COVID-19 and the Gig Economy: A Conversation with Dmitri Koustas

Today, more than 2 million workers earn at least some income on one of the “gig economy” online platforms that didn’t exist before 2012, the most well-known of which are ridesharing services like Lyft and Uber. To put this in perspective, Wal-Mart, the largest employer in the U.S., has about 1.5 million employees.

University of Chicago economist Dmitri Koustas studies why households participate in alternative work arrangements like the gig economy. Koustas recently sat down with the Harris School of Public Policy to discuss policymaker response to the COVID-19 health and economic crises, and what it means for gig economy workers:

What can your research tell us about the gig economy?

One of the questions I ask in my research is, “Why do people do gig work?” In one of my papers studying administrative tax records, my fellow researchers and I find that, at least prior to the current crisis, 81% of people who make income from online platforms like Uber and Lyft are actually doing this as a side gig. And when we dig more into the data, one striking finding is that people typically start new platform work in the middle of a personal income crisis.

In another paper, I find that when people’s income from their main job goes down, they initially respond by spending down their savings or racking up credit card debt. Those who respond by starting a gig job, however, become better able to deal with these periods of income volatility.

I find that driving for gig platforms replaced 73 percent of lost income from a main job, on average, and people don’t have to cut back their spending as much when they have a change in income. 

What kinds of unique challenges do gig workers face during this unprecedented time?

The biggest challenge is that most gig workers, as well as other self-employed and service-sector workers, have seen massive shocks to the demand for their labor services already, and especially rideshare work where demand is collapsing in the wake of social distancing measures and stay-at-home orders. Many workers were using gig work to make extra money on the side to make ends meet, and for most workers this option has completely disappeared.

On the other hand, some temp and gig work, like Amazon flex and grocery pickup services like Instacart, have seen demand increase. If you go to Whole Foods, you will see the store teeming with gig workers shopping and preparing to deliver groceries to clients for clients. This potentially represents a massive increase in this type of gig work. And that’s important, because government efforts to replace lost income – things like receiving unemployment benefits, receiving a stimulus check, or getting the earned income tax credit – take time, and only provide partial insurance for many workers. Being able to take a gig or temp job quickly is a way to ensure income is still rolling in in the short term.

What do you make of gig workers, such as Instacart workers, threatening to stop working due to concerns about COVID-19?     

Nobody should be forced to work, and nobody should have to choose between going to work in unsafe conditions and feeding their family. Proper precautions need to be taken by workers who choose to work in this crisis and the firms that employ them. This should include paid sick time, which we have seen some firms step up to provide. I would also like to see regulators like OSHA issue safety directives and set up hotlines for monitoring these directives.  

While there are incredibly important concerns about how we protect gig workers at the moment, it’s also important to note that there are customers in vulnerable populations who are benefiting from the ability to get groceries delivered to their door. We need to include this benefit in any welfare calculation of the gig work that is expanding as a result of the crisis.

If we made this gig work more difficult for workers and firms, we would need to have alternative solutions to deliver people much needed food and provisions. 

Were there provisions in the stimulus package designed to help gig workers? Will they be effective?

One of the provisions of the new stimulus bill is Pandemic Unemployment Assistance, which will extend unemployment benefits to self-employed workers, including gig workers.  This is very different from the response in the Great Recession, when UI was not extended to the self-employed, but it is not unprecedented: this extension is largely based on the 1974 Disaster Unemployment Act, although it is much larger in magnitude.

Basically, Congress said, “do this,” but left implementation up to the states. As of yet, however, no state has actually started to pay these benefits as far as I’m aware. There are many challenges for the states to verifying self-employment income, particularly at this scale.

I'm in contact with state agencies and continually learning more about how this will work. I suspect it may take much longer than governments and workers want before the unemployment benefits arrive. 

Is the government’s response in support of gig workers sufficient so far? If not, what other policies would you like to see enacted?   

The extension of UI payments to gig workers is a big deal. I’d also like to see aspects of our social safety net that are not tied to the employer, like food stamps and Medicaid, be strengthened and expanded. These programs are well targeted to those with important needs, especially in this crisis, and apply to all, including full-time gig workers and the self-employed. Many states have not expanded Medicaid to low-income childless adults, for instance. Troublingly, many of these states are also states that were late to respond to the present situation.

Beyond the unemployment benefits, what’s your perspective on stimulus checks? Are they effective policy?

The stimulus checks will increase demand for goods and services, and the evidence from past crises suggests that people will spend the money almost immediately. That’s a good thing.

Unfortunately, though, with people sheltering at home, the restaurants and hair salons and other small businesses hit hardest are unlikely to ever see much of this money. For this reason, government should provide another stimulus after shelter-at-home warnings are lifted and the public health crisis subsides, so that people spend money on these hard-hit services.  A well-timed stimulus will help get people back in Ubers and out to the bars.  

Are there other considerations for policymakers as they look a few months down the road beyond the immediate crisis?   

Right now, the focus needs to be on the public health crisis. Paying workers to stay home makes sense in many cases; however, policymakers also need to be conscious of the incentives some of their policies are creating so that they don’t impede a recovery once the public health crisis subsides. 

One of the components of the CARES Act is a $600 check for all unemployed workers on top of regular UI benefits. Many unemployed low-wage workers will be getting 50-100% more from a UI check than their old pay check. This boost to benefits is currently expected to last until July.

Other benefits to self-employed and gig workers are set to sunset in December. If the public health crisis improves before then, this may reduce incentives to return to work, and make it difficult or more expensive for firms to hire back workers. Moreover, it is also likely to raise costs of doing business today.  

Right now, the concern is probably greater about low pay in the gig economy—many workers receive the minimum wage or less—but policymakers do need to factor in the future impact of their policies.

When’s the last time you relied on the gig economy? Have you ever done gig work yourself?

Since the crisis hit, I’ve been using the food delivery apps in order to support local restaurants. 

Like many people, I’ve done side gigs here and there.  Most recently for me was as a grad student, where I made money on the side tutoring.