Seattle brings more congestion on the highway to the on-demand economy

A version of this post was originally published on the Gigaom Research’s Analyst Blog.
Uber has hit another speed bump on its way to disrupting the transportation establishment worldwide. The Seattle City Council voted yesterday in favor of allowing on-demand workers the right to unionize, despite their nebulous status as ‘independent workers’ falling in the cracks between 1099 contractors and W-2 employees.
As NY Times’ Mike Isaac, Nick Wingfield, and Noam Scheiber put it:

… the Seattle City Council plans to vote on a proposed law to give freelance, on-demand drivers like Mr. Creery the right to collectively negotiate on pay and working conditions, a right historically reserved for regular employees. Mr. Creery and hundreds of fellow drivers in Seattle helped push for the legislation. The hope, he said, is to give drivers more say on how much they should be paid.

The successful vote in the City Council means the drivers’ organization — the App-Based Drivers Association (ABDA) — will gain an explicit right to unionize on-demand workers, a first in the U.S. This does not mean that the federal government has agreed, and it would be reasonable to expect that ultimately the National Labor Relations Board or the federal courts might get involved.
Uber, its competitors like Lyft, and a wide variety of other on-demand work companies have their economics squarely based on the premise that on-demand workers are not employees, and as a result, the companies paying them for their labor can sidestep the expenses and liabilities that come with full-time employment, such as insurance, worker compensation, social security contributions, vacation, sick leave, and the like. The on-demand companies clearly benefit from this arrangement, while — at least in some cases — the on-demand workers would rather gain the protections and benefits that labor laws in the U.S. provide. Such as the right to unionize.
Uber is already involved in a California class-action lawsuit on this issue, and the initial finding is that at least one former driver should have been classified as an employee, which Uber has appealed.
As I wrote in July (see Handicapping On-Demand Market Sectors) ,

At core, there is a real question of worker misclassification in the on-demand marketplace. In labor law, there are certain litmus tests to determine whether a supposed contractor is actually a misclassified employee. The employer has a strong incentive to claim that the worker is a contractor, because that allows the firm to sidestep taxes, legal liability, and the purchase and upkeep of equipment (like cars, insurance, and gas, in the case of Uber). If the worker is controlled directly by the company — is told how and when to provide services (like Homejoy’s scheduling appointments instead of its ‘contractors’ making those arrangements, what tools or equipment to use, and specific procedures to follow (like the Lyft fistbump) — then misclassification becomes more likely.
Consider the level of control that Handy — a Homejoy competitor — applies to ‘contractors’:

Ellen Huet, Contractor or Employee? Silicon Valley’s Branding Dilemma

Handy tells its cleaners how to dress, but it also tells them when to knock or ring the doorbell, whether to shake a customer’s hand (always), whether to ask if they should take off their shoes (always), whether they can talk on the phone during the cleaning session (never), and more, the suit says. Those specifications likely make customers feel secure and at ease.

They also violate many of the IRS standards for independent contractors, which say that they can’t be told when, where and how to do the work.

Uber claims its drivers prefer being contract workers. However, the company doesn’t offer the alternative of full-time employment for drivers, so the experiment to prove their claim hasn’t been run. Whether drivers believe they are employees or contractors — many hold other jobs, and some preclude other ’employment’ — is a factor in the analysis, but may be moot in the final analysis, since so much of the control of the work is in the hands of Uber.

The reality is that we may need to develop a third category of worker to better match the times we are living in. Again, from Handicapping On-Demand Market Sectors:

On-demand work has risen in the national conscience to the point that presidential candidates are senators are asking difficult questions. Hillary Clinton recently saidthat she plans to ‘crack down on bosses who exploit employees by misclassifying them as contractors or even steal their wages.’ Senator Mark Warner gave a talk at a DC-based think tank, New America, in which he supported the idea of a third category of worker, saying,

For many of these online and contingent workers, they’re operating without any safety net below them. They may be doing extraordinarily well — until they’re not, and then there is nothing to catch them until they end up, candidly, back on the taxpayer’s dime.

The third worker class has many possible facets, like a way to have a freelancer’s clients contribute on a pro rata basis toward the sorts of benefits that full-timers receive. For example, the half of social security that employers pay for their employees is paid for freelancers, along with the employees half. In a ‘hours bank’ model, clients would pay a share. So if a freelancer worked 10 hours for company X, they would contribute one quarter of that week’s employer-side social security contributions, and other clients would two.

