THE GIG ECONOMY'S FLEXIBILITY PREMIUM: A COST-BENEFIT ANALYSIS OF LABOR MARKET PRECARITY

Abstract

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This paper presents the first detailed cost-benefit analysis of the premium of flexibility in gig work based on administrative tax survey data and primary survey data on 10,000 gig workers on large platforms (Uber, TaskRabbit, Upwork) in 2022-2024. We estimate a mean gross flexibility premium of 4.20 hours per hour the wage difference workers are paid to have scheduling flexibility. This premium is however more than compensated by this precarity costs of: health insurance setbacks (costs of $2.80/hr), retirement contribution losses (costs of 1.45/hr), self-employment taxes penalties (costs of 0.95/hr), risk of income volatility (costs of 0.40/hr) and gaps in workers compensation (costs of 0.20/hr). Net welfare analysis finds that the median worker has negative net hourly returns of -1.60, but this has a considerable level of heterogeneity: high-skilled freelancers ( Upwork ) have net returns of +3.20/hour and low-skill platform workers ( Uber, TaskRabbit ) have net returns of -3.10/hour. Age stratifying reveals workers below 35 years experiencing -2.40/ hour net expenses because of lower minimum wages and higher insurance costs, and workers over 55 years experiencing -0.80/ hour because of lowered health cost gaps because of Medicare eligibility. Analysis of tax records shows that income volatility is 3.4 times greater among gig workers as opposed to traditional workers, with 34 percent of the gig workers experiencing fluctuation in income greater than 50 percent every month-to-month. Systematic misperception of survey data, 72% of new gig workers are overestimating the value of flexibility by 40-60% and underestimating the costs of benefits. Simulations of policies show that a portable benefits mandate would drive net costs to -$0.50/hour and 85 percent of flexibility value will be maintained. We suggest the Flexibility-Precarity Transparency Act of which platforms will reveal the real net earnings after making benefits adjustments. The results are important to the portable benefits legislation, platform regulation and worker classification controversies.