The flattened world of the internet age continues to change the definition of work. No longer bound by a physical place, workers can be anywhere on the planet – so long as “anywhere” comes with the right digital upload and download speeds.

A decade ago, outsourcing and off-shoring exemplified that new reality. It came with benefits and costs for companies, workers and society.

Today, the rise of the “gig economy” offers a similar mix of pros and cons that will shake the foundation of how governments tax and regulate work.

The gig economy is a term that describes an environment in which temporary positions are common and organizations contract with independent workers for short-term engagements, or gigs. For many people, it is a phenomenon best associated with ride-sharing services such as Uber and Lyft, which contract with hundreds of thousands of drivers. Read the Journal Sentinel article here.

The trend toward gig work is spreading throughout many industries, however, so much so that Intuit predicted 40% of American workers will be independent contractors or working a second job by 2020. Contributing factors are tied to the power of the internet and an increasingly mobile society:

  • Freelancers can choose among temporary jobs and projects around the world, not just where they live.
  • Employers are also free to select the best available talent from a larger pool than what might be available close to home.
  • For many people, the gig economy offers the opportunity to improve their work-life balance by controlling when, where and how long they work within a given day or week.
  • Companies may also save money on office space, equipment, training and benefits if their workforce includes a significant number of independent contractors.

So, how is the gig economy different from traditional outsourcing? Firms can now use platforms such as Freelancer, Fivvr and Upwork to find a single worker or hundreds without needing to outsource or off-shore a complete business process. At a time when globalization seems in retreat for political, cultural and security reasons, it’s a way for U.S. companies to shop for talent within America’s borders.

There are drawbacks for workers and companies alike, however. Some experts say the gig economy is adding to downward pressure on wages and contributing to the trend of employers not offering benefits, especially at a time when U.S. employers don’t know when the next shoe will drop on health-care reform.

Some workers feel detached because they rarely engage with others who use gig platforms. Others feel they must accept whatever pay and tasks are offered because there’s an oversupply of gig workers in many fields. Also, gig workers are not freed from the burdens of reporting requirements that come with being an independent contractor.

“There’s so much back-office stuff that goes into it,” said Kevin Kiser, head of strategy and communications for Bunker, a startup insurance firm with offices in Madison and San Francisco. “You have to do your own sales; you have to do your own payroll; you have to report back to the organizations you’re working for.”

Because the rise of the gig economy outpaced the ability of state and federal governments to keep track, employers are finding they can be subject to changed rules, said Traci Scherck, senior human resources consultant with national workforce management firm HKP.

Scherck told a meeting of the Tech Council Innovation Network in Madison that rule changes have come rapidly of late as governments have come to grips with the gig economy.

For policymakers, the gig economy comes with questions about taxation and whether some traditional infrastructure programs must be modified. Will unemployment funds be helped by the fact that freelancers work for themselves and aren’t eligible for jobless benefits? Or will they be hurt by lower employer contributions into such funds?

The gig economy may also affect how and when people retire. As people live longer, there is increased pressure on the Social Security system and its long-term ability to meet benefit expectations. Will the gig economy enable some older Americans to work longer and enjoy a higher standard of living … or will it hasten the day when Social Security must give way to a 21st century replacement?

Just as the digital age has changed much of how modern society functions, so has it changed how and where work occurs. Note to politicians everywhere: Don’t campaign on a promise of creating jobs, because it’s becoming more difficult by the day to count and define them.