(“The Four-Income Family.” Daniel Clements, president of Insedia.com (where I am an advisor) used that phrase during a recent meeting I had with folks there about the future of American labor. It stuck in my craw, so I ended up writing a piece for Insedia talking about the issue. It’s reproduced below, but you can read it at Insedia, too.)
The rise of the two-income family is one of the most dramatic social changes of the past century. From 1960-2010, the share of American households supported by dual earners rose from 25% to 60%, according to Pew. But there’s another massive social change under way that might be impacting our lives even more dramatically, and at a faster rate: We’re going to name it here for the first time:
The Four-Income Family.
You already know this phenomenon by a number of different names: The gig economy, the side-hustle, the sharing economy, the contingent workforce. Whatever you call it, it’s clear that being a successful participant in the U.S. economy will soon require more than a traditional job — or two. It may very well require four.
There’s a lot of dispute over how big the gig economy really is. Estimates range from one-quarter of all Americans to fewer than 1 percent. The dispute is all semantics, however – it’s all about how you define “gig.” It’s true that a very small number of Americans are living primarily as gig workers. That makes sense: It’s pretty hard to earn a living as an Uber driver. On the other hand, millions of Americans are supplementing their main job with side hustles — as part-time taxi drivers, or hotels, or craft manufacturers. Using this broader, and more sensible definition of the gig economy, McKinsey & Company recently set out to identify the real size and impact of the side-hustled. Their answer, included in the report “Independent work: Choice, Necessity, and the Gig Economy,” came to this dramatic conclusion: 60 million Americans already have some kind of side hustle.
While lots of people love the idea of doing flexible work full-time — McKinsey found that 40-50% of Americans would be full-time independent workers if they could — that’s just not realistic for most. Not yet, anyway. Hence, the side hustle.
But many side hustlers aren’t earning much more than spare change or petty cash. Four out of 10 gig workers trying to add to a full-time income with outside work get 10% or less of their income from their side hustles, McKinsey said.
Chump change, you might say.
There are exciting possibilities in the side hustle economy. Recently, I met Nancy and Dan Nemeth — both 49 years old — who got married in 2012 and, of course, married each other’s debt. The two were struggling to make a dent in their sizable student loan and credit card debt. Even overtime earnings from their day jobs felt like a drop in the bucket. But Nancy hit the jackpot when she started selling hand-made handbags on Etsy. When I talked to her, she was earning $2,500 monthly selling items, and putting much of that directly towards paying down the loan balances. Dan then started earning extra money on the side doing comedy shows, doing the same thing.
That’s a Four Income Household success story.
There’s other ways to look at this development, however. McKinsey categorized gig workers into four slots: “free agents,” who are fully independent and like it; “casual earners” with a full-time job, who like making a little cash on the side; “financially strapped,” who must supplement their day jobs with outside work; and the “reluctants,” who can’t find full-time work so they have to pick up part-time gigs.
The Nemeths fit between the “casual earners” and the “financially strapped.” Sure, the Etsy shop is fun, and maybe some day it might provide a full-time income, but I’m also pretty sure people like Nancy don’t really want to spend every free moment of their lives sewing to pay down student loan debt.
About 40% of all gig workers are casual earners, meaning they drive with Uber a few hours every week and use the cash for extras. But the “moonlighting because they have to” group doesn’t earn enough in their full-time job to live; they NEED the Uber cash to pay the bills. This group represents 16% of all gig workers, or an estimated 26 million Americans, according to McKinsey.
That’s 26 million Americans with a full-time job who can’t make ends meet – and the solution we’ve created is the Four Income Household.
For some, this seems a frightening prospect. In a Medium post called “Side Hustle as a Sign of the Apocalypse,” writer and cartoonist Matt Ruby lays out the argument.
“WTF has happened to our culture when we just take it as fact that everyone needs to have multiple jobs and work as a cab driver and rent out every square inch of space in their apartment and be a task rabbit gopher who waits in line for tickets when they’re not walking dogs or temping and we all just chalk it up to “progress,” he wrote. “In the old days, this meant your life was falling apart. Now it just means you’re part of “the sharing economy.”
It’s a solid economic observation. Firms that employ workers only raise wages when they have to — when workers demand it. If workers get the extra income they need from an outside job, why would their primary employer pay more?
The Four Income Household raises all sorts of other issues, too. Young families are already overwhelmed with child care costs; how will parents keep their kids safe while doing their side hustle? Is it ok for parents to take their kids along when they drive for Uber? (No, it’s not, but of course that doesn’t stop them from trying.) What about taxes? Self-employment taxes, which often apply to side hustle jobs, can be deadly for the uninitiated. What about other, hidden risks, like added liability for drivers or Airbnb “landlords?” Many sharing economy workers are underinsured, and assume far more risk than they realize.
As the Nemeths showed, there are great opportunities in the new economy, particularly if you can turn a hobby you love into extra cash to plug a temporary budget hole. My father was a teacher who had dozens of jobs – driver, house painter, accountant – every summer to help his young family survive. Lots of our parents and grandparents did. But not at this scale, and very few households had two partners working four gigs.
America is right now racing recklessly towards an economic structure that requires adults to have a full-time job for health insurance, credit, and stability, and a part-time job to pay for the rest of their lives. Left unchecked, the shift to a Four Income Household is not going to end well.
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