MIT Sloan study finds gig economy serves as a safety net for unemployed

Driving for Uber decreases reliance on government benefits and credit card debt

CAMBRIDGE, Mass., Oct. 8, 2020 – When workers are laid-off, they often seek the safety net of unemployment benefits or accumulate personal debt. This is a particularly critical issue now, during the COVID-19 pandemic when unemployment rates reached nearly 15% last April. A recent study by MIT Sloan School of Management Visiting Prof. Jordan Nickerson found that the gig economy can have a “profound impact” on labor markets by decreasing the number of claims for unemployment benefits and debt.

“The gig economy allows people to quickly find work with a flexible schedule and earn higher wages than they would generally receive through Unemployment Insurance (UI). This study looks at whether the introduction of the gig economy into a region can lessen the demand for UI and mitigate the need to accumulate personal debt,” says Nickerson.

Analyzing the introduction of Uber into regions across the U.S., they found that laid-off employees who own a car were less likely to rely on UI. More specifically, workers with access to the ride-sharing platform were 4.8% less likely to receive UI benefits.

“Our analysis suggests that the decrease in UI usage if Uber were present in all areas translates to a yearly reduction of between $492 million and $750 million in UI benefits distributed by government agencies,” says Nickerson.

The researchers found similar effects on credit usage, with laid-off workers experiencing a relative decrease in total outstanding balances of $544 or 1.3% of the average individual’s debt burden.

In addition, the effects of the ride-sharing platform extended to credit performance, with workers experiencing a relative decrease in delinquencies of 2.9%.

“We found that driving for Uber is viewed as a temporary safety net rather than a long-term job replacement. It is a way to quickly earn money in exchange for work, but it provides the flexibility to continue looking for another job. This was even the case when looking at individuals from high-income areas,” says Nickerson, noting that the effects were the strongest in areas with the highest increase in unemployment rates.

While their analysis focused on Uber, he notes that the benefits identified could extend to a broad class of gig-labor firms that offer unemployed workers instant access to jobs, such as TaskRabbit and Thumbtack.

Nickerson observes that the overall findings are consistent with his personal belief that, if given a choice, most people would rather work and be self-sufficient instead of relying on government benefits. The gig economy makes this a more viable option.

He adds, “Until now, policymakers have largely highlighted the negative aspects of the gig economy, which is indeed less than perfect. However, this study shows that there are other sides of the argument and that the gig economy can have a profound impact on labor markets. With potentially large UI cost savings to the government on the line and significantly less consumer debt, it is well worth it for policymakers to consider the benefits of the gig economy.”

Nickerson is coauthor of “Gig-Labor: Trading safety nets for steering wheels,” with Vyacheslav Fos of Boston College, Naser Hamdi of Equifax Inc., and Ankit Kalda of Indiana University.

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