While traditionally laid off employees have relied on consumer credit and unemployment insurance to maintain consumption, research finds that the gig economy serves as a substitute for many seeking other, more permanent work.
In a paper published in the Journal of Financial Economics, researchers matched anonymized data from on credit profiles with unemployment insurance and found that laid-off Americans with access to Uber as a source of income were less reliant on household debt.
They also experienced fewer delinquencies and were less likely to apply for unemployment insurance benefits. Lower reliance on credit and insurance allows workers to avoid potential negative consequences, such as over-borrowing that can lead to a debt trap and reduced motivation to work due to dependence on unemployment insurance programs.
“Anecdotal evidence from recent government shutdowns suggests many income-shocked workers view the gig economy as a short-term solution to buffer consumption,” co-wrote Ankit Kalda, associate professor of finance and the Jerome Bess Faculty Fellow at the Indiana University Kelley School of Business.
“The effects of Uber’s entry are stronger in states with less generous unemployment insurance benefits. This is consistent with workers weighing the tradeoff between two short-term options, the gig economy and unemployment insurance.”
The findings appear in the article, “Gig labor: Trading safety nets for steering wheels.” Other authors of the paper are Vyacheslav Fos of Boston College, Naser Hamdi of Equifax Inc., and Jordan Nickerson of the University of Washington.
The researchers used data from Equifax. They matched it with information about Uber’s introduction into various markets across the country between June 2012 and February 2016. They found that workers with access to ride-sharing opportunities saw a relative decrease in total outstanding credit balances of $689 – or 0.9% — compared with those who did not. Delinquency rates fell by 4.9%.
Eligible car owners were 3.3% less likely to lean on unemployment insurance programs where Uber was present. Following Uber’s entry into a market, workers with access to the ride-sharing platform were 4.8% less likely to receive unemployment benefits.
“Back-of-the-envelope calculations suggest that the decrease in unemployment usage resulted in a yearly reduction of between $492 million and $750 million in unemployment benefits distributed by government agencies,” Kalda said.
Kalda and his colleagues found economically significant results when they restricted their sample to those who regained formal employment within a year of being laid off.
“If the ride-sharing platform reduces labor market frictions, the ability of a worker to buffer their labor provision by participating on the ride-share platform may reduce the hardship associated with job loss,” he added. “Gig labor can provide a safety net for those seeking more permanent work in the formal market.”