Until recently, most people worked in traditional employer-employee relationships at specific work-sites: offices, factories, schools, hospitals or other business facilities. This traditional model is being upended as more people are engaged through remote and part-time work, such as contractors, or through project-based employment. Some studies have noted that between 2005 and 2015, the number of people in alternative work relationships — which include contractors and on-demand workers — increased from 10 percent to 16 percent accounting for nearly all net job growth during that period. A recent study by the McKinsey Global Institute concluded that “the independent workforce is larger than previously recognized” with up to 162 million people in Europe and the United States — 20 or 30 percent of the working-age population — engaged in some form of independent work. For more than half of these individuals, independent work supplements their primary source of income.
These alternative work arrangements are fueled by advances in technology. Perhaps the most notable trend in this regard is the rise of the on-demand economy. At its core, the on demand economy refers to working arrangements in which people find work through online talent platforms or staffing agencies, performing tasks for a wide variety of customers. According to the McKinsey Global Institute, 15 percent of independent workers use digital talent platforms to connect to work. Researchers at Oxford University’s Martin Programme on Technology and Employment estimate that nearly 30 percent of jobs in the United States could be organized into task-based work within 20 years. The on-demand economy presents enormous opportunities for workers and businesses. McKinsey estimates digital platforms that match workers with opportunities could raise global GDP by as much as 2 percent by 2025, increasing employment worldwide by 72 million full-time equivalent jobs. Here is just a partial list of the potential benefits of the on-demand economy:
• Engagement in on-demand work through digital platforms allows jobs to come to workers, rather than forcing people to migrate to available work. This helps workers who live in areas where job opportunities are limited and enables companies to access a wider talent pool.
• According to the Hamilton Project, more than 70 percent of labor force non-participants report that care-giving, disability or early retirement keeps them out of the workforce. The flexibility of on-demand work reduces the barriers that traditional employment models present. According to a survey by the Pew Research Center, nearly 50 percent of on-demand workers report a “need to control their own schedule.” Another quarter said there was a “lack of other jobs where they live.”
• The on-demand economy offers more opportunities for part-time labor. Today, many workers prefer the flexibility of part-time work to full-time employment. For millennials, flexibility, work/life balance, and the social impact of their work can be more important than a high salary or a full-time career. And many baby boomers are choosing to work later in life, often through part-time work.
• The on-demand economy allows businesses to engage workers on a short-term basis, facilitating business agility and reducing long-term staffing costs. The on-demand economy can be particularly helpful to small businesses that cannot afford a large full-time workforce but can get work done through targeted on-demand engagements. Costs can be reduced further by recruiting freelancers through on-line platforms that feature competitive bids for projects.
• The on-demand economy can provide companies with access to skills they do not have in-house. Hiring freelancers enables employers to find individuals with specific skills and engage them on an as-needed basis.
• The on-demand economy provides access to supplemental income. For instance, the on-line platform Teachers Pay Teachers includes an on-line marketplace where teachers buy and sell lesson plans and other educational resources. While the on-demand economy has the potential to promote greater labor force participation, many concerns have been raised about its impact on working conditions and worker protections. Some of these concerns include:
• Because the on-demand economy is so new, it is stretching the bounds of existing regulations relating to worker protections, including child labor laws and minimum wage requirements. While some on-demand digital platforms offer worker protections, others have taken the position that even baseline worker protections do not apply to the on-demand labor model.
• The on-demand borderless workplace heightens issues relating to wages and the distribution of the global workforce. Because of the differences in the cost of living across the globe and the opportunity for employers to hire workers where wages are low, jobs may move from the higher-wage to the lower-wage countries.
• Some studies have shown that the economic benefits of the on-demand economy largely accrue to platform owners and consumers, but not to workers.40 Because these platforms commoditize work into tasks, they may devalue other contributions that workers can make to the platform or the overall digital economy.
• The commoditization of the workforce also has the potential to reduce access to social insurance, career development and social interaction, which might otherwise strengthen innovation and economic value.
Moreover, workers in the on-demand economy do not benefit from the investments enterprises make in work culture.
• In the long term, as platforms “learn” from workers and automate more tasks, the development of the platform economy may contribute to the elimination of jobs. Those who are unable to acquire new skills may be marginalized, further concentrating wealth in the hands of platform owners and top earners.
As the on-demand economy continues to grow, enterprises have an opportunity to shape policy within their own companies, at the industry level and from a public policy perspective. Increasingly, the technology industry needs to engage to change the perception that it reaps the benefits of technology progress at the expense of workers who are displaced or left without protections, benefits or long-term career paths.
Companies must acknowledge the impact of the on-demand model on workers rather than claim that they are “just the technology platform.” Companies that do not acknowledge the importance of worker protections and benefits risk damage to their brands and face the possibility that lawmakers and the courts will step in to impose regulations that could limit the business opportunities that the on-demand economy presents. Microsoft believes that companies can benefit from the on-demand economy while taking steps to provide protections, benefits and opportunities that offer long-term economic stability for workers. The technologies underpinning the on-demand economy are also changing how enterprises organize work within their traditional workforce. Today, a wide range of factors are driving enterprises to focus on creating a globally distributed workforce, including the need to look beyond local talent pools to find people with the skills that they need. But, as countries face nationalist pressures and businesses face more restrictive immigration laws, companies may also need to consider expanding their domestic workforce.
New technologies and tools are enabling businesses to accommodate distributed workforces. On-line platforms can aggregate data on workers and job openings across entire countries and regions, making it easier to address geographic mismatches between skills and jobs. And because new collaboration tools support remote work, employees are no longer tied to working in a fixed location. In addition, people are seeking more flexibility in how and where they work. In a recent poll, 37 percent of technology professionals said they would take a 10 percent pay cut to work from home. While the new technologies are allowing businesses to distribute work across the globe, they require shifts in the way enterprises train workers, cultivate culture, and build institutional knowledge and intellectual property.
Today, many enterprises are finding that more dispersed workforces make effective collaboration more difficult and agility more challenging. As the unit of work shifts to task-based projects that use new agile team structures, the combination of alternative employment arrangements and distributed workers means enterprises need to reconsider how they engage employees, build teams, and support career development and training. Enterprises will need to take advantage of collaboration tools like Microsoft Teams or Slack to address these shifts. They will need to use learning platforms like LinkedIn Learning or Coursera to address employees’ needs for career development and mentorship. In addition, they will need to discover news ways to build community and engagement within a dispersed workforce.