Sunday, November 27, 2016

Fed Gov Lael Brainard: "The 'Gig' Economy: Implications of the Growth of Contingent Work"

From the Federal Reserve Board:

Other Formats
Governor Lael Brainard
At "Evolution of Work," a convening cosponsored by the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, and the Freelancers Union, New York, New York
November 17, 2016

The "Gig" Economy: Implications of the Growth of Contingent Work
I would like to thank Bill Dudley and Sara Horowitz for inviting me to participate in today's conference. The subject we are tackling today--the evolution of work--is a particular interest of mine and is a matter of great importance to the Federal Reserve. The Congress has mandated the Federal Reserve to implement monetary policy so as to promote maximum employment and stable prices. Our dual mandate recognizes the importance of work in enabling people to contribute to the financial security of their family and the prosperity of their community and the country overall. Moreover, there is a long-standing recognition that secure and dignified work provides a key sense of purpose and worth. Understanding the changing nature of employment in today's economy is not only central to the mission of the Federal Reserve, but also goes to the core of who we are as providers for our families and productive members of society.1
In contrast to traditional work arrangements, in which an employee has a durable employment relationship with a single primary employer, a large and growing proportion of the workforce is working through contracting, temporary arrangements, on-call arrangements, or as freelancers being hired for episodic "gigs." Broadly speaking, contingent arrangements are more transitory than traditional arrangements, in the extreme consisting of a single transaction or gig. They often provide considerably greater flexibility than long-term employment contracts, allowing workers and employers to move in and out of work relationships easily. Depending on the nature of the employment relationship, this enhanced flexibility could have benefits and costs that accrue to workers and employers very differently.

Although they have always been a feature of the American economic landscape, there has been a sharp increase in the prevalence of contingent working arrangements over the past decade, and it is too early to tell how much of this acceleration is a cyclical phenomenon associated with the Great Recession or reflects a structural trend. The growing share and variety of contingent work has important implications for policy and puts a premium on data and research exploring this topic. For monetary policy, the growth of contingent work affects the way we assess maximum employment and the way we interpret important labor market outcomes, such as the level of part-time employment and aggregate hours worked. Depending on the contractual arrangements, it may also have important implications for economic security and the behavior of households as consumers and savers. Richer and timely data and analysis could help guide employers, workers, and public officials toward outcomes where benefits and risks are better understood and managed.

What Do We Know about Contingent Work?
Official measures of the changing nature of work have not kept pace with the evolution of the economy. But thanks to some cutting-edge researchers, several of whom are present today, there is a growing foundation of analysis.

Last year, Larry Katz and Alan Krueger conducted a version of the Contingent Worker Survey (CWS) to track alternative and nonstandard work arrangements using the RAND American Life Panel.2 Their findings are striking: Over the past decade, contingent workers have increased by roughly one-half and now make up 16 percent of the workforce. This rapid increase is in marked contrast to the preceding decade, when contingent workers remained at a relatively stable 10 percent of the workforce, according to the Bureau of Labor Statistics' (BLS) CWS.3 They conclude that all of the net growth in aggregate employment in the decade leading up to 2015 can be accounted for by contingent work arrangements, which means there has been no net employment growth in traditional work arrangements. Given that this period spanned the Great Recession and the first five years of a slow recovery, it naturally raises the question of how much of the large recent shift toward contingent work is attributable to cyclical factors, as opposed to structural forces that may be here to stay.4
Long before the advent of firms such as Uber and TaskRabbit, ‎many individuals worked in contingent arrangements, such as freelancing and contracting, and it is these groups that have increased their share of the workforce most notably over the past decade. The largest increase in contingent work over this time has been among workers whose services are contracted out by another company, which rose from 0.6 percent to 3.1 percent of the workforce. There was also a large increase in workers who are independent contractors, consultants, or freelancers, whose share grew from 6.9 percent in 2005 to 8.4 percent in 2015. On-call workers expanded from 1.7 percent to 2.6 percent of the workforce.5