Independent work: choice, necessity, and the gig economy

Some challenges associated with independent work are common to 
all segments
Perhaps the top concern regarding independent work is the provision of benefits and 
income security measures. In the United States, for example, independent workers have 
to cover the full costs of their own health insurance premiums. The Affordable Care Act 
was a clear step toward providing them with better access to coverage, and the subsidies 
associated with it put coverage within reach for independent earners below a certain 
income threshold—but for those just above that threshold, the cost of coverage can be 
considerable. In addition, independent workers must cover both the employer and the 
employee portions of Social Security contributions, and any time off comes out of their 
own pockets. Independent workers do have access to a variety of retirement vehicles that 
allow for tax-deferred retirement savings, but they must navigate setting up those plans 
and handling their own investment decisions, and they lack any kind of employer match to 
help build savings over time. However, it is no longer a given that workers in traditional jobs 
have generous retirement plans, so the trade-off in this area is not as clear-cut as it once 
was. Other types of gaps exist as well, particularly in terms of income protections such 
as disability insurance, workers' compensation for injuries suffered while working, and 
unemployment insurance to cover gaps in work. In Europe, too, the self-employed do not 
necessarily have access to unemployment or retirement benefits. In theory, independent 
workers could purchase some additional protections as private insurance, but today such 
products are limited or tend to be cost prohibitive. 
Independent workers may also face other hurdles, such as access to credit. A would-be 
borrower without a steady paycheck from a traditional employer is likely to have to jump 
through additional hurdles when obtaining a mortgage or a car loan—and sometimes is shut 
out of the market altogether. It is not always easy for microbusinesses to access the credit 
they need to scale up. 
One of the age-old risks and frustrations faced by independent workers is the possibility of 
performing work for a client who then does not pay. A 2014 survey found that 71 percent of 
US independent earners reported having trouble getting paid at some point in their career; 
half reported trouble in the survey calendar year. The average amount of unpaid income 
reported in 2014 was almost $6,000, and some reported waiting more than 90 days for 
payment.
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 However, the risk of non-payment may be reduced if more independent work 
shifts to digital platforms, which establish payment infrastructure and protocols that have 
to be followed as a condition of participation. In most cases, work that is intermediated by 
digital platforms pays faster than traditional jobs. Lyft’s Express Pay feature, for example, 
allows its drivers to collect their earnings anytime they reach $50; Uber has a similar Instant 
Pay feature. The payment systems used by ride-sharing apps ensure that no cash changes 
hands but accounts are automatically charged, thus reducing the potential for fare evasion, 
overcharging, and misreporting.
Administrative hurdles, such as licensing requirements, extra tax filings, and complex 
regulatory requirements, can also be significant. Data from the US Bureau of Labor 
Statistics shows a quarter of US workers now hold an occupational license or certificate, up 
from about 5 percent in the 1950s. Occupational licenses are required for more than 800 
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The costs of nonpayment: A study of nonpayment and late payment in the freelance workforce
, Freelancers 
Union, 2014.
Independent workers may find it harder to develop 
new skills and advance their careers.

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McKinsey Global Institute
Independent work: Choice, necessity, and the gig economy
occupations, including auctioneers, dance instructors, locksmiths, florists, manicurists, 
and upholsterers. While some of these credentials provide important assurances of 
consumer safety, putting licensing requirements on too many occupations, with standards 
that vary across states, erects hurdles for independent workers who aspire to enter a new 
profession, start a business, or move.
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 This problem is not unique to the United States. One 
study found that between 9 and 24 percent of workers in the EU-27 states were subject 
to occupational regulation.
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 In France, for example, any individual seeking to become a 
professional driver must invest a significant amount of time and money.
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Independent workers must also account for costs that reduce net earnings. These can 
include office space, equipment and tools, marketing, licensing fees, telecom costs, and 
other types of business expenses. Drivers who work for Uber, Lyft, and similar services 
often must cover their own gas, repairs, insurance, and maintenance while absorbing the 
depreciation of their vehicles. 
Finally, while all workers need to seek out opportunities to develop new skills, independent 
workers may find it harder to ensure they do not stagnate in doing the same type of 
work. Employees of large companies may benefit from on-the-job learning, training, and 
opportunities for career advancement, but independent workers may have to seek out 
training on their own. Companies are often reluctant to hire independent workers for tasks 
they have never done, making it hard for them to build new career muscles.