Online gig platforms can boost entrepreneurship and the local economy, new research finds

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The gig economy, fueled by online service-matching platforms, is creating new entrepreneurial opportunities and enabling workers to start their own businesses, according to a new study from the London School of Economics and Political Science (LSE).

A popular belief is that online gig platforms can intensify competition in established industries and wipe out the need for workers with certain skills, leading to increased unemployment. However, a new study published in Information Systems Research challenges this view. The findings suggest that online gig platforms can support local entrepreneurship and foster new small businesses through the redistribution of workers from traditional businesses.

For the study, the researchers exploited the staggered expansion of TaskRabbit—a popular location-based platform enabling matches between workers and clients for service activities such as cleaning—into U.S. cities between 2008 and 2018. They then analyzed changes in the supply of workers in the housekeeping industry before and after the platform's introduction.

They found a significant decrease (- 7.1%) in the number of housekeeping workers in locations where TaskRabbit operated, compared to locations where it wasn't introduced. This decrease was predominantly driven by a decline in the number of middle-skilled workers (i.e., first-line managers, supervisors) whose tasks could easily be automated by TaskRabbit's matching algorithms but not low-skilled workers (i.e., janitors, cleaners) who typically perform manual tasks.

Importantly, the researchers found the entry of TaskRabbit did not crowd out middle-skilled housekeeping workers causing them to be laid off or forced into other related occupations. Rather, they found a significant movement of middle-skilled incumbent workers towards self-employment within the same housekeeping industry.

Interestingly, the rise in self-employment primariloy falls under the "incorporated" category, where entrepreneurs start their own formal businesses, as opposed to the 'unincorporated' category of freelancers and independent contractors.

Commenting on the findings, paper co-author Dr. Aaron Cheng from the Department of Management at LSE said, "Our research challenges the longstanding binary narratives of technology as simply a job creator or destroyer. Instead, we find that it has great potential to redistribute incumbent workers toward entrepreneurial opportunities.

"This democratizing impact calls for adaptive, forward-thinking policies that embrace innovations like online gig platforms, fostering shared prosperity and empowering local economies to thrive amid evolving market demands."

The researchers further emphasized that gig platforms offer flexibility and autonomy to workers, thus making self-employment opportunities more accessible. Traditional self-employment usually requires paying business starting costs and reaching a critical mass of clients. Online gig platforms reduce these entry barriers. They provide tools to signal worker quality (e.g., online ratings) and access to an established client base, which can lower the costs of self-employment.

Although the study focuses on TaskRabbit's impact on the housekeeping workforce, the researchers believe the findings could also apply to other gig platforms such as Uber and Airbnb.

More information: Xue Guo et al, Skill-Biased Technical Change, Again? Online Gig Platforms and Local Employment, Information Systems Research (2024). DOI: 10.1287/isre.2022.0307

Journal information: Information Systems Research

Provided by London School of Economics