“There’s something happening here,
What it is ain’t exactly clear”
For What It’s Worth, Buffalo Springfield, 1967
Ravinder drives for Uber two nights a week in Los Angeles. On a farm in rural Poland, Peter tests computer code to complete a programming job he bid for on Odesk. Across the valley, Peter’s girlfriend wraps penguin Christmas tree ornaments she’s selling on handicraft marketplace, Etsy.
Each is a participant in the new Gig Economy where Internet companies parse work and provide marketplaces for workers and their products and services.
Most of what one reads about the Gig Economy highlights the conflicts between it and existing convention. Taxi drivers across the globe push back against Uber for taking their customers without having to follow the same rules. Lawsuits ask courts to decide whether Gig Economy workers are truly contractors or employees.
These are valid concerns that reflect the expanding impact technology has on the world of work. This piece explores how far can we expect the Gig Economy to expand and what are the consequences?
Gig Economy companies make it easier for rank amateurs to work as part-time contractors by digitizing business processes. A traditional freelancer runs a small but complete business including getting customers, servicing them as well as handling marketing, billing, financing, etc. Uber, for example, digitizes the taxi business into pieces and does all the marketing, customer acquisition, billing, car routing and satisfaction. The part-timer just provides their car, gas and drives.
Customers see a single Uber app on their phone. The behind-the-scenes dissection and aggregation is as invisible as a digital picture that’s been manipulated with Photoshop.
Gig or Gouge?
Odesk provides a marketplace for contractors to bid on small programming or analytic jobs. I’ve used Odesk to hire people to analyze customer survey data. I framed the project, provided the raw data on Excel and paid the contractor to analyze and prepare presentation materials. I selected the contractor based on their past experience and certifications and paid far less than it would cost for a traditional research assistant or grad student.
It was a great deal for me but it puts enormous pressure on contractor fees. People from India compete with folks such as Peter in Poland as well as a student in Sunnyvale, California. In a developing country, serial Odesk gigs provide a living full time wage. In a developed country, the same gig is likely below minimum wage.
Odesk demonstrates the global reach of technology. The days when technology was the province of advanced economies are long gone. Expertise flows fast and freely in the digital world. Therefore, so does competition; increasingly in knowledge work.
Contractor vs. Employee
The Fair Labor Standards Act created the distinction between contractor and employee as part of New Deal legislation in 1938. The primary distinction is work direction and control. Contractors are assumed to work independently whereas employees are under the control of their boss and company.
This bifurcation made sense seventy years ago when manufacturing was the dominant growth factor in our economy. I’d argue it’s time to consider another category that slots between the two. The two category approach wasn’t designed for today’s technology or global economy.
Technology is also encroaching on what we’ve historically considered managerial control. Doesn’t the software that Uber gives drivers control what they do even if there isn’t a direct Uber boss they report to? Taking this to a level higher, performance appraisal, a traditional employer-employee process, is usurped by customer satisfaction surveys. Here’s how that works in practice.
Every Uber trip is rated by customers. If a driver’s average customer rating drops below a certain point, Uber will no longer contract work to them. Uber drivers are careful to avoid late night party’ers who might be drunk enough to give anyone a bad review. The rating process could just as well be called computer mediated supervision.
How Far Can Technology Reach?
Technology initially hit blue collar workers hard. Lower labor costs sucked manufacturing jobs off shore. More recently, white collar workers suffered. For example, analyst work at law firms and tax preparation at accountancies is done offshore.
Those in favor of technology argue that new technology creates more jobs than it destroys. It’s more accurate to say technology redistributes jobs while possibly creating more. The job creation side of the equation is a belief versus a proven fact. Could we be at a tipping point where the time delay between job destruction and new job creation has extended sufficiently such that those displaced really don’t have a chance to retool?
Despite all the retraining efforts, the time retraining takes relative to steady technology evolution makes staying stay on the productive edge a lifetime effort. Employers with advanced factories such as John Deere struggle to find workers to fill manufacturing jobs that have a higher technology content.
