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The Evolving Independent Economy

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.

McKinsey’s findings challenge several common beliefs about independent work. First, the independent workforce is not dominated by young people: people under age 25 represent just 25% of independent workers. The independent workforce is also diverse in terms of income level, education, gender, occupation, and industry.