How the gig economy is benefiting unemployment claims

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The gig economy has provided support to those on unemployment during the COVID-19 pandemic, according to a study from the MIT Sloan School of Management. Most workers look to unemployment benefits or build up personal debt when they are laid off from work, but the gig economy has provided another source of support during this difficult time.

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Gig economy takes a bite out of unemployment

Unemployment approached 15% in April, and a study from MIT Sloan School of Management Visiting Professor Jordan Nickerson revealed how much of an impact the gig economy can have on labor markets by decreasing the number of unemployment claims and accumulated debt. He noted that the gig economy allows people to find work quickly with a flexible schedule.

They can also earn higher wages than what they would usually receive through unemployment. Nickerson's study looked at how introducing the gig economy into a region can reduce the demand for unemployment benefits and mitigate the need to accumulate personal debt.

Specifically, he looked at Uber where it was introduced in the U.S. He found that laid-off employees who own a care were less likely to rely on unemployment benefits. Workers with access to Uber were 4.8% less likely to receive unemployment.

"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," Nickerson said in a statement.

Reliance on debt also declines

The MIT team found similar effects on usage of credit card debt. Laid-off workers saw a relative decrease in outstanding debt balances of $544 or 1.3% of the average individual's debt burden. Further, Uber's effects extended to credit performance. Workers experienced a 2.9% relative decrease in delinquencies.

"We found that driving for Uber is viewed as a temporary safety net rather than a long-term job replacement," Nickerson said. "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.

He added that the effects were the strongest in areas that had the highest increase in unemployment rates.

Benefits of the gig economy

Although the study focused on Uber, Nickerson noted that the same benefits could extend to a wide range of gig-labor firms that offer access to jobs to unemployed workers, such as Thumbtack and TaskRabbit. He also said the findings of their study are consistent with his belief that if given a choice, most people would rather work and be self-sufficient than rely on government benefits.

"Until now, policymakers have largely highlighted the negative aspects of the gig economy, which is indeed less than perfect," he said. "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 [unemployment insurance] 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."