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FutureShock:TheGigEconomyandLaborMarketDisruptionintheDigitalAge

KEYNOTE

§ PaulOyer,FredH.MerrillProfessorofEconomicsattheStanfordGraduateSchoolofBusiness,theFacultyCo-DirectoroftheCenterforEntrepreneurialStudiesandLeaderoftheAlternativeWorkArrangementsProject

P RO F ESSO R P A U L O Y ERC O L L A B O RA T I O N I N T H E GI G EC O N O M Y

SEP T EM B ER 2 0 17

Future Shock: The Gig Economy and Labor Market Disruption in the Digital Age

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@pauloyer

Outline

� The Gig Economy: Some Facts

� Segmenting the Gig Economy

� Why has the Gig Economy grown?

� The Role of Competitive Advantage

� Where do we go from here?

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The Gig Economy: Some Facts

� Estimated size of Gig Economy varies dramatically based on definitions¡ About 10% of American workers’ “Primary Job” is as an independent contractor (“1099

Employee”, “Freelancer”, etc.)÷ About 0.5% of “Primary” jobs are on internet “Gig” platforms

¡ About 30% of US workers do some independent/non-traditional work� ALL of the growth in the US labor force’s “primary job” from 2005-2015 was

workers in these groups:¡ Independent Contractors¡ “On-Call Workers” ¡ Workers at Contract Firms (janitors, security, food service)

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Who Are the Independent Workforce?4

Gig Worker Pay

� Independent (compared to traditional) workers¡ Make 6% less per year¡ Make 15% moreper hour

÷ But the premium is much smaller for those who work independently “by necessity” (rather than “by choice”)

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Gig Workers6

� “Word Cloud” of responses to “Why do you work in the Gig Economy?”

Flexibility

Gig Workers7

� “Word Cloud” of responses to “What are the downsides of working in the Gig Economy?”

Instability

Inequality and The Gig Economy8

Separation of Employers

Source: Song, et al (2016)

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Independent Worker Market Segments10

ONLINE OFFLINE

Commoditized Matching

Differentiated Matching

Independent Worker Market Segments11

ONLINE OFFLINE

Commoditized Matching

Differentiated Matching

ASSIGNMENTVery low “friction”

INTRODUCTIONHigh “friction”

Employing Gig Workers12

� Advantages

¡ “Labor Arbitrage”

¡ Choice

¡ Faster onboarding

¡ Easy to downsize

¡ Partial workers

� Disadvantages

¡ Stability

¡ Knowledge

BIG growth opportunity for Gig Economy: Current

startups as they scale

Role of Competitive Advantage

� “Competitive Advantage”¡ Unusual and hard to imitate capability, resource, or position

� Walmart¡ Original competitive advantage¡ Current competitive advantage¡ Challenge to competitive advantage

� Can “people” be a competitive advantage?¡ VERY difficult – requires a differentiated HR model

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Role of Competitive Advantage: Employers14

� Competitive Advantage = Differentiation� Independent Workers = UNDifferentiated

¡ Should NOT be workers that create/maintain Competitive Advantage

� Should be one or more of…¡ Labor arbitrage¡ Skill needed temporarily¡ To scale up a commodity skill quickly¡ Partial jobs

� Gig platforms are enabling your small competition¡ Lower fixed costs¡ Minimized idle time

Strategic Principles: Employers15

� Before hiring a traditional employee, ask:¡ Can I get the same skill cheaper and far away?

¡ Is it ok if the person is not here very long?

¡ Is there a good chance I will want to get rid of this person soon?

¡ Does this person have a specialized skill that I need to be better/different from others?

¡ Do I just want a part of a person?

¡ Am I looking for a scarce skill?

Travel Agents vs. Real Estate Agents16

PercentChange2002- 2016TravelAgents -34%RealEstateAgents +21%

Source: USBLSOccupationalEmploymentStatistics May2017

Adapting to Robo-ticket-sellers17

� Amy’s Tickets: Successful ticket reseller partnering with venues and StubHub

� Customers got more sophisticated – dealt with venues and StubHub directly

� How can Amy generate “Willingness-to-Pay” in this market?

"Amy’s VIP Events” generates high-margin, value-added services that a computer can’t as easily replicate.

Costs and Scale in Asset Management18

Clients/AUM

AverageCost PerClient

Traditional Broker

Wealthfront

Wealthfront at Scale

At scale, Wealthfrontwill have a big cost advantage.

Costs and Scale in Staffing19

Workers Placed

AverageCost PerWorker Placed

Traditional Staffing Firm Shiftgig or

Upwork

Online Market at Scale

At scale, Shiftgig and Upwork will have a big

cost advantage.

Role of Competitive Advantage: Staffing Firms20

� Staffing Firm Competitive Advantage = Satisfying Employer Needs

� Pre-Internet¡ Rolodex of local workers and firms

� Post-Internet¡ Rolodex of firms¡ Worker options have exploded

� Remaining viable requires moving up the food chain¡ Platforms are MUCH better than you at providing resumes/people¡ Value-added services are a must¡ Matching and specialization – “algorithm”¡ Can you identify a capability the platforms don’t have?

Staffing firms cannot provide MORE talent than platforms so you

have to provide BETTER talent.

Platforms INTRODUCE better so staffing firms have to

ASSIGN.

Strategic Principles: Staffing Firms21

� As you plan your future, ask:¡ Do I have detailed information about the specific needs of the employers I help?

¡ Do I have access to a pool of workers employers cannot access?

¡ Can I match people to employers better than they can do themselves on a platform?

¡What can I do that the platforms cannot AND that employers will pay for?

Highlights

� So far, the impact of the Gig Economy is small� But, it is a growing force with momentum

¡ Makes the economy run more efficiently¡ Fits many workers’ preferences

� Gig Economy creates strategic employment options¡ Benefits of that biased towards small and growing firms

� Gig Economy threatens staffing firms¡ Find your Competitive Advantage!¡ Move up the food chain – look for ways to add value

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@pauloyer