Redefining maximum employment in the age of the gig economy

Peter Warburton and Tom Traill - 22nd December 2016

The US Federal Open Market Committee (FOMC) is famously tasked with a dual mandate: maximum employment and stable prices, although the Federal Reserve Act does contain a third: moderate long-term interest rates. While there is some room for ambiguity in defining ‘stable’ prices and ‘moderate’ interest rates, a professional consensus would not be difficult to achieve on either count. Maximum employment is quite another matter.

We can agree, hopefully, that there are 8,766 hours in a year, to the nearest whole number. In 2014, Mexico held the top spot for the highest average annual actual hours of work among those who had worked at all, at 2,228, or 25.4% of total. The US was mid-table at 1,789 (20.4%) while Germany sported the lowest average at 1,366 (15.6%). However, the internationally comparable official unemployment rates are 3.6% in Mexico, 4.6% in US and 4.1% in Germany. Immediately, it becomes apparent that the official unemployment rate is compromised as a gauge of maximum employment.  Germany shares work around its adult population to a much greater extent than Mexico.

The Bureau of Labor Statistics acknowledges that unemployment can be defined narrowly or broadly: there is a broad measure known as U-6, which currently stands at 9.3%. This includes “all persons marginally attached to the labor force as well as those working part-time for economic reasons.” Yet these classifications were devised long before the advent of flexible working practices, job portfolios and the gig or sharing economy. The proportion of adults of working age that undertake no work at all work must be very low in the US.

While, in concept there is nothing original about the idea of short, specific task-based employment – for example, the queues of underemployed labourers waiting at builder’s merchants trying to get a day’s work. However, apps like Hermes, Uber, Deliveroo and more established companies like eBay are able to tap into a reservoir of willing participation from those on the fringes of the workforce, eking out a few extra hours here and there. These apps facilitate additional employment that conventional jobs cannot offer and are redefining maximum employment in the process.

The gig economy is growing extremely fast – in London, is reportedly up by 72% since 2010. As the chart for the US shows, there is a basis to capital rather than employment platforms, but similar trends are in force. By overcoming the rigidity of common structures of full-time and part-time jobs, these apps allow gradations of engagement with paid employment that used to be very rare.  

Structural changes in the labour market are important to the consideration of maximum employment, which may be closer at hand than the FOMC imagines.  Wage and labour cost acceleration is the likely result.

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