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Charting the Future of Labor in the On-Demand Economy

Freelance labor is not a new phenomenon. Before Taskrabbit and Homejoy, handymen and housecleaners were found and vetted through mouth-to-mouth social networks. Before Uber, unregulated “gypsy cabs” operated in low-income urban markets. Before AirBnB, rooms were rented to out of town boarders through signs in the window or advertisements in newspapers. But skirting regulation left both customers and service providers open to risk, with few avenues for retribution.

Recently, on-demand service apps have legitimized what were once thought of as “side hustles” outside the realm of otherwise-regulated business. The ability to track and vet customers and operators through a peer-reviewed platform decreases safety and financial risks. On-demand apps promise service providers flexibility and accountability, though it can often come at the price of stability that more regulated jobs offer. What’s the future of labor in this new on-demand economy?

What Motivates On-Demand Workers?

Online platforms open up the door to entrepreneurship for workers who would not otherwise be able to connect to a large market. According to NYU professor Arun Sundararajan in an Citylab article, online platforms can act as “finishing schools” in some cases, allowing potential entrepreneurs to grow their skills before opening brick-and-mortar businesses. This is especially true when workers can sell their products or services direct-to-consumer, as with eBay or Taskrabbit.

But for many, the benefit of on-demand work is that it’s the best option in a lagging job market. A recently released study from the group Request for Startups, discussed in a Zen99 article, asked on-demand workers, “What convinced you to work for the current companies you work for?” Flexibility of scheduling was the most common answer, selected by 74.9 percent of respondents. Next, with 46 percent of respondents, was “Higher pay than other options.” On a positive note, 36.1 percent of respondents also noted that they received greater enjoyment from the work.

Further survey responses flesh out the profile of on-demand workers. A query showing that 40 percent of workers’ wages make up less than 25 percent of their income confirms that most on-demand workers use these services to augment their earnings. Yet, another survey from MBO Partners finds that on-demand workers are generally satisfied with the work, and that 82 percent plan to continue as independent workers for the next 2 to 3 years. This survey also finds that the majority of on-demand workers are Millennials—unsurprising, given that the unemployment rate for this population hovers between 9 and 14 percent.

Labor economists fret over the consequences of such large swaths of people turning to on-demand work. In a New York Times article, Dean Baker of the Center for Economic and Policy Research argues that online labor marketplaces drive down costs by behaving as de facto employers, without shouldering the actual cost burdens or liabilities of employment.

Indeed, the Request for Startup survey finds that the benefit independent workers most desire is health insurance, followed closely by retirement benefits, paid days off or sick leave, and opportunities for advancement. But in the on-demand economy scenario, workers miss out on career and skill development, which translates into a less-competent workforce, possibly even widening the skills gap.

The Operators’ Perspective

As a result of these concerns, many on-demand startups currently are involved in an industry-wide debate over how they engage their employees. In Lauren Smiley’s Medium coverage of the recent On-Demand Conference, she quotes several members of the community. This inaugural conference, held in May 2015, brought together industry leaders, entrepreneurs, and investors to discuss all topics related to the on-demand industry. Topics discussed included customer experience, investing, and employment models

Some of those who attended the conference pointed to greater economic trends as evidence for flexible work. For instance, Simon Rothman of Greylock Partners explains that the entire tax model for employment is “broken.”

“The 1099/W-2 framework …existed in a world that had monolithic, centralized corporations, not in a world that had distributed companies,” Rothman said. “We need a third class of workers. I think that’s inevitable.”

Mr. Rothman’s argument corresponds with the views of OnboardIQ CEO Keith Ryu. In the Request for Startups report, Ryi explains,

Labor is following the path of cloud computing. This is in the sense that a couple of decades ago, when you started a business you had to buy your own servers and set them up, whereas now you just outsource it to Amazon at a very low cost. We predict a similar trend in labor, where it will become decentralized and liquid.

Meanwhile, other companies and investors are seeing the long-term, customer-focused benefit of investing in their workers. As Satya Patel of investing firm Homebrew notes,

(Investing in workers) is just good business, too … Those workers are the interface to the end customer — they can manage quality, the experience. If the workers are getting benefits, they’re likely to stick around longer and be really committed to the company.

Will On-Demand Services Beget More Services?

Some industry experts envision a corresponding growth in services that cater to on-demand workers—a sort of service economy for the on-demand economy. For example, in 2014, Lyft partnered with advocacy group Freelancers Union to offer health insurance to its drivers. In the Request for Startups report, Mar Hershenson, of Pejman Mar Ventures predicts that both employers and the government will show more consideration—as well as more services—for on-demand workers, including platforms, insurance, loan services and others.

As the Citylab article points out, when people are given a more efficient, convenient, and cost-effective way of getting a service or product, the demand for that thing actually increases. Though the services that on-demand companies are typically considered luxuries— private drivers, cooks, and cleaners—their ability to offer these services at low price points means the companies will continue to grow.

Emily Brown

Emily works in urban planning, helping cities to become more competitive. She was named as one of 40 under 40 economic developers, and has taken part in a successful Kickstarter…