So, we’ll have to see where this newest detour leads for Uber and the on-demand economy. It seems unlikely that the genie will be chased back into the bottle and that on-demand work will fade away.
However, new protections for the precarious nature of on-demand work obviously need to be put in place, so that the downsides of being an independent worker do not fall solely on the shoulders of the workers, and neither should they be socialized by state and federal governments, so that taxpayers wind up subsidizing the on-demand employers. Uber and the other companies that tout their exponential economics will have to return some of the 20 to 30 percent they slice out of every transaction, and reinvest that in higher salaries, pensions, and insurance for those making the on-demand economy go, ultimately. It’s just a matter of time.

The gig economy is here, and it’s not a pretty picture

The discussion about the changing nature of work — specifically with regard to the shift away from full-time employment to a freelancer-dominated, gig economy — has been growing. A number of items crossed my radar screen in the past week, including a number of financing announcements, that demonstrate that employment has become increasingly precarious for most people.

A new report has been released by the UK Commission for Employment and Skills (UKES), and it makes for scary reading. The report collates a great deal of data about the state of work in the UK and other countries, and casts a futures approach toward trends analysis. The skinny is that things are bad in the UK, with a marketplace and workforce that is the least educated in the EU after Spain, and with low growth projected. But the scenarios they concoct for the future all seem to converge into a dystopic future, where several trends prevail:

  • The only group that has any hope of stable employment are the well-trained and well-educated, but even they have modest hopes for increased pay.
  • The middle-skilled tier of workers are being pushed out by a number of trends: use of freelancers, migration of work to other countries (notably Asia), and automation.
  • Those in the bottom-skilled tier of workers are increasingly likely to be working as freelancers: part-time, ‘zero hours’ contract positions, which lack the benefits and stability of full-time employment.

This results in an hourglass workforce:

screen-shot-2014-02-27-at-12-41-58

Sarah Kessler’s Fast Company article, Pixel And Dimed: On (Not) Getting By In The Gig Economy, tells the tale of her attempt to make a living working for various web-based hire-an-assistant services, such as Fiverr, Postmates and Task Rabbit. The story is agonizing. She winds up spending enormous amounts of time applying for work that never materializes, and lands only a small number of paying gigs, all of which are short-lived, and several of which are really fronts for companies trying to select among candidates for full-time jobs. The epiphany for Kessler is when she is doing a Mechanical Turk gig, labeling slides for a Microsoft researcher who is investigating vision:

On my way to completing 61 slideshows, I begin to resent Larry Zitnick, the Microsoft researcher who posted this maddening task. When I call him later, he’s actually quite nice. Zitnick explains that my slideshow labels are helping to train a computer to recognize images. “In the early 2000s, our datasets generally had hundreds or maybe a few thousand images in them,” he says. “And now we had have datasets with millions of images in them. It’s because of Mechanical Turk.”

Labeling slideshows suddenly feels very important. But it still doesn’t pay. I make $1.94 an hour. Research suggests most people, like me, aren’t making substantial income off their Mechanical Turk work. Only 8% of workers surveyed by researchers at the University of California, Irvine, said that Mechanical Turk income always helped them meet their basic needs.

My best day at TaskRabbit suddenly seems like a winner. I made $10 an hour at the dance job (not counting the performance that will take place the next day), $15 an hour at the Harvard Club, and about $20 an hour wrapping presents: $95 in total. My eight-and-a-half hour day was a best-case scenario. There was no downtime. The only break I had was a 10-minute lunch that I grabbed next to TaskRabbit user Mark’s apartment before gift wrapping his presents. But when you factor in the time I spend commuting between tasks, I only made $11 an hour.

All the hustling only gets Kessler slightly above minimum wag, even if she could somehow push all the gigs together into a coherent workweek, which never happens to her.

Even those with more skills — the freelancers that can manage to find higher-paying work — are in a tough sport: they aren’t saving enough for retirement.

