This is the third post in my ‘Future of Work and Labor’ series. The first post covered macro trends and the second illustrated how increasing productivity opens new markets, to the benefit of entrepreneurs and consumers alike. This post looks at a result of these trends - commoditization of labor - and its positive and negative implications.
Freelancing and outsourcing are becoming widespread, commoditizing labor in the process. More than ever, teams can view contractors as interchangeable and platforms like Uber, TaskRabbit, and Homejoy treat workers as such. For organizations, this is a boon; the endless supply of on-demand workers allows companies to scale up and down their workforce as needed, with little money wasted on unutilized time; new contractors can quickly become productive though low cost training programs. For workers, however, results are very mixed.
It’s useful to look at freelance work along two dimensions: skill and commoditization. Skill is the combination of education, training, and talent that workers need to accomplish a job. Commoditization is the degree to which workers are interchangeable. Here are some factors that cause a role to be more commoditized:
- Easy learning curve - The faster workers learn a role, the easier they can be replaced
- Low coordination - If workers operate independently then they don’t need to learn the working habits of collaborators and can quickly become productive
- Transparent Reputation - If it’s easy to judge workers’ skills then they can quickly be replaced
- Liquid Talent Pool - If there are many workers on call, swapping workers is easy
Commoditization might have a negative correlation with skill because skilled work often has less reputational transparency; it takes time to assess the quality of complex work, making it more costly to onboard workers. However, there are still many cases of skilled work being commoditized. Here are some examples of jobs with different characteristics:
- Branded professionals include high-end consultants, lawyers, doctors where reputation is associated with individuals’ names - these individuals are at the top of their game and can be selective about their clientele
- I put executive assistants under low skill, low commodification because it’s incredibly hard to find great ones and tough to differentiate the bad ones before hiring them
As more work shifts to freelance / ad hoc, workers will experience different outcomes based on where they are on the skill / commoditization spectrums. Some things will generally be true for all freelancers; here are some of the broad trends:
The Good - Dependable Income
Workers can use commoditized work platforms as much needed ancillary income streams. Freelancers can make significantly over minimum wage and some might be able to squeeze in extra hours if they have trouble paying their bills (e.g. an Uber driver who works an extra night). Commoditized work can also be a complement to higher wage work that has limited or unreliable hours. Other benefits of some freelance platforms can include the ability to work from home, flexible hours, and the opportunity to choose your clients.
The Bad - Lonely Work
While some commoditized work can be stimulating, much of it is tedious and bereft of meaning. Some Uber drivers love the opportunity to talk to passengers and enjoy driving while others merely view it as a paycheck. Other freelance work, whether in person via TaskRabbit or online via eLance or Mechanical Turk, is mundane at best and lacks any opportunity for mastery, creativity, autonomy, or flow state. There might not be any opportunities to learn through the work. Even for high skilled work, the tasks might be disconnected from the final product or service. Too much of this work is likely to result in strong feelings of worker alienation.
Commoditized workers also have to deal with the downsides of independance. Without an HR department, they need to navigate quarterly tax filing, withhold their own taxes, provide their own training, and remain current on any changes to the platforms through which they operate.
The Ugly - Wage Arbitrage & Automation
In the first post, I mentioned automation removing more jobs than it creates. The newly unemployed will likely turn to the commoditized labor platforms which will put a downward pressure on wages. For skilled work that commands a higher wage, workers might seek out cheap just-in-time education and depress those wages, too. As automation improves, many of these commoditized jobs will also be at risk; self-driving cars will eliminate the jobs of Uber drivers. Workers may be left jumping from one platform to another, scrambling to hone relevant skills before other new workers reduce the wages or automation eliminates the roles.
Balance of Power
As workers are commoditized, they may be come vulnerable to large organizations. The forces here work much like in traditional economics. If there are only a few organizations offering gigs, those companies can carry out varying degrees of worker exploitation. If there are many companies demanding the workers, then a freelancer can turn down gigs from abusive companies.
Commodification and Skill
Not all freelance work is commoditized or low-skill. Platforms like GLG and talent agencies like 10X Management connect experts with skilled workers. Workers that can demonstrate extraordinary skill and talent will have an increasingly easy time finding clients.
Companies are already engaging with expert consultants but a lack of strong reputation signals is holding back this trend - this is a type of transaction cost that I covered in the first post. It is often difficult to judge the quality of a high skilled worker in advance and sometimes tough to evaluate the output afterward. GLG and 10X work because the platforms’ brands serve as reputation signals. As better reputation signals emerge, more high skilled work will shift to freelancers and we’ll see platforms become more scalable.
As labor markets shift, more individuals will find themselves without meaningful work. For those looking to escape low wage commoditization, they can focus on retraining to acquire meaningful skills or they can turn to micro-entrepreneurship and hope to find profit in a niche market. As we’ve discussed, the path through higher skills doesn’t guarantee high wages in the long run - wage arbitrage and automation make many skilled jobs a temporary thing.
In my next post, I’ll continue exploring the near-term implications of the macro trends. I’ll return to some of the themes around commoditization of labor when I discuss tactics that individuals and companies can use for grappling with the trends. Toward the end of the series I’ll speculate on the end state of commoditization of labor.