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Are we creating a new class of workers?

The workforce is generally made up of two types of workers: blue-collar workers, mostly working for an hourly wage, and white-collar workers who tend to be salaried. But some trends in the overall labor market indicate we might be creating another class of worker. These new workers are part of the “Gig Economy,” which seems to be crossing—or in some cases, blurring—the lines between the blue-collar worker and the white-collar worker.

Freedom and Flexibility for the White-Collar Freelancer

The white-collar worker in the gig economy is a freelancer, or contractor, stringing together multiple paying clients to the equivalence of a full-time or nearly full-time job. According to The New York Times in “Freelancers in the ‘Gig Economy’ find a mix of freedom and uncertainty,” the Brooklyn-based Freelancers Union has grown from 76,760 in 2008 to 146,477 last year. Or, if you like, look at the recent statistics from Forbes: in 2013, “one in three Americans (roughly 42 million) are estimated to be freelancers. By 2020, freelancers are expected to make up 50% of the full-time workforce.”

As the article details, there are benefits to being a freelancer, namely freedom and flexibility. The downside: you are essentially building your own full-time job—one with no benefits. Many freelancers will tell you it’s great—unless you consider taking (paid) vacation a key component of work/life balance.

Cutting Corners with Blue-Collar Contractors

More and more companies are embracing contract workers as a way to get the work done while keeping costs down. But these contractors are not just white-collar professionals; there’s also a trend among companies to turn to temporary contractors to fill full-time blue-collar jobs. Take, for example, the situation at Kellogg Company. The company is currently in a labor battle with its union over contract and temporary workers at a facility in Memphis, TN. As The New York Times reported, “Kellogg’s push [is] to greatly expand a group of temporary workers into what would essentially be a permanent tier of employees who earn $6 an hour less than the other workers and have far less benefits.” The company is one of many large manufacturers that are looking for solutions to reduce blue-collar compensation packages.

Tom Kochan, Professor of Work and Employment Research and Engineering Systems at MIT Sloan, told The New York Times, “This is symptomatic of what’s going on. Kellogg was one of the companies we looked at as a model in the food and beverage industry in how it treated its workers. That’s gone away. It’s gone in the other direction.”

And, unfortunately, while the white-collar freelancer gains freedom and flexibility, the blue-collar contractor simply loses income and benefits. While this trend is one employers can use to cut costs, they also need to examine how the gig economy can impact planning, culture, and morale. In the end, the cost cutting might just turn out to be an expensive proposition.

Tom Kochan is the George Maverick Bunker Professor of Management and
Professor of Work and Employment Research and Engineering Systems at MIT Sloan. He is also the Co-Director of MIT Sloan Institute for Work Employment Research.

This entry was posted in Work and Employment on Sun Mar 23, 2014 by MIT Sloan Executive Education