I was reading a few related articles yesterday about the challenging employment environment for low and middle-income workers in the United States. The gist is that in the economic recovery since 2008, a disproportionate share of the economic gains are going to the richest folks. Paul Krugman cited a study showing that “95 percent of the gains from economic recovery since 2009 have gone to the famous 1 percent”. Henry Blodget pointed out that “The share of our national income that American corporations are sharing with the people who do the work (‘labor’) is at an all-time low. ”
While corporations are hoarding profits and rewarding senior managers (top 10% of earners took home more than half of total income in 2012) ,we’re seeing those same companies hire ever more temporary workers in order to create layers between the corporation and labor. This helps companies avoid paying benefits, prevents workers from organizing and helps the companies to avoid wage & safety claims brought by workers, according to a detailed Pro Publica report, which termed these workers “the expendables.” The end result is longer term unemployment and an ever-increasing employment gap. In 2012, average unemployment reached 39.5 weeks, the highest level since WW II, while the spread in employment rate between households earning more than $150K (73.5%) and those earning less than $20K (33.8%) reached its highest level (39.7% gap) since tracking began just over a decade ago.
According to an analysis of the government data by the Associated Press, “low-wage workers are now older and better educated than ever, with especially large jumps in those with at least some college-level training.” The NY Times reports that the unemployment rolls now include folks like David Davis, who used to make more than $100K as an IT expert and web designer and now lives on ramen noodles and the $1,600 he receives in unemployment benefits: “I’ve got a résumé that knocks your socks off. The reason for this long period of unemployment is that the work just isn’t there.” Unfortunately, long term unemployment benefits ended yesterday for Mr. Davis and more than 1 million other Americans, who now must scramble to find new sources of income.
So we find ourselves in an environment in which American corporations are increasingly hostile to the bulk of workers at the same time that un- and under-employment rates are high, unemployment is lasting longer and benefits are drying up. This provides an opportunity for new platforms and companies to help the American worker by creating primary and secondary employment and income options and rebalancing how value creation is distributed. These platforms can help the American worker by re-organizing existing industry and labor market structures to create an environment of shared value between companies, workers and customers.
This process of re-organization and re-imagination has begun in earnest, largely fueled by the fact we are increasingly connected on a network that is safer & easier to transact on (internet penetration above 80%, smartphone penetration at 62%, increase in consumer trust in transacting online, improved transaction infrastructure, etc.) These advances have led to a reorganization of industries and the labor market through the advent of online & mobile marketplaces, which are heralding the rise of the “marketplace economy”.
A sampling of the industries that have been changed to date by marketplaces includes retail, hospitality and transportation: individuals can create shops and sell to a global customer base via eBay or Amazon Marketplace; craftspeople can now sell to a global, rather than local, customer base via Etsy; every apartment or home can now be a “hotel” via Airbnb; private drivers and on-demand rides are available to all at reasonable prices via Uber. These new technology-driven marketplaces don’t merely enable or facilitate new processes of production, delivery or organization, but fundamentally redefine industry size, scope & participation. They increase the pool of potential service providers and sellers by leveraging networked technology to change how market participants engage in a specific transaction.
In the labor market specifically, workers are no longer tied to one company and can provide services directly on a project basis. Some have termed this the “gig economy” or freelance economy”. Approximately 1 in 3 Americans (42 million) are estimated to be freelancers, with the number expected to continue to increase amid increasing societal acceptance and redefinition of “success”. Companies such as oDesk, Elance and 99designs provide marketplaces for professional freelance work, while any individual can generate income by completing tasks or jobs for a fee via TaskRabbit or Fiverr.
These new trends are impacting a rapidly growing portion of the population, causing investment funds to flow from top VC firms such as Greylock, who dedicated an entire fund to marketplaces. This ramp up phase in marketplace creation and investment makes it a great time to focus on re-shaping impacted industries and the labor market at large to create an environment much friendlier to workers, individual suppliers and service providers than what which we have today. Uber, one of the largest of the new marketplaces, took a step in this direction by offering preferential auto loan rates to drivers in a program they touted as “Financing 10,000 Entrepreneurs”. This program is laudable, but it only goes halfway, as the preferential rate is tied to the driver remaining employed with Uber to maintain the preferred loan rate.
I advocate moving toward an employment paradigm that allows workers to create personal equity that is transferrable and verifiable beyond a single marketplace, employer or gig. This equity comes in the form of performance data that market participants create while providing goods or services to customers in a marketplace. This data can take the form of ratings & reviews, completed works, photos, income reports, etc. This data is at the core of systems that marketplaces use to establish trust today, for the benefit of all participants; eBay, Uber, Airbnb and many others track service provider and seller ratings in order to increase confidence in their platforms and spur usage.
While this data benefits all market participants in the short term, it generally fails to benefit service providers in the long term. The next step would be to allow marketplace service providers to take their data (ratings, reviews, pictures, income statements, etc.) with them if they choose to leave a specific platform or marketplace; I call this employee data portability. Employee data portability would empower workers, arming them with a strong tool for re-employment and valuable data that could be used to directly market to potential customers. There is an interesting company called prompt.ly that is building business management tools for individual service providers. Their service would benefit these providers even more with a verified record of quality service. Today, individuals providing services in many industries are hidden behind their employers (Google “NYC hair stylist” or “NYC yoga”) when customers would much rather interact directly with the individual provider. Employment data portability would also benefit the marketplaces through more motivated employees building a permanent record and through easier on-boarding via already established employee records.
As we move toward an employment environment with higher rates of long term employment, fewer government benefits for the unemployed and shorter job tenures, it makes sense to ensure that we remove as much friction as possible from the labor market. Let’s give workers the data that will allow them to build a brand, professional identity and trust/credibility rating that is transferrable across employers and easily recognizable to customers. We will all benefit from removing friction and improving visibility in the dynamic, increasingly global labor market.