Question

2. (6 points) Income insurance. Read Gerald Friedman, “Dog Walking and College Teaching: The Rise of the Gig Economy” Real World Micro (chapter 7.2).
   1. (1 point) Use diminishing marginal utility theory to explain why people would prefer stable income to receiving the same total income but with much more variation week to week.
   2. (2 points) What is the difference between traditional “jobs” and “gigs” including subcontracting work or temp jobs? Why might workers prefer one or the other? Why might employers?
   3. (1 point) What has happened to the share of American workers with steady jobs the 1970s? Who is responsible for the decline of “jobs”: does it reflect worker preferences or employer preferences? Why do you conclude this?
   4. (2 points) What might be done to make up for the decline in employer-provided income security? If workers employment and income has become more variable, would it be possible to provide some other form of income security (such as some form of insurance)? Would it be desirable to provide workers with some other form of income security? Might there be costs to this in reduced work effort and lower productivity? Might there be compensating gains?

Answer 1

Traditional jobs are the jobs in which the workers held long term connection with a single employer. Gigs refers to the newer jobs in which the workers are employed with a single employer for shorter tenures or particular projects. Gig jobs are more flexible as compared to the traditional jobs. Gig jobs also give freedom to the workers who progress in their careers. But the workers might prefer the traditional jobs due to job security and established access to employer insurance schemes. The gig jobs help the employers to match the employee skills with the demand of the job. It also helps the employers to cut labor costs, via low salaries, laying off the surplus labor, and not providing fringe benefits. The share of Americans in steady jobs has declined since the 1970s. The percentage of workers in the temporary jobs is rising. The shift to the temporary jobs comes from the drive of the employers to save on labor costs, via low salaries, laying off the surplus labor, and not providing fringe benefits. Therefore, the shift to the gig economy comes from employer preferences.

The fall in the employer provided income security can be matched by the development of alternate income insurance or unemployment schemes. This would help by ensuring that the unemployed workers are able to maintain a decent standard of living, and/or enhance their skills to match up to the demands in the job market. This would help in increasing their productivity. Therefore, provision of some other form of income security will help compensate for the lack of job security and would increase worker productivity.