Screenshot 2014-03-27 08.20.40

Seven out of ten aren’t saving regularly, at all. Around 30% of Gen X and Y freelancers aren’t saving, at all. It’s not clear what they would be saving if they did have full-time jobs, but they’d potentially have access to employer-administered savings programs of various kinds, and the level of savings would likely go up significantly.

Meanwhile, consider these data points in the world of software:

  • Gigwalk — a service that matches freelancers with small gigs through a mobile application — raised a $10M Series B round by Nokia Growth Partners (NGP), included new investor Randstad Holding nv and existing investors August Capital, Harrison Metal and SoftTech.
  • SAP announced plans to acquire Fieldglass, ‘contingent’ workforce management solution. Terms are unknown, but SAP is working hard to establish itself as a leader in the market niche.
  • I was contacted by OnForce regarding its new release of a cloud solution for companies to manage their own freelancers, not just to be able to find and hire them through OnForce’s market. This caught my eye: ‘More than two million tasks assignments have been completed through OnForce’s platform, and 5,000 enterprises including Apple, Comcast/Xfinity, AT&T and Xerox have used OnForce to engage, manage and pay independent contractors found through OnForce’s IT workforce network.’

This posts comes across as ‘one thing after another’, and not like a coherently argued analysis of what is the likely outcome of these changes in our economy. This is part of the changing workforce that I have characterized as an undertow pulling at our feet, while the rise of mobile devices, cloud computing, and connection technologies are a tsunami crashing down on our heads.

It is not at all clear that society is prepared for the fallout from this radical shift to a contingent — or perhaps better, a precarious — work economy, where only the most skilled and educated are likely to have full-time, stable employment, and the majority are left to scrabble for low wage contingent task work.

This trend is now a central theme of my research agenda, and I will be exploring the ramifications, going forward.

 

Hire for “Tours of Duty” instead of pretending jobs are forever

In June, Reid Hoffman (the co-founder and now chair of Linkedin), Ben Casnocha, and Chris Yeh published an article in Harvard Business Review that presents some new thinking around business operations, specifically with regard to establishing a new compact, as they put it, between employers and employees.

Reid Hoffman, Ben Casnocha, and Chris Yeh, Tours of Duty: The New Employer-Employee Compact
For most of the 20th century, the compact between employers and employees in the developed world was all about stability. Jobs at big corporations were secure: As long as the company did OK financially and the employee did his or her job, that job wouldn’t go away. And in the white-collar world, careers progressed along an escalator of sorts, offering predictable advancement to employees who followed the rules. Corporations, for their part, enjoyed employee loyalty and low turnover.
Then came globalization and the Information Age. Stability gave way to rapid, unpredictable change. Adaptability and entrepreneurship became key to achieving and sustaining success. These changes demolished the traditional employer-employee compact and its accompanying career escalator in the U.S. private sector; they are in varying degrees of disarray elsewhere.
We are not the first to point this out or to propose solutions. But none of the new approaches offered so far have really taken hold. Instead of developing a better compact, many—probably most—companies have tried to become more adaptable by minimizing the existing one. Need to cut costs? Lay off employees. Need new skills? Hire different employees. Under this laissez-faire arrangement, employees are encouraged to think of themselves as “free agents,” looking to other companies for opportunities for growth and changing jobs whenever better ones beckon. The result is a winner-take-all economy that may strike top management as fair but generates widespread disillusionment among the rest of the workforce.
Even companies that have succeeded using minimalist compacts experience negative fallout, because the compacts encourage turnover and hamper employee productivity. More important, although the lack of job security indirectly creates incentives for employees to become more adaptable and entrepreneurial, the lack of mutual benefit encourages the most adaptable and entrepreneurial to take their talents elsewhere. The company reaps some cost savings but gains little in the way of innovation and adaptability.

