The On-Demand Economy: Risks for Some, Rewards for Others?

Envisioning the future of work in a digital, service-oriented world

Apr 14, 2016 · 6 min read

By Paula Klein

Whose on-demand economy is it anyway? That seemed to be a sub-theme of the recent On-Demand Economy conference held by MIT’s Initiative on the Digital Economy. Not only did discussions focus on who will own and operate the actual platforms and technology infrastructure in today’s nascent markets, but who will use them, who will benefit and who will lose out?

Digital economy superstars, Uber and Airbnb extol the strength and viability of their platform-based models and mobile-app strategies, yet they’re also examining their meteoric rise and considering their next moves.

During a panel discussion, economist Jonathan Hall, of Uber, said the company epitomizes the on-demand economy, because riders don’t have to book in advance and drivers work at a moment’s notice. “They turn on the phone and can access customers and work.”

At the same time, if Uber drivers are attracted to flexible hours and self-reliance, they can just as easily work for Lyft or another on-demand platform service provider, Hall said. “Other companies will compete with Uber for workers. We have to keep innovating.”

More competition should yield more opportunities, lower prices and better service. But in the on-demand economy, traditional assumptions are being upended leaving academics and policymakers to sort out the payback from the pitfalls.

Not a Zero-sum Game

Peter Coles an economist at Airbnb, acknowledged the growing pains and complexity of sustaining success in a constantly changing and competitive marketplace. And the new models may not be a zero-sum game. For instance, Coles noted that the hotel industry remains robust in spite of Airbnb’s expansion. Other on-demand service providers, such as Thumbtack, see lower barriers to entry for small business owners as a result of the service’s accessibility and low-cost model — but the platform hasn’t really scaled up yet.

Larry Mishel, President of the Economic Policy Institute, reminded attendees of the infancy of the current market, noting that digital platforms like Uber “scratch an itch” but are still small, particularly from a jobs-creation perspective.

Uber employs only about half of 1% of the private-sector workforce,” Mishel said, and most drivers seek supplemental income, not basic wages. “That’s not the future of work,” but merely a “distraction, he added.

Mishel has said that Uber drivers should be considered employees, not independent contractors, since they are on-call for the company when they are working.

While “on-demand is quickly becoming table stakes for commerce-oriented businesses,” as one report noted, a few speakers said that the biggest winners seem to be in select groups: VCs funding billion-dollar “unicorns” — i.e. Uber, which is valued at more than $50 billion with hardly any physical assets; middle-class homeowners who can rent out unused bedrooms on Airbnb, and transitional workers who can manage on part-time wages with no benefits.

A History of Temporary Workers

Mishel, as well as Lee Dyer, Chair of the Department of Human Resource Studies at the ILR School, Cornell University, pointed out that temporary workers are not new to the labor force and that most wages have been stagnant for 12 years.

“We haven’t had lots of choices in the job market, “Mishel said. “That’s why they want the supplemental work. Opportunities are great, but why is it that so many people need this extra work? Let’s study that, too.”

Dyer noted that 80% of businesses use workers who are not full-time. “That means lots of important work is done by outside firms and employees.” His work focuses on the organizational impact and the need for better metrics to manage the workforce more strategically. “Most businesses don’t know how much it’s costing them to get the work done,” he said, and that can hurt agility, costs and revenue.

Taking a big-picture view, U.S. Sen. Mark Warner (D-VA) wants to look at the future of work and “re-imagine the social contracts of the 20th Century for the 21st Century.” Like him, many attendees were interested in examining — and offering solutions for — some of the most vexing macro-economic issues we face: global demographic shifts, unemployment, automation and productivity.

Sen. Mark Warner speaking at the MIT IDE conference.

In his keynote address, Warner, spoke cogently about the current transformation of the workforce saying it needs “urgent” attention, including discussion, ideas, local and state partnerships with business, and “real-time efforts of social change and policy.” With the U.S. Congress in a tailspin, Warner is hoping The Aspen Institute’s Future of Work Initiative, a group he co-chairs, will lead the way. The group bills itself as a “nonpartisan effort to identify concrete ways to strengthen the social contract in the midst of sweeping changes in today’s workplace and workforce.”

Warner noted that “21st-century innovation is transforming the American workplace far faster than a 20th-century government and 1930s social contract can keep pace.”

In addition to the on-demand economy, the Initiative focuses on “Capitalism 2.0”: How best to inspire a 21st-Century capitalism for a 21st-Century workforce by rewarding employers for reducing inequality, helping workers get ahead, and facilitating access to benefits and protections to secure workers’ futures.” These goals align closely to those of the MIT Inclusive Innovation Competition, which held a showcase at the conference.

Global Labor Tipping Point?

From a global perspective, Jonas Prising, ManpowerGroup Chairman and CEO, sees structural changes since the last recession that have permanently altered talent acquisition and the supply and demand of workers. Minimum wage is a global discussion, and job mobility is a challenge for many. Individuals change jobs more often, populations are aging and technology has increased productivity and lowered prices, he told attendees. This “confluence of factors, along with pervasiveness and speed,” represent a tipping point in today’s labor market that’s different than the past.

Specifically, Prising sees a huge shift to “employment security, not job security,” even though most economies are still tied to old models of job security. Protecting jobs at all costs will lead to greater losses and unemployment, he said.

It’s an exciting time for innovation and growth, Prising said on a panel led by MIT IDE co-director, Andy McAfee, but there is also more workforce polarization and unemployment. Outside of the U.S., attempts to equalize the labor market are more common: France offers paid job training, and countries such as Denmark and Finland encourage nontraditional co-employment options as well as salaries during job transition periods.

From left, Jonas Prising, Lee Dyer and panel moderator, MIT IDE co-director, Andy McAfee

Overall, the next several years may be a difficult transition period to new economic models. Dyer said that even full-time jobs are temporary these days. Two- to three-year “tours of duty” are common, but those arrangements are only positive if everyone agrees to them and an infrastructure is in place to offer compensation and benefits. Prising summed up the labor situation by saying: “Off the table now is the promise that you come and work for 40 years and we’ll take care of you. On the table is the notion that we’ll give provide new skills and opportunities;” at least for a while.


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MIT Initiative on the Digital Economy

The IDE explores how people and businesses work, interact, and prosper in an era of profound digital transformation. We are leading the discussion on the digital economy.

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