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Thinking forward and the gig economy

Photo courtesy of ITU Pictures via Flickr

The share of individuals engaged in alternative work arrangements compared to the traditional full-time, 9-to-5 job in 2015 was 15.8 percent, up from 10.1 percent a decade earlier. What does this structural change in the labor market mean for the entrepreneurial economy?

It is easy for all of us to see that work has changed dramatically over the last decade. We have been told for years we will have more jobs in our lifetime than those before us and we all know younger individuals will likely explore more career paths before settling on any one option. I recently joined a panel discussion about “The Workforce of the Future” at Bloomberg Government in Washington, D.C., that yielded what was, for me, an even more interesting dimension of this for entrepreneurs – the onset of the “gig economy.”

Harvard economist Lawrence Katz and Princeton’s Alan B. Krueger found that the number of Americans with alternative work arrangements rose 9.4 million from February 2005 to November 2015. That was greater than the rise in overall employment, meaning there was a small net decline (0.3%) in the number of workers with conventional jobs from 2005 to 2015.

I presumed that it was the Uber-type, disruptive companies driving this 50 percent jump in the so-called on-demand gig economy. The available data – although a small sample size – suggested otherwise.

The Katz-Krueger report “The Rise and Nature of Alternative Work Arrangements in the United States, 1995-2015” defines workers engaged in “alternative work arrangements” as those whose main economic activity are as on-call workers, temporary help agency workers, contract workers, and independent contractors or freelancers. Among these, the fastest-growing group is contracted workers.

This helped provide an answer. Workers who provide services through online intermediaries, such as Uber or TaskRabbit, actually only accounted for 0.5 percent of the labor force in 2015, according to the report. The online gig workforce is thus relatively small compared to other forms of alternative work arrangements. In fact, about twice as many workers selling goods or services directly to customers reported finding customers through offline intermediaries than through online intermediaries.

However, as Katz and Krueger acknowledge, the online gig workforce is growing very rapidly. By some estimates, the projected growth rate is shockingly fast. For example, the Intuit 2020 Report argues that more than 40 percent of the workforce will be “alternative workers” by 2020.

According to several experts, the gig economy was intended to supplement rather than replace workers’ income. However, the striking implication of Katz and Krueger estimates is that, essentially, all of the net employment growth in the U.S. economy from 2005 to 2015 appears to have occurred in alternative work arrangements. This raises worker protection concerns and regulatory challenges. Pessimists also point to this as firm proof that we never fully recovered from the huge loss of traditional jobs from the Great Recession.

But neither the weak economy nor the sharing economy are the only factors driving the shift from traditional 9-to-5 jobs to independent work. There are many other non-economic factors at play. The World Economic Forum’s “The Future of Jobs” report, for example, identifies and weighs 18 different drivers of change in the workforce, concluding that in combination, “technological, socio-economic, geopolitical and demographic developments and the interactions between them will generate new categories of jobs and occupations while partly or wholly displacing others.”

Should we be worried about these forecasts of a growing gig economy? On the contrary. Technology has already opened new paths for individuals to drive their own destinies that are irreversible, giving us no choice but to think ahead of the trend and leverage it for all it is worth to workers and our economies alike. Here is why.

Facilitating worker re-training and experiential entrepreneurship education

Demand for self-driven, skilled specialists is on the rise, posing challenges for worker re-training. Our traditional approach as a society has been expensive publicly funded traditional worker retraining programs that are often out of date before the curriculum is rolled out. The gig economy breaks that challenge into bite-sized pieces, allowing workers to learn and try this and that, taking a less daunting, step-by-step approach to developing new skills.

With the right motivation and vision, independent workers can more safely find their passion and learn needed related skills. They don’t have to wait to finish one job to start on the next. Furthermore, independent work allows people to acquire new skill sets while maintaining a work-life balance. The gig economy puts learning on the job on steroids and lets workers more easily validate – or dismiss – different types of work, measured against personal priorities whether enjoyment, success or simply doing something that matters to them.

Best of all, being their own boss exposes individuals to the essence of entrepreneurship and warms them to the notion of calculated risk-taking, which they may then choose to fully embrace, take as a skill to an established business, or for many avoid at all costs.

