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The Evolving Independent Economy

New digital platforms are helping to drive a shift away from traditional business models to new arrangements that rely on independent workers. Whether this system is actually good for workers, employers, and economies will depend on how all of the relevant actors approach the transition.

BERKELEY – Working full-time for a single employer is no longer the norm in advanced economies. Instead, millions of “independent workers” – self-employed, freelance, or temporary employees – sell their labor, services, and products through digital platforms to numerous employers or clients.

The growing share of independent work, which typically entails flexible hours, promises to bring significant aggregate economic gains, by raising labor-force participation rates, increasing the overall number of hours worked, and reducing unemployment. But the “gig economy” also creates complex new policy challenges in taxation, regulation, and access to social benefits and protections that traditionally have been provided through standard employer-employee relationships.

According to a McKinsey Global Institute study, up to 162 million people throughout the United States and the EU-15 are currently engaged in some form of independent work. Based on a representative online survey of 8,000 workers in six countries (including the US), McKinsey found that 10-15% of the working-age population relies on independent work for their primary income. Another 10-15% – including students, retirees, household caregivers, and those with traditional jobs – take on such work to supplement their income.

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