While unemployment may be at record lows, the growing number of gig workers who aren’t on payroll may be skewing the data, according to a new report.
The Federal Reserve Bank of Dallas — one of 12 regional reserve banks that make up the centralized Fed — found that although unemployment is low, wage growth has not increased. One reason could be the rise of gig workers: The report found that the number of workers who pay self-employment taxes has risen steadily over the last 35 years.
The increase in independent contractors may skew unemployment figures because firms can hire contractors without adding them to payroll. That way, independent contractors are not counted as “unemployed,” despite the fact they don’t work consistent schedules. Gig workers typically only work on and off during the month, according to a recent study from the JPMorgan Chase Institute.
Another reason why headline unemployment may not account for gig workers is due to the use of survey data. Contractors may mistakenly report their status as “employed” when asked in surveys, the study says, despite not being on payroll or working consistent schedules. That’s why the Federal Reserve Bank of Dallas instead measured the number of gig workers by those paying self-employment taxes.
At the same time, the increase in gig workers may account for “subdued” wage growth, because independent contractors have less bargaining power: “New technologies that encourage contingent or just-in-time labor lower the bargaining power of workers,” the report states. “This, in turn, lowers the natural rate of unemployment and real equilibrium wages.”
The fact that worker wage growth has not increased at the pace of the economy is a cause for concern, according to a recent report from hedge fund Bridgewater Associates. While unemployment nears five-decade lows, the number of gig economy workers has increased over the last five years according to JP Morgan Chase, driven largely by transportation apps like Lyft and Uber.
Uber, which recently filed for an independent public offering, said its business would suffer if drivers were treated as employees. Uber and Lyft drivers have protested the fact that both companies don’t offer employee benefits to independent contractors.
Many full-time drivers who make the bulk of their income from ride-hailing apps have complained of low pay. “This is pretty crippling to a full-time driver,” a Reddit user and self-identified Uber driver posted on the website. “I don’t know if I can support myself anymore.