The labor market is undergoing a major transformation due to the increase in side jobs, the emergence of new professions such as YouTubers, and the growing participation of older adults in the workforce. It has been argued that these changes could introduce errors into employment and income statistics, which are still measured using traditional methods.
If irregular income streams resulting from labor market changes are not properly captured and household income is consequently underreported, this could undermine the government's and central bank's ability to secure tax revenue and make sound monetary policy decisions. Another issue is that most labor market statistics rely on surveys, but response rates are steadily declining.
Paul Donovan, Chief Economist at UBS Global Wealth Management, made these points in a recent article titled "The Labor Market Data Gaps That Risk Distorting Monetary Policy," published on the Davos Forum website.
First, technological advances have lowered barriers to entry, leading to a surge in self-employment and side jobs. The development of online distribution has reduced the need to maintain costly offline stores. Online distribution has fueled a sharp increase in one-person businesses. Social media influencers such as YouTubers now capture a larger share of global advertising revenue than newspapers and radio combined, yet no country officially classifies these "content creators" as a formal occupation.
Reliable household surveys could capture these forms of employment, but business-focused surveys fail to reflect the real economic power of individuals who wield significant influence with just a smartphone and dance skills.
Aging is also a factor. Within a few years, half of the world's GDP will be produced in countries with declining populations. The Organisation for Economic Co-operation and Development (OECD) defines the working-age population as those aged 15 to 64, and the International Monetary Fund (IMF) uses a similar standard.
This is increasingly out of step with reality. The notion that labor force participation ends at 65 is at odds with the trend of delayed retirement. Even after retirement, people contribute to economic activity through paid work or volunteering. In Japan, childcare is increasingly handled by the retired generation, and over half of all caregivers are aged 60 or older.
On this point, Chief Economist Donovan wrote that this represents a return to a pre-Fordism economic model. Side jobs are not a new concept; in the 19th century, boarding houses run by middle-class families were the Airbnb of their time. Even in traditional family models, childcare was often the responsibility of older generations. The problem is that most of the economic data we use today was created during the heyday of Fordism, when the focus was on manufacturing, large corporations, and single-job incomes.
If labor market changes are not properly measured in statistical surveys, there is a growing risk of underestimating the true state of household income and finances. If employment statistics fail to capture side jobs, consumers' purchasing power will be assessed as lower than it actually is. This increases the risk that policymakers will enact unnecessary stimulus, potentially fueling inflation.
The rise in self-employment can also distort the share of corporate profits and labor income in GDP. When a one-person business pays themselves a minimum-wage salary and receives intermittent income in the form of dividends-often to minimize taxes-household income becomes even more opaque. Self-employed individuals may find it more advantageous to accumulate profits in a corporate entity rather than as a household, for tax reasons. This can give a misleading impression of consumer financial health. Funds accumulated in corporate accounts are assets that households can access when needed.
Households with portfolios of multiple income sources, rather than a single job, may have less fear of unemployment. Precautionary savings set aside for emergencies are also affected by these changes. Even if someone loses a job, they may rely on alternative income sources as a safety net rather than on savings. On the other hand, issues of underemployment may become more common than outright unemployment. Instead of a company laying off 40% of its workforce, more self-employed people may find themselves unable to work for two days a week. If this is not captured in the statistics, productivity indicators will become increasingly unstable.
Problems also arise if the tax system fails to adapt to new forms of labor. The rise of social media influencers could shift advertising revenue to individuals who are taxed at lower rates than existing platforms, or not taxed at all. If self-employed income and savings move away from traditional salary formats and this is left unaddressed, government tax revenue will inevitably decline.
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