Tuesday, 18 June 2013

Online job markets: another game changer

Looking at the supply side of the job market, several online exchanges have emerged attempting to link the demand and supply of workers more successfully across the globe. In particular, online job markets are an increasingly popular way to fight domestic monopolies (or overpriced services) by introducing global competition in the local market. The pool of offered jobs varies from web programming, mobile apps, translation, project management, design, media, to more than 35 different types of jobs. The most important implication is that one does not need to pay the local rate for the service, rather one can simply find the needed workers online and hire them at a much lower rate. The Economist has the story: 
"...According to his Elance page, “oswaldo g”, from Colombia, has already completed 31 jobs, earning a combined $4,193 and a satisfaction rating of 4.9 (out of 5). He quoted a tempting $16.44 an hour—though not as tempting as the five bids on oDesk (three of them by five-star-rated workers), from Argentina, Brazil, Indonesia, Mexico and the Philippines. Each of them offered a flat rate for the completed job, ranging from $33.33 down to just $22.22. 
Such whopping price differences help explain why these and other work marketplaces have been growing fast. Last year the value of this sort of online work topped $1 billion for the first time; it will double to $2 billion in 2014, and reach $5 billion by 2018 ... ODesk was the matchmaker for 35m hours of work in 2012 (over 50% more than in 2011), divided between 1.5m tasks, at a total cost to the employers of $360m. The value of work on Elance rose by 40% in 2012 to exceed $200m for the first time. ...

"... Depending on the definition, between one-fifth and one-third of American workers are now freelancers, contractors or temps, up from 6% in 1989, according to Accenture, a consultancy. Yet the $1 billion of work done through talent exchanges in 2012 is only one-third of one percent of the estimated $300 billion spent worldwide on these “contingent workers”, which suggests that talent exchanges are still barely scratching the surface. However, those they enroll seem to enjoy the experience, which is why the numbers signing up are growing fast."
The supply of such jobs is, of course, limited in its applicability. Not all jobs can be done online, across continents or countries. This is reserved for highly specific jobs (administrative, creative or technology-based). However, even jobs like household repairs can be found this way. There are websites out there specialized for hiring people to make deliveries, assemble furniture or even pick up groceries, but this is hardly a new idea. It is as old as outsourcing. As is the fact that online search for workers can prove to be very helpful for start-ups. So why is it interesting? Simple, it's a cost-effective way to introduce competition to local markets, thus propping up both domestic demand and company revenues, while at the same time being exposed to a global pool of talents (hence the term "talent exchange"). 

But the most important implication is the reputation capital among the employees. They can use the experience they gained doing such work to get a "real", desk job, which could become a potentially useful mechanism for youth during a business cycle downturn. Like on eBay or Amazon, you seek to buy stuff from people with high positive feedback, in order to ensure that you get what you ordered. The same reasoning is applied here; those who have ensured high reputation will find it more likely to get new jobs (both on and offline). In a more developed pattern of this market, one can also debate the issue of market entry. How do new entries ever get jobs (since they have no prior jobs done on the platform)? Uploading your CV is one possible solution. If you misrepresent yourself it will soon be discovered. It's all about feedback. 

Reoccurring consequences

One thing people will worry about is whether this will further the trend of lower wages in rich countries and shift more work towards poor ones? Yes, it most certainly will. Is this necessary a bad thing? No, not necessarily. 

Including for disruptive technologies and the pre-crisis trend of moving jobs abroad, it is true that such attempts will only accelerate the transition of jobs between countries and between skills. Claims have been rampant that the West is advancing too fast for its citizens. Not many are willing to accept the fact that a few decades from now many old, common jobs will be lost forever. But isn't this a predictable, reoccurring scenario? Many jobs in the past such as a typesetter repairmen, telephone operator, or shoeshiner don't exist any more. Video stores are also on the verge of existence. Cinemas however are still holding on, but they too have realized that in order to attract people to go see a movie, they need to offer a different service including the quality of experience. If not, one can always go to Netflix or a similar provider and watch the movie at home. With the rise of internet the demand (and supply) for many products and services has changed, particularly if this can be done in the comfort of your own home, and more importantly, for a much cheaper price. 

If a stainless, self-cleaning shirt ever gets invented, the dry cleaning business will cease to exist. So will the washing machine manufacturers. Does this mean we should strive to protect these jobs? Of course not. The alternative is cheaper and more convenient for us as consumers.

However, when a similar reasoning is applied to jobs in industry or manufacturing, then all of a sudden a many people think these jobs should be protected, since our economy can only grow if it has a strong industrial base. This is a typical misconception that a substantial majority of the people fall under. As I've already pointed out in a previous text, back before the First Industrial Revolution many though the same way of agriculture and simply couldn't see all the benefits of mass industrial production. They feared of being replaced by machines. And rightfully so, because they were replaced by machines (!). Which is why, on the other hand, they could specialize in new types of jobs and eventually (over the next 200 years) significantly increase their living standards. This is a generational shift I often emphasize and should always be examined from a broader picture. 

Today, industry and manufacturing (disputed 300 years ago) are the ones seeking protection and are the ones we apparently can't do without. But who is to say we won't have industry anymore? We most certainly will, but it will take a substantially lower amount of the workforce to do produce all the stuff that we need. Just like with agriculture today. It was transformed from a labour-intensive to a capital-intensive industry, as will happen to many others. The change in these specialization patterns, as well as the adaptation of new online markets to meet the new demand, will change the way our society works. That is, after all, the beauty of an Industrial Revolution.

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