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The on-demand economy and the future of work: Buckle up

When companies get serious about understanding what it costs to get work done employment will change dramatically. Who's ready for the on-demand economy?

Most companies don't know what it costs them to get work done, but that is about to change, say labor experts....

Performance analytics, combined with technology platforms that recruit, select and evaluate employees expressly for the job at hand, will usher in a new era of strategic work management, resulting in better cost control, higher revenue and a greater agility to adapt to market changes.

This new economic arrangement -- sometimes referred to as the on-demand economy, or gig economy -- will offer workers unprecedented freedom to craft their work lives. Unless government and labor experts move quickly, however, an on-demand economy will also obliterate what's left of the traditional employee benefits -- unemployment insurance, workers' compensation benefits, health insurance, retirement funds and other programs -- that have provided full-time employees with a measure of security.

"Too many organizations are stumbling their way to the future of work, and anything we can do to make that a more systematic process would be to the benefit of everyone," said Lee Dyer, professor of human resource studies and chairman of the department of human resource studies at Cornell University.

Lee DyerLee Dyer

Dyer and Jonas Prising, chairman and CEO of ManpowerGroup, one the world's largest workforce consulting and recruitment companies, offered their insights on the future of work and the on-demand economy at a recent event in Cambridge, Mass., hosted by the MIT Initiative on the Digital Economy and Institute for Work & Employment Research. While the future of work may well bring more prosperity to more people, the near future is alarmingly unsettled, or as Dyer put it, turbulent.

What's different?

The use of nontraditional workers, or contingent workforce, is not a new phenomenon. Part-time, temporary and contract workers "have been around forever," noted Dyer, who has studied the American workforce for 40 years. But the current zeitgeist is different. The technology platforms available today to connect with workers -- from Uber to household chore matchmakers such as TaskRabbit to ManpowerGroup -- are much more efficient. And the nature of contract jobs is rapidly changing. The digitization of business processes, combined with robust communication networks, means that high-level information-based work traditionally done on-premises is now routinely done remotely.

Too many organizations are stumbling their way to the future of work, and anything we can do to make that a more systematic process would be to the benefit of everyone.
Lee Dyerprofessor of human resource studies, Cornell University

Structural changes in the labor market have also spurred the rise of the on-demand economy, said ManpowerGroup's Prising, whose company employs 3.5 million people in 80 countries around the globe and processes some 9 million jobs a year.

The aging population in developed and emerging markets has resulted in severe skill shortages even when employee pools are ample, forcing companies to apply sophisticated supply chain-type logistics to the acquisition of talent, he said. The technology deployed for talent acquisition has also allowed companies to respond more quickly to economic cycles. Evidence of the degree to which companies have learned to calibrate labor to customer demand, he said, came during the most recent U.S. recession when employers shed 500,000 jobs at brute speed; 93% of the drop in demand was absorbed by layoffs, Prising said -- "very different from prior recessions."

Jonas PrisingJonas Prising

Workers are also adapting much more quickly to volatile work environments, absorbing the sober reality that people will change jobs many times over their careers, if not by choice then by necessity, Prising said. 

"Those with higher skills have much more freedom of choice. Among those who want stability of full-time employment, many are looking to move their skills from organization to organization, so they always stay in sync with what skills are needed to be marketable and to make sure they get the equivalent compensation for those competencies," he said.

Companies still geared to full-time workers

That's the bright side of on-demand work. "There are a lot of different opportunities and ways to engage with the labor market," Cornell's Dyer agreed. "But there are a lot of challenges that have to be overcome ... from a public policy standpoint and a lot of challenges overcome from an organization standpoint."

On the employer side, most large established companies are set up for regular full-time employees, supplemented by small cohorts of contingent and part-time workers. Dyer isn't optimistic that companies are thinking about the mechanisms required to attract and retain a high-caliber on-demand workforce. The recent downturn, he said, was a great opportunity for companies "to think more broadly about the entire way to get work done, and for the most part it was not done. They went back to the model they had before."

Yet, companies will have to start thinking about employment in radical new ways, if they hope to adapt to market changes and remain competitive. As companies apply analytics and other optimization tools to better understand what work needs to get done and how best to get it done, Dyer predicts organizations will move more toward hiring on a project-to-project contract basis, employing the right people for the right job for as long as the job takes, and moving them perhaps to another job within the company at completion -- but perhaps not.

New infrastructure is needed to facilitate that kind of contingent worker movement, or people will get screwed.

"You do your three-year tour of duty and leave, and then you've got some period of time before you do something else," he said. Without some safety net, "you're sunk, you're nowhere. You're technically not unemployed, and that is the problem." The tradeoff might be that a company promises to train or pay you to learn new skills for the next job, but not many employers are thinking that way. 

Portable benefits, continuous learning

Countries outside the U.S. are experimenting with social contracts tailored to on-demand work, Prising said. Denmark, for example, has adopted a "Flexicurity" system that provides workers with a livable wage -- or income substitution -- when they are laid off because the skills they were hired for are no longer needed by the company. The income benefit requires workers to prove they are looking for other work and enhancing their skills to make themselves more marketable. But experiments like these are just that -- experimental. Denmark's legislation, originally providing three years of income substitution, according to Prising, was scaled back to one year of income and the performance requirements made more stringent, he said. 

For Americans to navigate an on-demand economy, Prising and Dyer agreed there will need to be a benefits package that will likely travel with workers as they move from gig to gig. How these benefits will be structured and who will administer them remain open questions.

"I'm surprised that not more employment and labor groups are seriously looking at this. It's disappointing," Dyer said.

Next Steps

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What do companies need to do to make the on-demand workforce viable? Higher wages and let workers figure out benefits for themselves?
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Absolutely, we need portable retirement plans and at least basic universal, portable, health insurance. No use in being chained down to the gray flannel suit model of put in your full-time hours, in a full-time job, and in return, you get subsidized health insurance.

Also, the tax laws and gov't regulations need to be overhauled to make it easier for people to start and run their own businesses.

Mr. Dyer is correct. Where's the discussion from public policy experts and businesses occurring?
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