Here’s the kicker. The impact on white collar jobs is just starting. As technology capability grows, jobs that depend on tacit knowledge or winemaking skills become vulnerable. For example, technology can now read xrays and MRI’s with high accuracy. Tumor identification by machine is almost ready for the clinic.
Commonly referred to as machine learning, computers are getting better at nuance. They don’t just make predetermined corrections based on feedback; they relentlessly experiment and improve. Don’t expect advances such as IBM’s Watson to be satisfied just playing Jeopardy better than we can.
As the Dave Mathews Band sang, “And all the ants are marching”
Putting the Gig Economy in Perspective
The fact is the current Gig Economy is more smoke than fire.
- McKinsey & Co. measured contingent work transacted on a digital market place in the U.S. at less than 1% of workers, including some that already had a job.
- Employment by the Fortune 500 remains consistent at 16-17% of the U.S. workforce for twenty years.
- Americans who are self-employed and unincorporated has dropped over the decade to about 6.5% of workers today according to the Wall Street Journal. People who hold multiple jobs is 4.8% compared to 5.5% in 2005.
Some suggest that traditional indicators (i.e. GDP and employment) don’t reflect the digital world accurately. Economic Modeling Specialists Intl., a labor market analytics firm, says part-time work grew to 32 million from just over 20 million between 2001 and 2014, rising to almost 18 percent of all jobs.
My take is two-fold. First, it’s not the size of today’s Gig Economy but the growth rate that matters. And the current obstacles are normal battles between current players and disruptive newbies.
Second, the Gig Economy is just the latest manifestation of technology’s encroachment on our lives. Middle aged and older get used to each individual increment such that we potentially lose sight and control over where we’re headed in the long term. Younger people automatically start with a higher baseline and don’t see a problem.
Will There Be Companies or Just Gigs in the Future?
Ronald Coase won the Nobel prize for defining why companies form. Coase said that when the transaction costs of managing independent suppliers grows to a certain point, it is more efficient and effective to bring those resources in house.
What the Gig Economy demonstrates is that point is moving further out. Communication and computers enable Gig Economy companies to coordinate and control work “bits” without owning them.
Creative work is indeed further from digitization than procedural tasks but the marching ants will eventually get there.
And all the little ants are marching
Red and black antennas waving
They all do it the same
They all do it the same way
How do you win in the Gig Economy? Don’t be an ant.
Love your posts!
1. Your comment that “it puts enormous pressure on contractor fees” should continue with “in traditional higher wage countries like the US and Western Europe”. The gig economy has probably raised contractor fees in low wage countries like India and China. The widely remarked “decimation of the middle class” is a phenomenon of high wage economies’ the Chinese middle class has done exceptionally well in recent decades, largely because they have access to the markets of the higher wage economies and can compete with US and EU workers through vehicles like Odesk and Walmart suppliers.
2. A huge force behind the growth of the gig economy is that it allows employers to escape the high taxes and onerous regulatory regimes associated with with full time employees in high wage western countries. This is being litigated “everywhere” with Uber and other “1099 employers” seeing it as a critical issue.
Good points Ken! With this year marking the 100th anniversary of Einstein’s theory of relative, your comment is a good reminder that the advantages/disadvantages of the Gig Economy are relative to where you sit!
Agree with your comments. It seems to me that the biggest impact of this new economy is the disruption of restricted markets. For example the taxi medallion or license process is really just a cartel that does not benefit the consumer. Uber disrupts this by proving an alternative marketplace. I am not sure how much this will impact other less ‘transactional’ markets where longer term relationships and more complex business arrangements are part of the process.
Thanks for your thoughts Tony…At Stanford’s Work Technology Colloquium I reviewed research on NASA’s use of open innovation. While posing research problems to a broader audience has a transactional component, the results were in many cases faster/cheaper than internal only. It is an example of how knowledge can be more easily parsed even in complex settings.