With protests emerging from Philadelphia to Paris and the odd vehicle being set on fire in between, discourse on the gig economy, most notably ridesharing platforms like Uber and Lyft, has become increasingly polarizing over the last few years. But budding entrepreneurs angling to get funded on Greenpoint-based Kickstarter might have a reason to cheer these services.
Much of the conversation around the gig economy has been based on speculation and opinion about the risks and benefits of the sharing economy, rather than rigorous empirical research. In effect, many are looking at a globally integrated $26 billion economy and ignoring the many shades of gray which might emerge.
While studies have progressed along a number of fronts, from determining the effect Airbnb is having on local hotels to racial bias on Kickstarter to the effect of Uber on drunk driving fatalities, significant gaps remain in our understanding. In particular, we know relatively little about the common characteristics and motives of individuals who supply these services, and even less about how the emergence of these platforms is affecting local labor markets.
This lack of knowledge about who supplies the labor for these services and the often vicious debate about how the rise of the gig economy is affecting the lives of everyday Americans is what led me and my co-authors to launch our most recent study. I teamed up with Gordon Burtch, an assistant professor at the University of Minnesota, and Seth Carnahan, an assistant professor at the University of Michigan, to examine how gig-economy platforms influence local entrepreneurial activity, which we measured by the volume of Kickstarter campaigns launched in the region.
Read the paper
Before we started the research, none of us agreed on how the rollout of platforms like Uber or Postmates would affect local entrepreneurial activity.
Consider, for example, a recent college graduate and budding entrepreneur who hasn’t been able to find work in her chosen field. There are two ways she might react to the rollout of Uber. On the one hand, recognizing that Uber grants her the flexibility to drive when she wants to, she might work for Uber to optimize her time, to be able to pursue other time-constrained activities that are necessary to get her new venture off the ground; essentially driving on off hours to subsidize the venture — something that she could not do in a traditional nine-to-five job.
On the other hand, if she was considering launching her venture because she saw no other reasonable employment option (a story which, by the way, is not so uncommon), Uber might provide sufficiently stable employment, rendering the venture unnecessary.
What we found, after looking at more than 71,000 Kickstarter campaigns over a period of nearly two years, was that this latter effect seems to dominate: On average, Kickstarter campaign launches decline by nearly 14 percent roughly 12 months after UberX enters a local area.
Interestingly, we also found that this effect was primarily attributable to the exit of lower quality entrepreneurs, or those individuals whose businesses were more likely to fail. There was minimal change among campaigns which are hyperfunded, those that received more than 200 percent of their target funding, but a dramatic dropoff in unfunded campaigns, those that received no contributions at all.
Our conclusion: The gig economy substitutes for lower quality entrepreneurial activity by providing a more stable employment option for the un- and under-employed. Even more strikingly, when we replicated their analysis with the courier service Postmates, which has even lower costs to participate than UberX, we observed nearly identical results.
To come to these conclusions, we examined the relationship between Kickstarter campaign launches and the entry of Uber/Postmates over a 21-month period between 2013 and 2015, which offers us two big benefits over prior work.
- First, because Uber and Postmates enter different locations at different times, we’re able to control for both the differences across geographies (like the fact that Boston has more venture capitalists than Atlanta, and that it therefore might have more entrepreneurship) and trends in entrepreneurship over time.
- Second, the volume of Kickstarter campaign launches is a far nimbler measure than those that have traditionally be considered in research on entrepreneurial activity, like the slower-moving metrics of patenting, incorporation of the firm or VC funding.
As a result of lower quality entrepreneurs leaving the platform, there are implications for crowdfunding platforms like Kickstarter. In this regard, gig-economy platforms appear to help separate wheat from chaff, thereby reducing noise in the crowdfunding marketplace. This is important because it increases the quality of the average campaign on Kickstarter and reduces the probability of people supplying funds to lower quality campaigns, which are unlikely to bear fruit.
Knowledge is power!
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