A recent academic study found that many ridesharing drivers do so to help them work through financial shocks and smooth income volatility.
Consumption Insurance and Multiple Jobs: Evidence from Rideshare Drivers is based on a database of the finances for over 1.5 million households.
From this database, the author was able to identify about 18,000 rideshare drivers.
Using this type data has a very big advantage. Both spending and non-rideshare income data are available. This means the author had the ability to identify financial shocks and their role in the decision to become a ridshare driver.
The study is dense, has a lot of math and uses the typically obtuse language of academia. Few will want to wade through it.
But that's why we're here, to wade through stuff like this.
The key study findings are:
- Highly flexible, low friction employment - like driving for a rideshare firm - allows more people to work and earn money.
- The income generated by this work helps workers weather financial shocks, such as unexpected bills, the loss of a job, or a reduction in work hours. It also helps them smooth income and increase financial stability by providing income when other sources aren't available or are reduced.
- The more credit constrained a person is (meaning they have relatively large credit debt or are unable to access credit), the more likely they are to turn to rideshare driving and the more important that income is.
Key quote from the study:
When faced with volatile incomes in main jobs and credit market imperfections, flexible jobs can be valuable. When credit constrained, using labor supply instead of assets to smooth transitory shocks is a “second-best” way to smooth because of the disutility of work. However, the availability of flexible labor supply can provide substantial benefits in the presence of credit market imperfections.
The study also points out that well intentioned government rules, laws and programs could easily reduce the value of this type of work. Again from the paper:
To the extent that these policies limit flexibility, they could end up hurting workers using flexible work as a consumption smoothing mechanism.
The findings of this study reinforce the findings from the 2017 On-Demand Workforce Study we conducted with Intuit.
That study also found that most on-demand workers (those who get work assignments via an on-demand platform or marketplace) do so to supplement and/or smooth their income.
We also found many turn to on-demand work to help them work through a financial shock.
These findings are discussed in more detail in the Aspen Institute's article New Findings Reveal the On-Demand Economy Plays Key Role in Improving People’s Financial Stability.
These studies highlight several things often left out of the public debates about the gig economy.
First, highly flexible, low friction gig work has expanded work opportunities for many who are shut out of traditional labor markets.
And second, gig work provides many with the ability to smooth their income and weather financial shocks.
These are beneficial both for those who need this type of work and for society overall.
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