The other morning I woke up, bought a coffee at a fancy coffee shop, hopped in an Uber and went to a SoulCycle class.
I started thinking about how in just a few moments, I had bought services from people representing three very different and rapidly changing models of employment—the coffee shop’s hourly scheduled employee, a contract Uber driver and a fitness instructor with a personal following who is paid for her time, but gets a big bonus for filling classes.
The growing number of employment options created by the on-demand movement is genuinely very good for workers, giving them new options to make good money with more flexible hours. But I think we overlook what it means for traditional employers. They are going to face greater competition for talent and the quality of their services will suffer if they don’t succeed.
Historically, employers have competed for talent on a few clearly defined axes. Their ability to attract employees has been a function of the nature of the work itself, the culture of the company, the brand, and pay. Some companies like Trader Joe’s focus on their brand and culture as the competitive edge to attract the staff they need. Others like Starbucks have a competitive edge because the work environment is more desirable than most service-industry alternatives. In some cases, if the work environment is naturally tough, say if running an oil rig, employers offer great pay and alternative benefits, like time off.
In this model, companies with great brands, high margins, and desirable work can rely on access to more able people who provide better customer service. Companies that don’t have those properties will have to build technology, workflows and services that help less desirable workers deliver the best service possible.
The “1099 movement,” named for the tax form and representing the shift towards on-demand independent contract work, is going to change these employment dynamics for a lot of companies. I think many will struggle to adjust what they offer to this new reality.
It will tighten competition for talent in general. For example, it isn’t just that taxi-cab drivers switch to being Lyft or Uber drivers, or that delivery people are switching to become Postmates. I would argue that driving or delivery just became an appealing practical option for a large percentage of hourly service workers that are currently employed in broad industries like foodservice and retail.
That will affect even those companies like Starbucks that have an edge right now. So, if Uber and Lyft aren’t putting pressure on Starbuck’s talent pipeline, they will be soon. And the company and others must rapidly figure out how to get more competitive or evolve their products to meet different talent pools.
This might even already be showing up in the numbers. Traditional labor force participation among Americans is currently at a 36-year low, which makes the technical ‘unemployment’ rate appear lower than it would otherwise be. While there are many factors at play, an accelerating portion of the trend is driven by these new work formats which aren’t counted as traditional employment, based on the definition of work used by the government.
What is happening now is similar to the upward pressure exerted on wages and benefits when the economy is hot and unemployment is low in general. But it is different because it isn’t necessarily about pay; it is about the format of work. So, Starbucks and others can’t just compete by increasing wages dollar-for-dollar. Lyft and others offer something they can’t: the ability to determine when you want to work, and it is unclear how people will value that benefit and trade it off against higher pay.
I think this dynamic of new work will play out even more dramatically in specific verticals. Take chefs as one example. Kitchensurfing and Kitchit, which help people hire chefs to cook meals at home, allows chefs to build their own micro brands while better controlling notoriously terrible hours of the restaurant business.
To be clear, these services aren’t just about famous celebrity chefs. They are very much accessible to the types of cooks you find in your average decent restaurant.
This will put incredible pressure on traditional restaurants that need – and would otherwise have – access to the labor of those chefs, and those restaurants are going to have to respond by improving their benefits and possibly getting clever about other perks.
Perhaps that means much better co-branding with the kitchen staff to let them build personal brands rather than standing behind the restaurant’s. Perhaps that means better hours or more pay. But over time, the restaurants may also have to change the nature of their services and be open fewer hours a day. Or maybe they will serve fewer, less complex dishes and bank on continued access to lower skilled workers that can’t cut it in the new model.
I have to imagine that a similar dynamic will also play out with hairstylists, massage therapists, personal trainers, and basically any service professional who once needed infrastructure to connect them to steady demand, but can now source customers through apps. These physical businesses will still exist, but they are going to have a much harder time getting talent.
The chef example is actually quite similar in my mind to how SoulCycle works now. While SoulCycle isn’t a home service, the individual instructors use the common studio and effectively operate mini-brands for themselves doing something they are uniquely good at. The great ones build up followings, fill classes and have, my sense is, a fair amount of leverage with the organization. Perhaps this is a model for how restaurants will respond.
My model of course banks on the fact that a broad enough pool of on-demand workers can in fact make good enough money over time. That seems a safe bet given anecdotal evidence and data from the companies, but it is early days and there are some new dynamics to which workers are going to need to adjust.
Uber drivers have to be prepared to adjust for the fact that Uber is growing quickly, and the company can change pay rapidly. (Indeed, Uber drivers often complain about this.)
The companies themselves are likely to face more legal pressure to curb use of contract workers too, which could affect the equation.
But I do believe that contract work will become more viable for more people. And as these trends play out, there will be consequences for consumers.
In the above example about cooking I think it is possible that the service and food at your average restaurant falls, and many restaurants are going to go out of business. For the restaurants that continue to exist you can expect prices to rise as the cost of getting someone great to work long hours in a kitchen rises and the owners pass the cost through.
These sort of labor shifts have happened before. The rise of industrial work as higher paying and more flexible than domestic labor hollowed out the market for butlers and home cooks a few generations ago. Maybe in a few years we will look back and see that the world will have effectively turned over again and what is currently traditional employment will be the hollowed out part of the economy.