected, house prices would sink, the average person’s net worth would decrease, and eventually the economy could weaken. Considering that a relatively small percentage of people depend on concerts for their total income, we have not seen this kind of widespread impact, but it could happen as the numbers increase.

This does not even consider the non-economic impact that the labor economy can have on workers. Inconsistent demand leads to inconsistent hours and, sometimes, to long and boring changes when workers try to perform tasks to fulfill. This leads to lower job satisfaction and, more importantly, to a less healthy balance between workers’ working and working lives.

The Bottom Line

Despite the weaknesses of the concert economy, there are also notable benefits. People have more flexibility with the kind of work they can do, parallel concerts can generate additional income for the average worker, and completely new industries are being created. There are clearly positive economic benefits of the applications that support the concert economy, but if they are not designed and managed with care, they could have a negative impact strong enough to cancel them.

We need to think carefully about the technology we create and how we use it on a regular basis, or in the end, it could do as much harm as good.

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