The authors do a great job of diagnosing the downside inherent in companies seeking greater flexibility by stretching the old compact to its limits, where most the the stretching is done by the employees, since they are the weaker in an unequal power relationship with the organization.
But the authors offer an alternative. And like most optimizations it requires more effort at the start so that less cost (and pain) is borne at the end. In a nutshell, they propose that instead of perpetuating the old, late industrial conceptual model of employment — nominally employment forever, but in fact, a highly precarious unstable deal — a new compact should be put into place that takes as its starting point the new form factor of work.
First, they propose that jobs should be thought of as gigs (although they don’t use the term), as “tours of duty” with a proscribed duration, and with a clearly defined start-or-go trajectory. This is, they say, the shift from assumed — and seldom realized — mutual loyalty, and instead structured as an alliance. This is similar to the consulting company pattern of “up or out”. Again, from the article:

If you think all your people will give you lifetime loyalty, think again: Sooner or later, most employees will pivot into a new opportunity. Recognizing this fact, companies can strike incremental alliances. When Reid founded LinkedIn, he set the initial employee compact as a four-year tour of duty, with a discussion at two years. If an employee moved the needle on the business during the four years, the company would help advance his career. Ideally this would entail another tour of duty at the company, but it could also mean a position elsewhere.

And the company’s responsibility is to groom the worker for lifetime employability in lieu of lifetime employment. The tour of duty sets a time period of mutually agreed trust, with two agreed upon possible outcomes. Either the company will set up a second (or third, etc.) tour of duty at an appropriate time in the tour, or either party can indicate that this tour will be the last, and that case, the company will work to help the soon-to-be-departing worker a new gig.
It’s imperative to clearly define ‘moving the needle’, so that both can agree if and when it is accomplished. Here’s is where the work of optimizing takes place. The organization has decided that Bette is a great candidate to join a new product team, but instead of some generalized notion of quarterly and annual reviews, the goals can be much more entrepreneurial in spirit.
The authors state that this is an end run around centralized HR:

This approach can’t be executed by a central HR function; you’re making a compact, not drawing up a contract. We’re not suggesting that you negotiate a guaranteed arrangement that spells out all the specifics—a rigid approach is the opposite of an entrepreneurial mind-set. You’re building a trust relationship that’s based on the employee’s actual job, so the conversations must be handled by direct managers.

This bears on the second element of the author’s approach: the company is obliged to maintain an active network with other companies, alumni, and organizations so that departing alumni can take on new work elsewhere. And to accomplish that, the company must create and maintain an active alumni network, at whatever expense, so that career-long relationships between alumni and employers.
I believe that the new form factor for work is fast-and-loose, where companies strive for high flexibility and agility. The downside of that can be the direct impact on people who can’t flex as fast or as far as large, amorphous organizations can. So setting a hard date for making the determination about stay-or-go allows the parties to operate in a trust relationship, but also for each to retain their flexibility. This reminds me of the arguments for term marriage, for obvious reasons.
My sense is that Hoffman and his co-authors have codified one aspect of the new business ethos of work for the postnormal economy, replacing the illusion of open-ended employment with the certainties of a closed-ended tour of duty.

Is the free agent mindset infecting employees too?

You have probably heard about the rise of the independent worker and the impact of this trend on business practices. But your team is still all traditional employees, so this shift doesn’t affect you, does it? Maybe more than you think, argues SAP’s Julien Vayssiere.

How to make contingent workers feel like family

Call it the gig economy, Generation Flux or Freelance Nation, but whatever you term the rise in independent workers, the trend is reshaping management. How can you ensure that the contingent workers on your team feel as engaged and appreciated as the long-term employees?

Women dominate offline independent work too

Recent research showed that the majority of online freelancers are women. Now, new numbers from MBO Partners reveal women aren’t just dominating independent work online, but actually make up more than half of all independent pros, and they’re highly satisfied with this way of working.

Stealth freelancers and the mystery of the missing self-employed

The CEO of GroupTalent, a marketplace for top-tier tech talent, combed through company data and uncovered a rising number of ‘stealth freelancers’ who have full-time jobs but sell their skills on the side. Could this partially explain the mystery of the missing self-employed?

Women make up the majority of online freelancers, study says

If you imagine that online freelancing is mainly the preserve of male techies, it’s time to revise your understanding. A new survey of the sector by consultancy Zinnov reveals women make up 55 percent of the online labor pool, along with other insights.

Independent work: Not a young person’s game?

New research from independent work consultancy MBO Partners out today reveals that while people across the generations are interested in breaking out of the corporate grind and going solo, Baby Boomers are the most satisfied working independently.

Are women better suited to the gig economy?

A long-time, female freelancer argues that, though the reason may be nurture rather than nature, women are often better equipped with the skills demanded of independent workers, including empathy, creativity and the ability to accept an uncertain, lower-status work style.