Profiting from the Gig Economy
We’ve heard this term hundreds of times over the last few years: “the gig economy”. Uber, Airbnb, and freelancer platforms like Upwork being some of the notable examples of this trend of hiring workers on a contract basis.
It may be one of the biggest cons of all time that the gig economy is seen as being beneficial to workers. Yes, it may give them more freedom, but it also puts them in a position where they have little security and have to take a lot of ownership over their lives. Full employment allows for benefits, predictable income, and the possibility of severance pay. Contractors get none of this.
Analyzing the Labor Market
The problem right now is that working for Uber is better than many of the alternatives available to labor of similar skill levels. That makes it a logical choice for people to follow, but this will likely accelerate as two major factors come into play. First, there is likely to be a widespread collapse of the economy in the next few years. This will eliminate many jobs and probably lower wages for contract work even further. Second, with the continuing implementation of “robots”, many workers will get replaced, which will increase the supply of workers and push wages down even more.
These trends would point towards companies that depend on contract workers to do even better over the next few years. The choice between contract workers and employment in a recession is clear for companies, as they can limit their risk and not have to wrry about severance pay when they need to lay someone off.
My guess is that over the next few years, we’ll also see a push from workers back towards employment. They’ll see that it comes with many more benefits than they previously perceived and the market wage for contract work will be set above the market wage for contract work.
So the big question becomes: will companies that depend on this gig economy continues to do well? Not everyone is meant to be a freelancer or “gun for hire” and it does make for a more stressful life. However, the labor market seems like it will be depressed in the coming years and many will be pushed into the contract labor sector. Knowing this, I think that we can make some informed bets about the performance of certain aspects of the market in the next few years.
How to Profit
The simplest way is by buying Uber or Upwork stock, since they would both benefit handsomely from the rise of contract labor. One uses it while maintaining a tiny workforce, and the other is a market for it.
Another way to invest in the gig economy trend is by looking for ancillary industries. For example, flex office space provided by WeWork would likely perform better based on the need for space from contract workers. WeWork has announced their intention to go public soon, and this could make for a solid buy.
The final bet related to labor would be on AI companies, but that I’ll save for another article.
Featured image courtesy of Shutterstock. Chart via Yahoo Finance.