Worker fluidity drives ecosystem vibrancy

From an ecosystem perspective, fluidity enables talent to recombine in a way that leads to more idea generation and better idea execution. As such, fluidity is a measure of the vibrancy of an entrepreneurship ecosystem. Several factors influence the level of an ecosystem’s fluidity, such as the ability of individuals to freely decide their line of work, move between jobs, relocate to a new job market, or even start a new business. Gig economy-style independence fuels fluidity.

Despite the apparent growth and lure of the gig economy, there are still several regulations in place that hold potential entrepreneurs back from leaving stable jobs, such as occupational licensing and burdensome discharge laws. All these make job changes less frequent.

Canada, for example, is rushing to address one element of this with its startup visa for high-skilled workers. At the recent Day on the Hill event I attended in Ottawa, young entrepreneurs founding high-growth businesses explained that it was no help to them to have a startup visa unless foreign talent could be processed in days rather than months. First, they need people within days not in six months to remain competitive and secondly, a candidate might be willing to wait for a job offer for a week – but not six months. New staffers of Canada’s incoming Prime Minister Justin Trudeau sat on stage scribbling notes.

In short, to remain globally competitive, American policymakers should embrace the gig economy rather than being discouraged by it and focus on immediate ways to remove barriers to increasing productivity through increased fluidity.

Forcing established business to be more like a startup

In many industries, it has long been assumed that fair pay, career stability, and a sense of prestige from belonging to a corporation would be enough to retain talent. However, Millennials are not driven by what motivated their parents. As mentioned in my post about fluidity, technology, and attitudes have challenged the whole notion of the 9-to-5 job at a specific workplace.

It is not only the options of the location of work that are proliferating due to technologies, but also the times and ways our citizens are working. According to PwC’s “NextGen: A global generational study,” newer generations value greater flexibility, team collaboration, and global opportunities.

Team collaboration is no longer restricted to face-to-face interactions. Online platforms like Slack are enabling cross-border collaboration. All this is making corporate leaders rethink their value proposition to young talent. In fact, many companies are already locating different job functions in different geographic locations to take advantage of the specific strengths of particular local labor markets, as the WEF report points out.

This changed reality means corporates are no longer just competing for talent among each other, but with their own workers who now have more choices to become their own bosses as independent workers. This shift in incentives favors both full-time and gig economy workers as employers move to sharpen their arguments to retain hard-working employees who now have more choices and an increasing acceptance among peers of the gig economy career development model.

What the gig economy means for policymaking

Of all the reasons we should not be afraid of the gig economy, what stands out the most is the increase in opportunities for individuals to find their passion. The Millennial generation has led us out of a polarized period when we were invited to either honor our values by doing meaningful non-profit or public service work or sell out to meaningless “money” jobs often for institutions with different values. Millennials have heralded a new “do good and do well” era, where meaningful work does not have to be at the expense of financial security or success.

The challenge for policymakers and ecosystem builders is turning the momentum towards solopreneurship into a chance for more scalable businesses that can generate jobs – or gigs – for others and bring more innovations to market for the benefit of all. This is after all why policymakers laud entrepreneurs as the makers and doers of things who tolerate the messy process of creating new innovations in an effort to improve lives, make work and create new economic value.

The changing nature of the labor market enables us to rethink how work is structured and rewarded. Finding policy solutions that support entrepreneurial independent workers can provide broad benefits to workers and the economy. The Affordable Care Act has made health insurance more easily within reach for independent contractors ending a long-standing accidental societal arrangement where employers helped out workers by providing employer-sponsored health insurance.

Perhaps it is time to update similar employment-dependent social safety nets, such as paid sick leave, parental leave, employer-provided matching retirement account contributions or retirement security, and disability insurance.

The changing nature of the workforce should not be viewed as apocalyptic, but leveraged in the interests of workers and economic value creation. As the World Economic Forum’s The Future of Jobs report states, “past waves of technological advancement and demographic change have led to increased prosperity, productivity and job creation. This does not mean, however, that these transitions were free of risk or difficulty.”

Ultimately we must remember that we made up the rules that organize the workforce in our society, and that we are free to update them again for the Information Age. The regulatory battles of the likes of Uber and Airbnb are just the tip of the iceberg in a new demand-driven economy where we will see almost all traditional industry business models disrupted over the next few years. Policymakers can either plan ahead for it now, anticipating change and capitalizing on its benefits, or make policy when technology delivers the challenges in the wake of innovation. 

Photo credit: Flickr