Layoffs, recession fears spur some companies to hire more gig economy workers

An uncertain economy and widespread tech industry layoffs are accelerating a shift to gig work as more companies bring on contractors instead of full-time workers, according to recent surveys and staffing officials.

Tech giants such as Amazon, Twitter and Meta laid off about 161,000 employees in 2022 and 120,000 so far this year, according to layoffs.fyi, which tracks job cuts in the industry.

At many of the companies, contractors were among the first let go since they didn’t receive severance payments and their layoffs generated less negative publicity. Now, however, the firms are regrouping and bringing on contractors and consultants to handle projects previously done by full-time employees, staffing executives say.

“It gives them the flexibility to go up and down (in their workforce) without that commitment,” says Steve Brady, senior vice president of Experis, a staffing company for the tech industry.

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So far this year, the number of full-time employees recruited by Experis has fallen while contractor placements have increased, Brady says.

About 4 in 10 companies that recently laid off workers are hiring contractors to replace them according to a January survey of about 1,000 U.S. business leaders by ResumeBuilder. Most of the executives say the strategy, at least in part, is intended to save money.

And in the next six months, 52% of the business leaders say at least some full-time employees will be asked to move to contract roles, according to the survey.

What is a gig economy worker?

Companies can bring on contractors, freelancers and other gig workers for specific projects and let them go when work dries up, saving money if the economy slows or slips into a recession, which most experts are forecasting this year. Contractors also typically don’t receive health coverage and other benefits.

Many employees, meanwhile, like the flexible hours and freedom to work for multiple businesses or hop from one to another, providing a more diverse work experience without being tethered to a single employer, staffing officials say.

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What is an example of a gig worker?

Many workers are feeling disillusioned with traditional full-time employment. Seventy-four percent of “knowledge workers” – in fields such as science, tech, engineering and finance – said the recent tech layoffs have made freelance work more attractive, according to a November survey by A.Team, an online freelance tech worker platform. Sixty-six percent said they’ve lost trust in the stability of full-time employment.

Jon Munitz, of Montebello, New York., was laid from his permanent job as a senior consultant for IBM when the pandemic hammered the economy and his company’s revenue in the spring of 2020. He moved back home with his parents and relied on unemployment benefits and other federal aid to get by, along with some freelance work.

What is the downside of working in the gig economy?

Last May, he got a 12-month contract overseeing new technology rollouts for a cellphone tower company. Although he ultimately received health coverage, he doesn’t get paid for vacation or sick days. And he doesn’t yet know if his contract will be renewed for another year.

“I definitely have the anxiety of not knowing when I can sign a lease” on an apartment, says Munitz, who still lives with his parents.

But he says he gained valuable experience in a new industry that he never would have gotten in a full-time job. The yearlong gig “gave (the company) the ability to take a chance on me,” he says.

As a result, he’s been flooded with calls from employers looking to hire project managers on a contract basis. “There’s just way more job availability” for contract positions, he says.

Since his contract expires in May, he also has the leverage to negotiate a higher salary and the motivation to test the market and seek better-paying gigs.

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Are gig jobs growing?

The nation’s contingent workforce already has been growing sharply in recent years, along with leading gig companies such as Uber and Doordash. The pandemic further stoked the trend, with many workers preferring the flexibility of gig work to care for sick relatives or children who were distance learning at home.

Contractors, temporary workers and freelancers make up 22% of large companies' staffs, up from 16% a decade ago, according to survey of big firms by Staffing Industry Analysts, a research firm. In another decade, gig workers are expected to comprise 28% of large companies' staffs, the research firm says.

“Organizations are going to engage with people in the way they want to work,” says Staffing Industry Analysts  CEO Barry Asin.

Many workers in hospitality, manufacturing and warehouse have shifted to gig work, says Alex Atwood, co-founder of GravyWork, which connects gig workers to employers.

Among small businesses, contractors comprise 1 of every 5 workers, up from 1 in 10 just five years ago, says Gusto, a payroll processor for mostly small companies.

Many small firms plan to hire contractors because they fear a recession could undercut sales.

Felix Media Solutions, which installs videoconferencing systems in company offices, is looking to hire three full-time workers and four contractors in 2023.

“We see the need for contractors this year as a strategic advantage,” says Lionel Felix, CEO of the Austin, Texas-based company. He said the workers allow the company "to have talent on tap as big projects hit."

Citing Russia’s war in Ukraine, volatile oil prices, chip shortages and other developments, he says: “Enough ripples of worry and we see a contraction, then a whiplash of pent-up spending. It’s been a roller coaster and we see no end to this erratic behavior.”